Hydroxychloroquine, Trump’s favorite miracle elixir, is not only the secret cure for Covid-19, we learned this week that it can also resurrect the dead.
Kodak retained little presence in the public imagination other than as the sad answer to a barroom trivia question. That all changed Tuesday when the Trump Administration dropped more than $700m on the undead company, an investment meant to help Kodak produce chemical components for hydroxychloroquine. That loan was roughly 7x Kodak’s total market cap at the time. Overnight the moribund stock shot up roughly 1300%.
Typical of Trump scams, it’s hard to know where to even begin unwinding the threads. Every detail of this deal reeks.
First, a bit of background. Kodak collapsed when smartphones destroyed its core photography and imaging business. It emerged from its 2013 bankruptcy a staggering zombie, feeding off its remaining patents and a handful of ongoing operations. Kodak was, and still is, little more than a brand, a former multi-billion-dollar giant drifting toward oblivion with a market capitalization reaching as low as $70 million at one point this year.
The malaria drug, Hydroxychloroquine, emerged this spring as Trump’s favorite magic cure for Covid-19, for reasons that remain baffling. It was among dozens of drugs tried early in the pandemic as doctors scrambled to find an effective treatment. After a tiny, flawed early French study suggested it might offer some relief, later studies failed to find any use for hydroxychloroquine and doctors moved on to use more effective drugs like remdesivir. Use of hydroxychloroquine for Covid-19 has been banned across the civilized world, including the US, due to its ineffectiveness and serious side-effects. Despite the drug’s failure, Trump kept flogging that donkey, turning hydroxychloroquine into the right-wing fever swamp’s secret, suppressed cure for the pandemic.
In an average year, about 5 million doses of hydroxychloroquine are prescribed globally for autoimmune disorders like lupus and to fight malaria. At Trump’s insistence, the federal government has already built up a stockpile of 63 million doses, which will come in handy if we face a massive malaria pandemic, but will otherwise go to waste. While Trump hoards a drug we don’t need, hospitals are struggling to obtain enough remdesivir to treat Covid-19 patients.
Trump signed the executive order that made the Kodak deal possible on May 14. The deal was announced on July 28. In a CNBC interview on July 29, Kodak CEO Jim Continenza explained that he’d been working on the deal for months.
Normal trading volume for Kodak is very low. An average trading day this summer for Kodak varies between about 70k and 150k shares, with a steadily declining stock price. Share volume in Kodak surged roughly 6x on July 27th, the last trading day before the announcement.
Everyone who traded that stock in the days before the announcement is a potential suspect in an SEC investigation. Several of those suspects are on the company’s board of directors. One is the CEO.
On July 23rd, Kodak CEO Jim Continenza bought 46,000 shares at $2.20/share, bringing his total ownership to 650,000 shares. On July 27th, the day before the big announcement, Continenza was granted another 1.7m options to purchase Kodak stock at prices as low as $3.03.
Why would Continenza risk a prosecution with such blatant insider trading? For starters, securities prosecutions under the Trump Administration have become a running joke. Having declined since the early Bush II era, they have practically disappeared under Trump, dropping more than 70% from already-low levels. It’s open season for corporate fraud.
And the potential windfalls are well-worth the risk. In the days following the announcement, Kodak’s stock traded as high as $46, more than 2000% of the value when Continenza made his purchase the previous week. It has leveled off for the moment, around $20. Continenza’s stake had been worth barely over a million. With miniscule trading volume, it would have been hard to sell that off without crashing the stock. Now those holdings are worth about $13 million, with lots of new buyers. Combined with nearly 4 million shares he holds in previously worthless stock options, he stands to take home north of $200 million. You can bet that board members will be dumping stock as quickly as possible since they know this bonanza can’t last.
Out in the real world, Kodak will deliver its first dose of hydroxychloroquine the day after Foxconn builds its first TV at their bogus Wisconsin factory, or that Russian aluminum mill in McConnell’s backyard hires an actual worker. In a few months this scam will be forgotten like the others. The grifters will walk away with their money. Kodak, which had been drifting among the flotsam in the blackish backwaters of junk capital will slowly sink toward its final resting place, completing its life cycle as the Trump Steaks of the pharmaceutical business.
But, there’s more.
Why did this even happen? There is only a very small market for hydroxychloroquine. It’s illegal to use it as a Covid-19 treatment because it doesn’t work. Kodak is not a pharma company. It possesses no capabilities in this arena. If we needed the drug, there are hundreds of companies more competent to produce it. So why did anyone imagine this absurd deal? And how did Kodak’s small group of stockholders land this boondoggle?
