Kodak admits an internal error allowed former executives to make more than $5 million selling stock options they never owned

• Former Eastman Kodak executives sold about $5.1 million in stock options they didn't own due to faulty company controls, the company said.
• Five former employees exercised roughly 300,000 in stock options that they only received through "inadequate" controls and "unauthorized issuance," chief financial officer David Bullwinkle said in a Tuesday earnings call.
• Kodak will try to recover about $3.9 million from the former executives for the fair value of the shares at the time of their sale. Another $3 million may be recuperated from the withholding of taxes on behalf of the five former employees.
• In July, a federal loan deal helped Kodak's stock price soar 2,100%, but federal investigations have brought the name back to earth.
• Visit the Business Insider homepage for more stories.

Eastman Kodak revealed on Wednesday that a series of internal errors allowed five former executives to sell roughly $5.1 million worth of stock options in July, the same month a highly scrutinized federal loan announcement sent the company's stock price soaring more than 2,100%.

The company learned of "deficiencies" in the controls used to protect its assets, David Bullwinkle, Kodak's chief financial officer, said in a Tuesday earnings call. The lack of proper controls allowed for the "unauthorized issuance" of common stock when previously forfeited stock options were exercised by the ex-executives in July, the CFO added.

Kodak's third-quarter regulatory filing shows the former executives exercising roughly 300,000 stock options. The company bore $5.1 million in compensation expenses in relation to the options.

Read more: Alex Umansky has been one of the world's best stock pickers for years, and his fund is making 6 times more than the competition in 2020. He told us the 4 pillars to his investing approach.

The control error didn't result in any misstatement of financial performance, Bullwinkle said. Kodak aims to have the issues solved by the end of the year.

The company will try to recover roughly $3.9 million from the former executives for the fair value of the shares at the time of their sale. Another $3 million may be recuperated from the withholding of taxes on behalf of the five ex-employees, according to Kodak.

The unusual stock issuance follows months of turbulence and regulatory scrutiny for the company. Kodak shares spiked as much as 2,100% higher in July after the Trump administration revealed it made a $765 million loan to the firm to produce drug ingredients. The Securities and Exchange Commission announced a probe into how the company disclosed the loan just days later amid allegations that insiders took advantage of the news and subsequent stock rally.

The stock fell back to Earth in August after the US International Development Finance Corp. put the government loan on hold, citing "serious concerns" around allegations of wrongdoing. Internal reviews have since found that CEO Jim Continenza's planned stock sales didn't violate insider trading rules. An outside firm determined in September that Kodak's disclosure of the loan was lawful.

Kodak traded at $6.73 as of 2:05 p.m. ET on Wednesday, well below the $60 peak it hit in July but still up 62% year-to-date.

Now read more markets coverage from Markets Insider and Business Insider:

Lyft's set to surge 33% on a ridership bounce-back and stronger path to profitability, Wedbush says

OPEC slashes 2020 and 2021 forecasts as surging coronavirus cases jeopardize oil-market demand

Buy these 13 stocks that offer stable and predictable growth without the excessive valuations of big tech, Credit Suisse says