Eastman Kodak shares soared 1,500% in three days after initial reports of the loan © Bloomberg

Shares in Eastman Kodak fell 30 per cent on Monday after the US federal government said it would not move ahead with a heavily scrutinised $765m loan until allegations of potential wrongdoing were cleared.

The news sent shares in the company back to around $10 — well below the intraday peak of $60 they reached last month after the company said it was near a deal with the government to manufacture generic drug ingredients.

The US International Development Finance Corporation, known as the DFC, said on Friday that “recent allegations of wrongdoing raise serious concerns”, without specifying any allegations.

“We will not proceed any further unless these allegations are cleared,” the agency said. It added that it would continue working with other government agencies “to address critical shortfalls in America’s pharmaceutical supply chain”.

The $765m loan, the first under the Defense Production Act since the start of the coronavirus pandemic, drew scrutiny from members of Congress because shares of the company rose in advance of its announcement. Share purchases in June by Jim Continenza, executive chairman of Kodak, and Philippe Katz, a board member at the Rochester, New York-based company, also drew scrutiny.

Line chart of $ showing Kodak stock suffers sharp drop after recent rally

Democrats in Congress have requested documents from Kodak related to its deal with the DFC, as well as its decision to award stock options to Mr Continenza and three other executives on July 27, a day before news of the loan was made public.

Kodak said it “appreciates and supports the DFC’s decision to await clarification before moving forward with the process”.

The Wall Street Journal reported last week that the Securities and Exchange Commission had opened an investigation into Kodak and would look at the stock option grants to executives.

Kodak has said it will co-operate with any investigation and on August 7 said it had formed a special committee of its board to probe “recent activity by the company and related parties”. The company has hired the law firm Akin Gump to conduct the internal review.

Shares of Kodak gained nearly 1,500 per cent over three days in July, drawing in tens of thousands of retail investors and increasing the company’s market capitalisation from less than $100m to $1.5bn. After the latest decline on Monday, it was about $780m.

Three Democratic members of the House of Representatives, James Clyburn, Maxine Waters and Carolyn Maloney, wrote a letter to Mr Continenza last week demanding information about the loan and its disclosure.

“DFC’s decision to award this loan to Kodak despite your company’s lack of pharmaceutical experience and the windfall gained by you and other company executives as a result of this loan raise questions that must be thoroughly examined,” they wrote.

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