By Jonathan Stempel
NEW YORK (Reuters) -A former pharmaceutical executive and his cousin were charged on Thursday with insider trading in Eastman Kodak Co stock based on tips that the company was lining up a $765 million loan early in the COVID-19 pandemic to make pharmaceuticals.
According to papers filed in Manhattan federal court, Andrew Stiles had been a vice president at Phlow Corp, a medicine supply chain company working with Kodak, when he passed material nonpublic information about the loan to his cousin Gray Stiles.
The defendants then traded in Kodak stock, resulting in profits of more than $500,000 for Andrew Stiles and more than $700,000 for Gray Stiles, the indictment said.
Both defendants were charged by U.S. Attorney Damian Williams in Manhattan with three counts of securities fraud and one count of conspiracy.
The U.S. Securities and Exchange Commission filed related civil charges, estimating the combined illegal profits at $1.54 million. Kodak and Phlow were not charged.
Shares of Kodak last traded at $2.62 before the planned loan from the U.S. International Development Finance Corp, or DFC, was announced on July 28, 2020.
Its share price ballooned as high as $60 within two days, reflecting investors’ surprise as the Rochester, New York-based company, known for cameras and film, sought to remake itself.
Kodak has said the DFC advised last April that the loan would not be issued.
The indictment described coded text messages between the defendants about the loan, including where Gray Stiles referred to it as “film we sent off a few weeks ago to get developed.”
One day before the proposed loan was announced, Andrew Stiles texted his cousin “tmw,” prompting Gray Stiles to respond “hot damn,” the indictment said.
Andrew Stiles was arrested at his Charleston, South Carolina home, and Gray Stiles was arrested in Virginia. He lives in Richmond.
Ron Fischetti, a lawyer for Andrew Stiles, said his client’s arrest came “out of nowhere” following a year of communications with prosecutors.
“I look forward to vigorously defending my client against these overzealous charges,” Fischetti said.
A lawyer for Gray Stiles did not immediately respond to requests for comment.
(Reporting by Jonathan Stempel in New York; Editing by Bill Berkrot, Will Dunham and Diane Craft)