eTrade 2002 Annual Report Download - page 174

Table of Contents
Index to Financial Statements
Certain leases contain provisions for renewal options and rent escalations based on increases in certain costs incurred by the lessor. Rent
expense was $29.2 million for fiscal 2002 and $33.5 million for fiscal 2001, $10.3million for the three months ended December 31, 2000 and
$43.6 million for fiscal 2000.
In fiscal 2001, the Company restructured many of its existing facilities and has consolidated some sites allowing for additional space to be
available for sublease. These additional facilities are not included above. See Note 21 for information on these obligations.
27. COMMITMENTS, CONTINGENCIES AND OTHER REGULATORY MATTERS
Legal Matters
In the ordinary course of its business, E*TRADE Securities engaged in certain stock loan transactions with MJK Clearing, Inc., (“MJK”),
involving the lending of Nasdaq-listed common stock of GenesisIntermedia, Inc. (“GENI”), and other securities from MJK to E*TRADE
Securities. Subsequently, E*TRADE Securities redelivered the GENI and/or other securities received from MJK to three other broker-dealers,
Wedbush Morgan Securities, (“Wedbush”), Nomura Securities, Inc., (“Nomura”) and Fiserv Securities, Inc., (“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 result, MJK was unable to meet
its collateral requirements on the GENI and other securities with certain counterparties to those transactions. Subsequently, MJK was ordered to
cease operations by the SEC. These events have led to disputes between certain of the participants in the above described stock loan
transactions as set forth below. These actions seek various forms of equitable relief and seek repayment of a total of approximately $60 million,
plus interest, received by E*TRADE Securities in connection with the GENI and other stock loan transactions. E*TRADE Securities, as
successor broker-dealer to E*TRADE Securities, Incorporated, believes that the plaintiffs must look to MJK as the debtor for repayment, and
that E*TRADE Securities has defenses in each of these actions and will vigorously defend all matters:
• By a complaint dated October 1, 2001, a lawsuit was filed in the Superior Court for the State of California, County of Los Angeles
entitled, “Wedbush Morgan Securities, Inc. v. E*TRADE Securities, Inc.”, asserting claims for injunctive relief, specific performance,
declaratory relief and breach of written contract and seeking (in addition to equitable relief) approximately $8 million in damages from
E*TRADE Securities. Subsequently, Wedbush and E*TRADE Securities agreed to binding arbitration, and E*TRADE Securities filed
an arbitration claim with the NYSE in November of 2001 asserting a claim for declaratory relief and seeking approximately $15 million
in damages from Wedbush. Thereafter, Wedbush answered and filed a counterclaim with the NYSE against E*TRADE Securities on
December 12, 2001 reasserting the breach of contract claim it set forth in its original complaint. At this time, the Company is unable to
predict the outcome of this dispute.
• By a complaint dated October 4, 2001, a lawsuit was filed in the United States District Court for the Eastern District of Pennsylvania
entitled, “Fiserv Securities Inc. v. E*TRADE Securities, Inc.” Fiserv filed an amended complaint dated July 2, 2002, seeking $27 million
in damages plus interest, punitive damages, attorney fees and other relief from E*TRADE Securities for breach of contract, conversion
and unjust enrichment. On July 17, 2002, E*TRADE Securities filed an amended answer denying Fiserv’ s claims and asserting
affirmative defenses. The matter is currently set for trial on May 12, 2003. At this time, the Company is unable to predict the ultimate
outcome of this dispute.
• By a complaint dated October 22, 2001, a lawsuit was filed in the United States District Court for the Southern District of New York
entitled, “Nomura Securities International, Inc., v. E*TRADE Securities, Inc.” 01-CV-9280 (AGS)(MHD). Nomura filed an amended
complaint dated October 29, 2001, seeking approximately $10 million in damages plus interest, unspecified punitive damages, attorney
fees and injunctive and other relief from E*TRADE Securities for conversion and breach of contract. On November 19, 2001,
E*TRADE Securities filed an amended answer and interposing affirmative defenses and three counterclaims for conversion, money had
and received, and unjust enrichment seeking to recover approximately $5 million in damages plus interest, punitive damages, attorneys
fees and other
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2003. EDGAR Online, Inc.