Ex-Phlow exec, cousin arrested in Kodak insider trading scheme
A former pharmaceutical company executive and his cousin were arrested Thursday morning for an insider trading scheme based on a Covid-related contract.
A DOJ announcement detailed the charges today, accusing the pair of “multiple counts of securities fraud and conspiracy to commit both wire fraud and securities fraud in connection with a scheme to commit insider trading,” according to the US Attorney’s Office for New York’s Southern District. The pair had allegedly made more than $1.2 million in profit from trading Kodak shares with knowledge of a federal contract.
According to the indictment filed in federal court Thursday, Andrew Stiles used his position as VP of government initiatives and contract compliance at Phlow to gain access to nonpublic information about the government funding Eastman Kodak — the photography giant — to produce APIs and “key starting materials” to produce drugs in shortage as a result of the Covid-19 pandemic.
Kodak in 2020 received a $765 million federal loan under the Defense Production Act. Kodak chief Jim Continenza has also been accused of breaking New York security laws after allegedly buying tens of thousands of shares in anticipation of landing this government loan from former President Donald Trump’s administration.
“While the funding was being negotiated, but before the government’s interest in funding Kodak had been publicly announced, based on material, nonpublic information that Andrew Stiles had obtained by virtue of his employment at Phlow, Andrew Stiles purchased Kodak stock in breach of a duty of trust and confidence he owed to Phlow,” the indictment read — saying that Stiles made around $553,000 in profit selling the shares after the funding was announced.
Andrew also tipped off his cousin, Gray Stiles, to trade Kodak stock before the public announcement. Gray made around $990,000 in profit after selling his stocks.
Trump administration officials had signed a letter of interest for a $765 million loan to Kodak in a bid to jumpstart domestic pharmaceutical manufacturing. However, the deal was halted in August by the US International Development Finance Corporation, saying in a tweet, “Recent allegations of wrongdoing raise serious concerns. We will not proceed any further unless these allegations are cleared.”
The insider trading did not just involve Kodak. Andrew Stiles was working for accounting and consulting firm BDO USA before “and for a brief period, concurrently with, his employment at Phlow,” according to the indictment, which had a consulting agreement in place with Novavax. The indictment continued that Stiles “assisted Novavax’s efforts to procure over $300 million in funding to support its efforts to develop a coronavirus vaccine.”
According to the indictment, Stiles bought Novavax stock and sold it after its funding announcement — making another $45,000.
The DOJ also detailed texts between the pair during June and July 2020, when Andrew Stiles passed information about Kodak to Gray Stiles. One text exchange from July 9, when Kodak applied for a $655 million loan, went as follows:
GRAY: Any update on the film we sent off a few weeks ago to get developed
ANDREW: 600+. Maybe 2 weeks out
GRAY: I can live with that hahaha
Between June and July 27, 2020, when Trump officials first publicized the letter of intent with Kodak, Andrew Stiles bought 90,000 shares of Kodak stock, even up to the day before the LOI “was scheduled to be announced,” according to the DOJ. Gray Stiles purchased more than 30,000 shares — the majority of which were purchased the day before the scheduled announcement.
On July 27, 2020, Andrew texted Gray “Tmw,” which the DOJ said was indicating the expected date of the announcement.
Gray’s response? “Hot damn.”
The pair then bought another 10,000 shares of Kodak stock each — after the text exchange and before the announcement.