eTrade 2002 Annual Report Download - page 33

Table of Contents
Index to Financial Statements
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. By order dated June 7, 2002, the Court granted plaintiff’ s motion for class certification. In response, the
Company filed a timely Notice of Appeal, and by a “Journal and Opinion” dated January 23, 2003, the Court of Appeals of Ohio, Eighth
District, County of Cuyahoga, reversed the trial court’ s previous ruling granting class certification, awarded the Company it’ s costs of appeal,
and remanded this action to the trial court. At this time, we are unable to predict the ultimate outcome of this action.
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. Following the September 19, 2002 hearing of Plaintiff’ s motion for class certification, the Court issued an
order denying class certification in this matter, and on or about October 22, 2002, Plaintiff filed notice of his intent to appeal the trial court’ s
ruling denying class certification. At this time, we are unable to predict the ultimate outcome of this proceeding.
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.
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2003. EDGAR Online, Inc.