eTrade 2001 Annual Report Download - page 43

Cooper. The action alleges, among other things, that our advertising regarding our commission rates and ability to execute transactions
through our online brokerage service was false and deceptive. The action seeks injunctive relief, and unspecified compensatory
damages, punitive damages, and attorney’ s fees. On June 1, 1999, the Court entered an order denying plaintiffs’ motion for class
certification. On January 25, 2000, the Court ordered plaintiff to submit all claims seeking monetary relief to arbitration and stayed all
other claims pending the outcome of arbitration. In July 2001, Plaintiff filed an arbitration claim with the National Association of
Securities Dealers, Inc., and in October 2001, we submitted our answer. At this time, we are unable to predict the ultimate outcome of
these proceedings.
On March 1, 1999, a putative class action was filed in the Court of Common Pleas, Cuyahoga County, Ohio, by Truc Q. Hoang. The
action alleges, among other things, that plaintiff experienced problems accessing her account and placing orders and seeks injunctive
relief and unspecified damages for breach of contract, breach of fiduciary duty, unjust enrichment, fraud, unfair and deceptive trade
practices, negligence and intentional torts. On September 1, 1999, the Court of Common Pleas denied our motion to compel arbitration
and we appealed. On March 16, 2000, the Court of Appeals reversed and remanded this case to the Court of Common Pleas ruling that
our motion to compel arbitration could not be decided until the Court of Common Pleas first determined whether this case should be
certified as a class action. On September 29, 2000, Plaintiff filed her First Amended Complaint limiting the class of potential plaintiffs
to customers who are Ohio residents, and we filed an Answer denying Plaintiff’ s claims. Subsequently, the Court scheduled the hearing
of Plaintiff’ s Motion for Class Certification for April 23, 2002, and set this case for trial on November 12, 2002. At this time, we are
unable to predict the ultimate outcome of this proceeding.
On March 11, 1999, a putative class action was filed in the Superior Court of California, County of Santa Clara, by Elie Wurtman. The
action alleges, among other things, that Plaintiff experienced problems accessing his account and placing orders and seeks injunctive
relief and unspecified damages for negligence and violations of the Consumer Legal Remedies Act and California Unfair Business
Practices Act. After the Court of Appeal affirmed the Superior Court’ s previous ruling denying our Motion to Compel Arbitration, we
demurred to Plaintiff’ s Amended Complaint. Thereafter, Plaintiff filed his First Amended Complaint on or about March 21, 2001, and
we filed an Answer on April 3, 2001, denying Plaintiff’ s claims. At this time, we are unable to predict the ultimate outcome of this
proceeding.
In the ordinary course of our business, we engaged in certain stock loan transactions with MJK Clearing, Inc., referred to in this Form
10-K as MJK, involving the lending of Nasdaq-listed common stock of GenesisIntermedia, Inc. referred to in this Form 10-K as GENI
and other securities from MJK to us. Subsequently, we relent the GENI and/or other securities received from MJK to three other
broker dealers, Wedbush Morgan Securities, referred to in this Form 10-K as Wedbush, Nomura Securities, Inc., referred to in this
Form 10-K as Nomura, and Fiserv Securities, Inc., referred to in this Form 10-K as Fiserv. On September 25, 2001, Nasdaq halted
trading in the stock of GENI, which had last traded at a price of $5.90 before the halt. As a
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result, MJK was unable to meet its collateral requirements on the GENI and other securities with certain counterparties to those
transactions. MJK was ordered to cease operations by the SEC because they failed to meet regulatory capital requirements, and was
placed into SIPC liquidation in the District of Minnesota. These events have led to disputes among several of the participants in the
stock loan transactions involving the stock of GENI and other securities lent by MJK regarding which entities should bear the losses
resulting from MJK’ s insolvency. We are confident that E*TRADE Securities has sufficient capital in excess of regulatory
requirements to cover any potential exposure arising from these matters. Wedbush, Nomura, and Fiserv have commenced separate
legal actions against us. On or about October 1, 2001, Wedbush filed an action in the Superior Court of the State of California, Los
Angeles County, Case No. BC258931. On or about October 21, 2001, Nomura filed an action against us in the United States District
Court for the Southern District of New York, Case No. 01-CV-9270 (AGS). In addition, on or about October 4, 2001, Fiserv filed an
action against us in the United States District Court for the Eastern District of Pennsylvania, Case No. CTV-01-5045. These actions
seek various forms of equitable relief and seek repayment of a total of approximately $60.0 million dollars received by us in
connection with the GENI and other stock loan transactions. We take the position that the plaintiffs must look to MJK as the debtor for
repayment, and that we have defenses in each of these actions and will vigorously defend ourselves in all matters. To date, we have
successfully defeated all actions for interim relief or have entered into consent orders essentially maintaining the status quo between
the parties until the matter can be judicially resolved. Because the litigation is in its early stages, we are unable to predict the ultimate
2002. EDGAR Online, Inc.