Watchdog Finds No Wrongdoing in Kodak Deal

Watchdog Finds No Wrongdoing in Kodak Deal

Sen. Elizabeth Warren had called for an investigation into the now-halted $765 million loan for the one-time photo giant to produce drug ingredients in the Covid-19 fight

A government watchdog agency found no wrongdoing in the process that created a now-halted U.S. loan to Eastman Kodak Co. to produce drug ingredients for the Covid-19 response, according to a copy of the assessment reviewed by The Wall Street Journal.

The inspector general of the agency that brokered the deal, the U.S. International Development Finance Corp., provided his assessment last week to Sen. Elizabeth Warren (D., Mass.), who had called for the investigation after the one-time photo giant landed a potential $765 million government loan in July.

In his response, the DFC’s inspector general, Anthony Zakel, said he found no evidence that employees of the agency had any conflicts of interest in the plans, nor did he find “any evidence of misconduct on the part of DFC officials.”

The review follows a high-profile period for the DFC, which President Trump empowered to support the Covid-19 response under the Defense Production Act.

Revamped during the Trump administration, the agency usually focuses on funding projects in the developing world and is run by Adam Boehler, a health-care professional who was formerly a roommate of the president’s son-in-law, Jared Kushner.

The Kodak plan came together quickly — in “Trump time,” as White House adviser Peter Navarro, who spearheaded the deal, has said.

Under the plan, Kodak would produce ingredients for some generic drugs, including the antimalarial drug hydroxychloroquine, which Mr. Trump has promoted as a treatment for the coronavirus. Researchers have said the drug has no benefit as an early outpatient treatment.

But the loan plan quickly unraveled. The Securities and Exchange Commission began an investigation into how Kodak disclosed the loan. Democrat-led congressional committees announced probes and the DFC put the loan on indefinite hold.

Under government pressure, Kodak had rushed out the announcement before the loan was finalized, the Journal earlier reported. The company bungled its release to local media, sending Kodak’s stock on a roller coaster. Senior administration officials have denied the DFC pressured Kodak to announce the deal.

In his assessment, the DFC inspector general said his office is planning future audits of the agency’s projects under the Defense Production Act, including how the agency announces “market-sensitive” transactions involving publicly traded companies.

When the plan was announced, Kodak still had many steps to complete in its loan process with the DFC, including whether the plan met the agency’s minimum-eligibility requirements, the inspector general said in his review.

He found it reasonable for the DFC to consider Kodak for the loan, noting other companies’ recent pivots to Covid-19 supply-chain manufacturing and Kodak’s experience providing materials to the pharmaceutical industry.

“The record is abundantly clear and the independent IG review confirms that DFC followed its standard process, under its standard timeline, driven by career finance professionals,” a DFC spokesman said.

A representative for Kodak declined to comment.

An aide for Sen. Warren said the inspector general’s assessment didn’t review whether there were contacts between the White House and other political appointees about the deal.

The aide said the review also didn’t determine whether the DFC’s process was adequate to prevent waste or abuse of taxpayer funds.

“We focused our review on issues within DFC [office of the inspector general’s] purview and authority,” Mr. Zakel said. “We did not review conduct by Kodak or non-DFC personnel.“

Kodak conducted its own investigation. That review found the company didn’t break any laws in connection with the disclosure of the loan.

Kodak’s review did find several governance issues at play, however. One issue was a gift of Kodak stock made by Kodak board member George Karfunkel on the same day the stock’s price peaked, after the government’s announcement.

Mr. Karfunkel donated the stock, worth $116 million, to a religious charity he started.

Kodak has admitted to other issues since then.

Last month, the company said five former executives were able to collect millions of dollars by selling stock options they didn’t own due to weak internal controls that failed to prevent unauthorized issuance of the company’s stock.

Kodak has said it would try to recover about $3.9 million from the ex-employees for the fair value of the shares at the time of the sale and about $3 million from the withholding of taxes on behalf of the ex-employees.

At a Journal conference in October, Kodak’s Chief Executive Jim Continenza defended his company’s handling of the loan plans and said that Kodak would move ahead in making drug ingredients regardless of whether it receives government assistance.

Meanwhile, the DFC has announced a new loan in its coronavirus response.

Last month, the agency said it approved a $590 million loan to ApiJect Systems Corp. to produce prefilled injectors for vaccines.

The Food and Drug Administration hasn’t approved the devices for distribution though the company has been in discussions with the FDA, according to an ApiJect spokesman.

The FDA didn’t respond to a request for comment.

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