In a development that will come as a surprise to no one who has been reading the business news pages over the last few weeks, Eastman Kodak and certain of its executives have been hit with a securities class action lawsuit based on allegations surrounding the disclosure of a $765 loan to the company from a government agency for the company to develop pharmaceutical materials, including ingredients of COVID-19 drugs, as well as on allegations of insider trading relating to the loan disclosures. As discussed below, the lawsuit is the latest in a series of securities class action lawsuits that have been filed related to the coronavirus outbreak. The complaint in the Kodak lawsuit can be found here.


The Lawsuit

On August 13, 2020, a plaintiff shareholder filed a securities class action lawsuit in the District of New Jersey against Kodak, its CEO, and its CFO. The complaint purports to be filed on behalf of a class of investors who purchased shares of Kodak common stock from July 27, 2020 through August 7, 2020. The complaint alleges that the defendants “engaged in a fraudulent scheme to artificially inflate the Company’s stock price in violation of Sections 10(b) and 20(a) of the Exchange Act.”


The centerpiece of the complaint is the July 28, 2020 announcement of a “new manufacturing initiative” by an agency of the U.S. federal government, the U.S. International Development Finance Corporation, that the agency had agreed to loan Kodak $765 million, under the Defense Production Act, to produce pharmaceutical materials, including ingredients for COVID-19 drugs.


The complaint alleges that the day before the agency’s announcement, Kodak issued a statement to media outlets of an imminent public announcement involving the U.S. government and the response to COVID-19. The company later claimed this information had been released inadvertently. The complaint also alleges that the same day (that is, the day before the official announcement) Kodak granted its CEO 1.75 million stock options with a conversion price of between $3 and $12 per share. The complaint alleges that several other Kodak executives, including the CFO, also received stock options. At the time the Kodak executives received the stock option, Kodak’s share price was $2.62 per share, meaning the options were “out of the money.”


After $765 million loan was announced on July 28, the price of Kodak’s shares jumped from $2.62 per share to $7.94 per share. The share price continued to surge the next day, to close on July 29, 2020 at $33.20 per share.


In the following days, news of the stock option grants began to circulate, and the company’s share price slumped, closing at $14.94 per share on August 3, 2020.


On August 4, 2020, CQ Roll Call reported that Senator Elizabeth Warren had submitted a letter to the SEC requesting an investigation both of the loan deal and of trading in Kodak securities, including purchases of Kodak shares by the company’s CFO and by a board member in the days immediately prior to the announcement of the loan. The Senator’s letter also called for an investigation of the way Kodak handled what the letter called “what appears to be ‘nonintentional disclosure of material nonpublic information.’”


In addition, and also on August 4, 2020, Kodak Board member disclosed to the SEC a July 29, 2020 donation of 3 million shares of Kodak stock to a religious charity that the board member had founded and of which the board member was the President and CFO. The gift was made the day Kodak’s share price peaked, as a result of which the value of the gift was $116.3 million.


In the course of the next few days, news emerged that several Congressional committees were investigating both the loan and the trading in Kodak securities, and also that the SEC had launched an investigation. In the wake of the various news reports , on August 7, 2020, the federal agency that had agreed to the loan announced that “recent allegations of wrongdoing raise serious concerns” and therefore the agency “would not proceed any further unless these allegations are cleared.”



The facts and allegations surrounding the handling of the news about the loan and of the various moves the company and its senior officials took with respect to Kodak securities and stock options, at a minimum, represents a chronicle of bungles. Even if you posit, as the plaintiff does in the securities class action complaint, that the defendants were motivated by greed, they went about their supposed scheme with striking clumsiness.


The worst thing about this sequence of events from the perspective of the company and of its interests is that the loan, which really would have been a great thing for the company, has been cancelled. That clearly is significantly detrimental to the company’s interests. (Indeed, Alison Frankel asked in a post on her On the Case blog, here, whether the lawsuit should have been brought as a shareholder derivative lawsuit rather than a securities class action lawsuit.)


One question that has to be asked about this lawsuit is whether or not it qualifies as COVID-19 related. At a minimum, the case does represent yet another example of how, as time passes, it is becoming increasingly challenging to say with precision what makes a lawsuit COVID-19-related.


I recognize that reasonable minds might differ about whether or not this lawsuit is COVID-19-related. In my book, it is COVID-19 related. The press release announcing the loan emphasized that the loan was part of the “domestic response to COVID-19.” Indeed, as the Wall Street Journal noted in reporting on the dramatic movement of Kodak’s share price, the share price jump represents an example of retail investors piling into shares of companies that look as if they are positioned to profit from the pandemic.  The Journal called what happened to Kodak’s share price as the “most striking example of this trend.” Neither the loan nor the dramatic share price movement would have happened without COVID-19; in my view, that makes this a COVID-19-related lawsuit.


With the addition of the Kodak case, my tally of coronavirus-related securities class action lawsuits now stands at 19. Because of the continuing difficulty involved in deciding whether or not some cases are or are not COVID-19-related, my tally differs from other published tallies of the COVID-19 litigation.


For example, the tally of coronavirus cases on the Stanford Law School Securities Class Action Clearinghouse website stands at 14 (the website does not yet appear to have taken a stand on whether or not the Kodak lawsuit belongs in the tally). The Stanford website includes a list of the cases it considers to be COVID-19 related. In addition to the Kodak case itself, the four cases in my tally that the Stanford website has not included are the securities suits that have been filed against ZoomColony CapitalWells Fargo; and iAnthus Capital Holdings. Each of the company names in the preceding sentence are linked to the blog posts in which I explain my reasoning for including these cases in my tally. (In other words, if you want to know what cases are on my list, look at the list in the Stanford website, and then add the Kodak case and four other cases listed above).


One final note. A feature that the new Kodak lawsuit has in common with several of the other lawsuits on the list of coronavirus-related cases is that it has a relatively short class period. The class period specified in the complaint runs from July 27, 2020 to August 7, 2020, inclusive, a period that includes just ten business days. Granted a lot happened during those ten days, but still it is a short period. It may be that as the pandemic’s duration lengthens, we could start to see COVID-19-related lawsuits with longer class periods.