Samuel H. Rudman
Securities Fraud · Shareholder Remedies · SEC Experience · Class Leadership
Many CEOs and CFOs have told me that my law firm’s very existence serves as a deterrent against corporate fraud.
Three Cents a Share
In March 2005 the Toronto-Dominion Bank paid about $3.8 billion, roughly $42 a share, for fifty-one percent of Banknorth, and signed a stockholders' agreement promising that it would not propose or initiate a buyout of the remaining shares before March 1, 2007 unless a majority of the board's special committee invited it to. On November 20, 2006, it announced that it would take the rest of the company private at $32.33 a share. Shareholders sued in Delaware, and within months their lawyers had agreed to settle: the minority would get three cents a share more, about $3 million in all, a change in how the majority-of-the-minority vote was counted that excluded some 11,500 shares, and some added proxy disclosures. Samuel H. Rudman's clients had sued separately in Maine, and his firm objected. On July 19, 2007, Vice Chancellor Stephen P. Lamb refused to approve the deal. The record, he found, showed that Toronto-Dominion had begun its buyout discussions in December 2005 and carried them through early 2006, long before the special committee's invitation of November 18, 2006, and the plaintiffs had never pressed the contract claim that fact supported. "The plaintiffs unreasonably failed to press legitimate legal claims against the defendants before consenting to the settlement," he wrote, and "the class members appear to have received insufficient consideration in the form of a token cash increase in the merger price, a virtually meaningless change in the calculation of the vote, and several proxy disclosures for which the plaintiffs cannot even wholly claim credit."
Rudman's firm and its clients were put in charge of the case. With Evan Kaufman he took it through class-certification discovery, which ended on July 29, 2008 with the court's finding that his clients knew the case and had taken part in it, and through merits discovery on the transaction and its valuation toward trial. In February 2009 Toronto-Dominion agreed to pay $50 million, more than sixteen times the rejected figure, and the Court of Chancery's approval took effect on June 24, 2009.
Blackstone's initial public offering of June 2007 produced a case with the same shape: a first answer of no, then a different one. The complaint under Sections 11 and 15 of the Securities Act alleged that the offering documents had omitted adverse trends in particular private-equity and real-estate investments, and in 2009 the district court dismissed it, reasoning that none of those investments was material against $88 billion under management. In Litwin v. Blackstone Group, 634 F.3d 706, the Second Circuit reversed in 2011, holding that materiality turns on qualitative as well as quantitative factors and that a private-equity firm that sells shares to the public answers to the same disclosure standard as any other issuer. Trial was set for the middle of September 2013. On August 30, 2013, with Rudman leading the negotiations, Blackstone agreed to pay $85 million. "Our team's efforts enabled me to negotiate from a position of strength," he said.
Two Retirement Systems
Silverman v. Motorola, No. 07 C 4507, was filed in the Northern District of Illinois in 2007 and led by the Macomb County Employees' Retirement System and the City of St. Clair Shores Police and Fire Retirement System. The complaint alleged that Motorola had told the market it could deliver third-generation handsets while Freescale Semiconductor, its 3G chip supplier, could not produce working chips in commercial quantities, and that in the third quarter of 2006 it had entered undisclosed intellectual-property transactions with Freescale and Qualcomm that concealed the shortfall in violation of generally accepted accounting principles. There was no restatement and no SEC investigation to build on; the proof came from the disclosure chronology, the documents and witnesses, and the experts. Judge Amy J. St. Eve denied the defendants' second motion for summary judgment in its entirety on July 25, 2011, and in December 2011 Motorola agreed to pay $200 million, which the court approved in 2012. "The settlement represents an extraordinary recovery for investors in a case where there is no financial restatement or SEC investigation," Rudman said.
His other cases have ended the same way. Doral Financial had valued its interest-only strips with the actual ninety-day LIBOR rate instead of the forward curve, overstating income by roughly $921 million between 2000 and 2004 by the SEC's later count; the class action before Judge Richard Owen in the Southern District of New York, led by the West Virginia Investment Management Board, settled for $129 million with final approval on July 18, 2007, and a separate class action against First BanCorp, which the SEC charged with aiding Doral's accounting, settled for $74 million. The Chemical and Mining Company of Chile had channelled money to Chilean political campaigns from 2009 to 2014 and covered it with fictitious tax receipts; Judge Edgardo Ramos refused to send the case to Chile on March 28, 2017, and the Tyne and Wear Pension Fund's action settled for $62.5 million, approved on April 26, 2021. CVS Caremark had lost pharmacy-benefit contracts worth about $4.5 billion in annual revenue after its 2007 acquisition of Caremark and said nothing until November 5, 2009, when its shares fell 20.1 percent; the case in the District of Rhode Island for the Brockton, Norfolk County and Plymouth County retirement systems settled for $48 million in 2015. L-3 Communications had deferred cost overruns on a fixed-price contract in its Aerospace Systems segment; the case for the City of Pontiac General Employees' Retirement System and two other funds settled for $34.5 million, approved by Judge Valerie Caproni on August 16, 2017, who wrote that the lawyers had "litigated hard and long." Forest Laboratories paid $65 million, Snap $32.8 million and Deutsche Bank $18.5 million.
A Watershed Moment
In November 2017 Leslie Moonves, the chief executive of CBS, told an industry conference that the #MeToo movement was a "watershed moment" and that his company's culture did not tolerate harassment, at a time when, the complaint later alleged, his own conduct over decades said otherwise. The Construction Laborers Pension Trust for Southern California sued in the Southern District of New York for investors who bought CBS shares between November 2017 and July 2018, when the New Yorker's reporting sent the stock down and, within weeks, Moonves out of the company. In January 2020 Judge Caproni let the case go forward on that statement, and CBS settled for $14.75 million in 2022. Rudman has said that "this kind of litigation might have been all but impossible before #MeToo. #MeToo really changed things in a material way."
Rudman came to the plaintiffs' side from the other two. He began at a corporate firm defending public companies in securities class actions and white-collar matters, then joined the Enforcement Division of the Securities and Exchange Commission's New York Regional Office as a staff attorney investigating and prosecuting violations of the federal securities laws. He took his bachelor's degree in political science at Binghamton University in 1989 and his law degree at Brooklyn Law School in 1992, where he was a Dean's Merit Scholar and a member of the Moot Court Honor Society and of the Brooklyn Journal of International Law. He is a founding member of Robbins Geller Rudman & Dowd, sits on its management committee and runs its New York offices from Melville, and serves on the firm's SPAC task force. He is admitted in New York, before the Supreme Court of the United States and the First, Second, Fourth and Fifth Circuits, and he has written for the New York Law Journal on the Second Circuit's W.R. Huff decision and investment advisers, on confidential witnesses after Novak and on the fraud-on-the-market theory after Oscar, and taught at the Practising Law Institute's securities litigation and enforcement programs. On Long Island he opened the Rudman Family Food Pantry at the Mid-Island Y Jewish Community Center. Of the work he has said: "Many CEOs and CFOs have told me that my law firm's very existence serves as a deterrent against corporate fraud. If that's not validation of what we do, I don't know what is."