Kodak sports a pair of Blackstone figures on its board of directors, an asset which may have granted helpful access to the dark core of Trump’s Griftopia, but there’s another figure who should perhaps be the focus of an investigation. A recent Kodak board member, Matt Doheny, is now chairman of the board of another company that received a nearly identical windfall. He might be the key to understanding how Kodak pulled off this scam.
Matt Doheny has run for the Republican nomination for Congress in Upstate New York’s 21st District multiple times. He was a member of Kodak’s board of directors from 2013-19, and as of his last public filing in 2019 he still owned over 52,000 shares in the company. He still shows up in some sources as a director for Kodak India.
Doheny has also served on the boards of other struggling companies like Affinity Gaming and Elk Petroleum. But it’s his work for a dying trucking company, YRC Worldwide, that draws comparisons to the Kodak deal. Doheny is a long-time board member at YRC, promoted to Chairman late last year.
Like Kodak, YRC is a dying former behemoth. During boom times for the trucking industry in 2018, YRC’s profits declined by a quarter and its market capitalization steadily shrunk. At times last year YRC was worth only $70 million. After the crash this year it dropped as low as $50 million. Then a rescue arrived.
On July 1, just four weeks before Kodak’s rescue was announced, it was revealed that the Treasury Department had lent YRC $700 million, roughly ten times its market value, and bought a 30% stake in the company. For justification Treasury mumbled something incoherent about YRC’s critical military value. Apparently, their trucks sometimes carry loads for the military, a role which had never been critical to national security during YRC’s previous brush with bankruptcy or its other financial struggles. What was going on here and how might it relate to Kodak? As Chairman at YRC, Doheny would almost certainly involved in the bailout planning for some months and he may have found a way to prop up his possible Kodak shares in the package.
Doheny hadn’t made a single reported federal campaign contribution since 2012. Then he suddenly made the maximum family contribution to the Trump campaign on March 10, 2020. The same day he contributed the maximum to WinRed, the Republican donor platform partly owned by Jared Kushner’s brother. On April 14, the administration announced the formation of its Great American Industry Groups aimed at shaping the country’s post-pandemic economic plans. Included in the groups were industry powerhouses like Raytheon, Apple, 3M, Amazon, and of course a little dying trucking company called YRC Worldwide.
YRC’s share volume quadrupled on June 26, the Friday before the July 1 announcement of the government gift, when the stock closed at $1.61. Volumes bubbled along at about double normal levels on Monday and Tuesday, closing at $1.74 and $1.85. Stock values soared with announcement of the deal on Wednesday July 1, rising to 3.23, delivering 100% returns to the lucky folks who managed to guess on the 26th that something big was coming the following week. The deal engineered by Doheny’s YRC Worldwide was a Kodak copy of the deal that followed four weeks later.
Don’t imagine for a minute that a five-digit campaign contribution would be enough to secure millions in corporate welfare or access to a valuable White House planning group. Those contributions, outsized, unprecedented, and entirely out of character with all of Doheny’s past donor activity are likely the visible tip of lobbying iceberg, a demand made to seal a degree of loyalty as part of a wider negotiation.
Was Doheny able to leverage his access to the YRC bailout process to promote a nearly identical bailout for another of his holdings? This would be an interesting angle of inquiry. Is Doheny still holding Kodak stock and did he engage in any transactions this spring? Doheny left the board of Kodak in May 2019. Section 16 of the Exchange Act requires him to report transactions in the company’s stock for six months after leaving, so we can’t know for sure what he did with Kodak this spring.
What other trades have insiders in companies included in the Great American Industry Groups made in companies impacted by related bailouts? How many Continenzas and Dohenys are out there, flying under the radar?
One might argue that the connections between Doheny, the Trump Administration, and Kodak are attenuated and unlikely. That is true. However, when you’re living in a Coen Brothers movie where none of the players’ stated motivations make sense, the only truth will be absurd.
Why did YRC and Kodak receive massive, utterly pointless federal windfalls enriching no one but their small collection of stockholders on the way to those companies’ still-inevitable oblivion? The only explanations that make sense are random chance or fraud. Between random chance and fraud, which best holds up to the blade of Occam’s Razor?
Back in April, the President touted hydroxychloroquine as a “miracle” cure for Covid-19. With Kodak, we now have proof that the drug can deliver a brief reprieve from a terminal condition, earning the President a few more wealthy friends along the way. How much sepsis it spreads in the wider body politic remains to be determined.