This time, Judge Robert B. Kugler (D. N.J.) takes on shareholders’ claims that Commerce Bancorp executives violated the 1934 Act “by failing to disclose bid-rigging and other unlawful practices committed on behalf of Commerce Bank.” You see, the “the allegations arise out of the events surrounding the June 28, 2004, indictment of three Commerce Bank/Pennsylvania executives and directors for employing illegal practices to obtain lucrative business with the City of Philadelphia.” Yep, sounds like Philly alright. Anyway, Judge Kugler didn’t buy it, holding that “while omissions regarding criminal conduct are material, omissions relating to ‘the attendant risks’ or unsustainability of criminal conduct are not. Even if a corporation is engaging in illegal practices, predictions of future events such as criminal indictments are too speculative to be material.” As such, “the Court will not reach Defendants' arguments regarding scienter, reliance, or causation,” and this action “must be dismissed.”
As for the result of the indictments? All but one were convicted in May, and each were sentenced to a couple years in prison. The one who got off? Influential attorney Ronald A. White, a/k/a "Philadelphia's Son." But he died of pancreatic cancer waiting for the criminal trial. He was only 55.
You can read Galati v. Commerce Bancorp, issued November 7, 2005, at 2005 U.S. Dist. LEXIS 26851.
Nugget: “Illegal payments that are so small as to be relatively insignificant to the corporation's bottom line can still have vast economic implications, as they may endanger all of a corporation's business if they are discovered.”