Eastman Kodak Co executives did not mislead investors about the photography pioneer's deteriorating financial health in the year prior to its bankruptcy, a Manhattan federal judge ruled.
U.S. District Judge Harold Baer on Thursday dismissed a shareholder lawsuit against Chief Executive Antonio Perez and three former Kodak executives. The Rochester, New York-based company was not a defendant because it is in Chapter 11.
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Shareholders led by Bret Jones, who claimed to have lost $720,384 by investing in Kodak stock, accused the company of making false and misleading statements that suggested optimism it would become profitable, maintain sufficient liquidity, and sell a digital patent portfolio once thought to be worth as much as $3 billion.
The shareholders also said that in the four months leading up to Kodak's January 19, 2012 bankruptcy filing, the company misled investors about its intention to seek protection from creditors.
Baer concluded, however, that there was no showing that the executives intended to defraud anyone, and indeed they had used their "best efforts" to successfully transform the company.
The judge said there are "serious policy reasons" not to force nearly-insolvent companies to disclose their plans too soon. "No multi-billion dollar company would file for bankruptcy without first engaging in internal deliberations," he said.
Baer added that many of the alleged fraudulent statements, including Perez's expression of confidence on February 3, 2011 that Kodak would transform into a "sustainable, profitable company," were too general for reasonable investors to rely on.
Other defendants included former chief operating officer Philip Faraci; former chief financial officer Antoinette McCorvey; and Pradeep Jotwani, a former president of Kodak's consumer businesses.
The class period ran from January 26, 2011 to January 19, 2012, during which Kodak's share price fell to 30 cents from nearly $4. Kodak shares once traded above $94.
Aelish Baig, a partner at Robbins Geller Rudman & Dowd representing the investors, did not immediately respond to requests for comment.
Jonathan Dickey, a partner at Gibson, Dunn & Crutcher representing the defendants, did not immediately respond to similar requests.
Kodak filed for bankruptcy after failing to keep up as consumers and rivals shifted to digital photography from film photography.
The company has shuttered its digital camera business, set plans to stop selling inkjet printers, and been exploring options to sell the digital patents after failing to win acceptable bids in an August auction. Kodak has said it hopes to emerge from Chapter 11 next year.
The case, whose named plaintiff is not the lead plaintiff, is Hutchinson et al v. Perez et al, U.S. District Court, Southern District of New York, No. 12-01073.
(Reporting By Jonathan Stempel in New York; Editing by Nick Zieminski)