eTrade 2009 Annual Report Download - page 21

settlement agreement. Objectors to the court’s order granting final approval of the parties’ settlement agreement
filed notices of appeal which were subsequently dismissed on January 26, 2010.
On October 2, 2007, a class action complaint alleging violations of the federal securities laws was filed in
the United States District Court for the Southern District of New York against the Company and its then Chief
Executive Officer and Chief Financial Officer, Mitchell H. Caplan and Robert J. Simmons by Larry Freudenberg
on his own behalf and on behalf of others similarly situated (the “Freudenberg Action”). On July 17, 2008, the
trial court consolidated this action with four other purported class actions, all of which were filed in the United
States District Court for the Southern District of New York and which were based on the same facts and
circumstances. On January 16, 2009, plaintiffs served their consolidated amended class action complaint in
which they also named Dennis Webb, the Company’s former Capital Markets Division President as a defendant.
Plaintiffs contend, among other things, that the value of the Company’s stock between April 19, 2006 and
November 9, 2007 was artificially inflated because defendants issued materially false and misleading statements
and failed to disclose that the Company was experiencing a rise in delinquency rates in its mortgage and home
equity portfolios; failed to timely record an impairment on its mortgage and home equity portfolios; materially
overvalued its securities portfolio, which included assets backed by mortgages; and based on the foregoing,
lacked a reasonable basis for the positive statements made about the Company’s earnings and prospects.
Plaintiffs seek to recover damages in an amount to be proven at trial, including interest and attorneys’ fees and
costs. Defendants filed their motion to dismiss on April 2, 2009, and briefing on defendants’ motion to dismiss
was completed on August 31, 2009. The Company intends to vigorously defend itself against these claims.
On August 15, 2008, Ronald M. Tate as trustee of the Ronald M. Tate Trust Dtd 4/13/88, and George
Avakian filed an action in the United States District Court for the Southern District of New York against the
Company, Mitchell H. Caplan and Robert J. Simmons based on the same facts and circumstances, and containing
the same claims, as the Freudenberg consolidated actions discussed above. By agreement of the parties and
approval of the court, the Tate action has been consolidated with the Freudenberg consolidated actions for the
purpose of pre-trial discovery. Plaintiffs seek to recover damages in an amount to be proven at trial, including
interest, attorneys’ and expert fees and costs. The Company intends to vigorously defend itself against these
claims.
Based upon the same facts and circumstances alleged in the Freudenberg consolidated actions above, a
verified shareholder derivative complaint was filed in the United States District Court for the Southern District of
New York on October 4, 2007 by Catherine Rubery, against the Company and its then Chief Executive Officer,
President/Chief Operating Officer, Chief Financial Officer and individual members of its board of directors.
Plaintiff alleges, among other things, causes of action for breach of fiduciary duty, waste of corporate assets,
unjust enrichment, and violation of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.
The above federal shareholder derivative complaint has been consolidated with another shareholder derivative
complaint brought by shareholder Marilyn Clark in the same court and against the same named defendants. Three
similar derivative actions, based on the same facts and circumstances as the federal derivative actions, but
alleging exclusively state causes of action, have been filed in the Supreme Court of the State of New York, New
York County and have been ordered consolidated in that court. In these state derivative actions, plaintiffs Frank
Fosbre, Brian Kallinen and Alexander Guiseppone filed a consolidated amended complaint on March 23, 2009.
Plaintiffs in the foregoing actions seek unspecified monetary damages against the Individual Defendants in favor
of the Company, plus an injunction compelling changes to the Company’s Corporate Governance policies. By
agreement of the parties and approval of the respective courts, further proceedings in both these federal and state
derivative actions will continue to trail those in the federal securities class actions discussed above.
On April 2, 2008, a class action complaint alleging violations of the federal securities laws was filed by
John W. Oughtred on his own behalf and on behalf of all others similarly situated in the United States District
Court for the Southern District of New York against the Company. Plaintiff contends, among other things, that
the Company committed various sales practice violations in the sale of certain auction rate securities to investors
between April 2, 2003, and February 13, 2008 by allegedly misrepresenting that these securities were highly
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