eTrade 2002 Annual Report Download - page 175

Table of Contents
Index to Financial Statements
relief from Nomura. On June 5, 2002 Nomura filed a motion for summary judgment asking that it be awarded summary judgment on its claim
for breach of contract and on E*TRADE Securities’ counterclaims for conversion, money had and received, unjust enrichment and punitive
damages. On June20, 2002, E*TRADE Securities cross-moved for partial summary judgment and in opposition to Nomura’ s Motion for
Summary Judgment. E*TRADE Securities sought summary judgment on Nomura’ s breach of contract claim, arguing that the alleged contract
between Nomura and E*TRADE Securities did not apply to the transaction at issue in the case. Both Nomura’ s motion for summary judgment
and E*TRADE Securities cross-motion for partial summary judgment are currently pending before the court. On February 7, 2003, the Court
dismissed E*TRADE Securities’ demand for punitive damages but otherwise denied Nomura’ s motion to dismiss E*TRADE Securities’
counterclaims. At this time the Company is unable to predict the ultimate outcome of this dispute.
As discussed above, the Company is unable to predict the ultimate outcome of these disputes. The Company, based on information available,
does not believe that an estimable loss is probable. However, the ultimate resolution of these matters may be material to the Company’ s
operating results or cash flows for any particular period. The Company is confident that E*TRADE Securities, has sufficient capital in excess of
regulatory requirements to cover any potential exposure arising from these matters.
On September 25, 2002, the Company filed an action in the United States District Court for the District of Minnesota captioned “E*TRADE
Securities LLC v. Deutsche Bank AG et al.”, Civil No. 02-3711 (RHK/AJB), alleging, among other things, that Deutsche Bank AG, Nomura
Canada, Inc., and others participated in a stock lending fraud and violated Section 10(b) of the Securities Exchange Act, Rule 10b-5 thereunder,
Sections 5 and 12 of the Securities Act, and other provisions of state and federal law, by among other things: distributing unregistered securities
beneficially owned by insiders of the issuers, disguising those distributions as routine securities lending transactions, manipulating the prices of
the securities in question, and concealing material information including the real parties in interest and the underlying scheme. Through this
lawsuit, the Company seeks, among other things, compensatory damages for all expenses and losses that it has incurred to date or may incur in
the future in connection with the stock lending litigation described above and a declaration that defendants are liable for any further expenses or
losses the Company may incur in that litigation, including by way of judgment or settlement. Deutsche Bank AG, Nomura Canada, Inc., and
certain other defendants have filed motions to dismiss the Company’ s complaint in whole or in part. The Company intends to oppose those
motions. At this time, the Company is unable to predict the ultimate outcome of this dispute.
The Company is a defendant in other civil actions arising in the normal course of business. These currently include, among other actions,
putative class actions alleging various causes of action for “unfair or deceptive business practices” that were filed against the Company between
November 21, 1997 and March 11, 1999, as a result of various systems interruptions that the Company previously experienced. The Company
believes that these actions are without merit and intends to defend against them vigorously. An unfavorable outcome in any of these matters for
which the Company’ s pending insurance claims are rejected could harm the Company’ s business.
Regulatory Matters
The securities and banking industries are subject to extensive regulation under federal, state and applicable international laws. As a result, the
Company is required to comply with many complex laws and rules and its ability to so comply is dependent in large part upon the establishment
and maintenance of a qualified compliance system. From time to time, the Company has been threatened with, or named as a defendant in,
lawsuits, arbitrations and administrative claims involving securities, banking and other matters. The Company is also subject to periodic
regulatory audits and inspections. Compliance and trading problems that are reported to regulators such as the SEC, the New York Stock
Exchange (“NYSE”), the National Association of Securities Dealers, Inc. (“NASD”) or the Office of Thrift Supervision (“OTS”) by dissatisfied
customers or others are investigated by such regulators, and may, if pursued, result in formal claims being filed against the Company by
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2003. EDGAR Online, Inc.