SEC investigating KODAK for possible violation of FD Act

[not_a_CFA]

In a letter dated Tuesday, Warren asked the Securities and Exchange Commission to examine trading prior to Kodak’s July 28 announcement. On July 27, volume in the company’s shares surged and the stock rose about 20%. The stock had jumped more than 500% by the end of last week.

“This is just the latest example of unusual trading activity involving a major Trump administration decision,” Warren, a Massachusetts Democrat, wrote.

Bloomberg: Warren seeks SEC insider trading probe

The Securities and Exchange Commission is investigating the trading of Eastman Kodak stock after its price surged last week on news of a $765 million government loan, The Wall Street Journal reported on Tuesday.

The loan, meant to aid Kodak in producing drug ingredients, was announced last Tuesday, July 28. After the announcement, Kodak stock leaped as much as 350%. Shares soared even higher on Wednesday, at once point reaching a two-day gain of 2,190%.

But the stock gained as much as 26% the day before the announcement, raising questions about whether insiders traded on information about the government loan.

BI: The SEC is investigating KODAK

this is crazy. the stock went from barely over $2 to slightly above $33 in just 2 days.
As of now, Kodak is $14.40 / share.

Someone correct me if I’m wrong, but this unusual increase in Kodak’s share price seems to be a violation of the strong version of Efficient Market Hypothesis, since investors were able to profit from private information. This also seems to be in violation of CAPM, since one of the assumptions of CAPM is that investors have homogeneous expectations regarding the stock’s expected return. Investors who acquired private information had a different expectation compared to individual investors at large.

[rawraw]

Insider information contradicts efficient markets? That’s definitely not the case. This is efficient markers 101

[CEO10K-DAY]

Yeah, CAPM is my guiding light and north star for all my investment decisions. So is the YOLO model.

[Codtrawler87]

I think the OP meant the strong version. I think in the strong version, even insider information is incorporated in the price. But I don’t think anyone has ever even argued that we’re living in a strong EMH world.

[LBriscoe]

It’s gonna be pretty easy to find out who was trading before the news. The stock averaged daily trading volume of 70k and shot up to 1.6 million on the day prior to the news.