eTrade 2009 Annual Report Download - page 22

liquid and safe investments for short term investing. On December 18, 2008, plaintiffs filed their first amended
class action complaint. Defendants filed their pending motion to dismiss plaintiffs’ amended complaint on
February 5, 2009, and briefing on defendants’ motion to dismiss was completed on April 15, 2009. Plaintiffs seek
to recover damages in an amount to be proven at trial, or, in the alternative, rescission of auction rate securities
purchases, plus interest and attorney’s fees and costs. The Company intends to vigorously defend itself against
the claims raised in this action.
On October 17, 2007, the SEC initiated an informal inquiry into matters related to the Company’s mortgage
loan and mortgage-related securities investment portfolios. The Company is cooperating fully with the SEC in
this matter.
Beginning in approximately August 2008, representatives of various states attorneys general and FINRA
initiated inquiries regarding the purchase of auction rate securities by E*TRADE Securities LLC’s customers.
E*TRADE Securities LLC is cooperating with these inquiries. As of February 19, 2010, the total amount of
auction rate securities held by all E*TRADE Securities LLC customers was approximately $169.7 million.
On January 19, 2010, the North Carolina Securities Division filed an administrative petition against
E*TRADE Securities LLC seeking to revoke the North Carolina securities dealer registration of E*TRADE
Securities LLC or, alternatively, to suspend that registration until all North Carolina residents are made whole for
their investments in auction rate securities purchased through E*TRADE Securities LLC. E*TRADE Securities
LLC is defending that action. As of February 19, 2010, the total amount of auction rate securities held by North
Carolina customers is approximately $2.2 million.
In March 2009, the Company’s subsidiary E*TRADE Capital Markets, LLC and 13 other current or former
specialist firms on various regional exchanges finalized a settlement of SEC charges alleging that such firms
executed proprietary orders in a given security prior to a customer order in the same security during the period
1999-2005. E*TRADE Capital Markets, LLC was a specialist on the Chicago Stock Exchange during the period
under review although it exited the specialist business in 2007. According to the SEC complaint, the majority of
the alleged violations occurred between 1999 and 2002. As part of the settlement, E*TRADE Capital Markets,
LLC consented to the entry of an injunction from future violations of Chicago Stock Exchange Article 9 Rule 17
and the payment of $28.3 million in disgorgement and a $5.7 million penalty, both of which had been reserved
for in prior periods. E*TRADE Capital Markets, LLC also consented to findings that it violated section 17(a) of
the Securities Exchange Act of 1934 and Rule 17a-3(a)(1) thereunder by failing to make or keep current an
itemized record of all purchases and sales in its proprietary account. E*TRADE Capital Markets, LLC settled the
SEC charges without admitting or denying the allegations of the complaint.
On February 3, 2010, a class action complaint was filed in the United States District Court for the Northern
District of California against E*TRADE Securities LLC by Joseph Roling on his own behalf and on behalf of all
others similarly situated. The lead plaintiff alleges that E*TRADE Securities LLC unlawfully charged and
collected certain account activity fees from its customers. Claimant, on behalf of himself and the putative class,
asserts breach of contract, unjust enrichment and violation of California Civil Code Section 1671 and seeks
equitable and injunctive relief for alleged illegal, unfair and fraudulent practices under California’s Unfair
Competition Law, California Business and Professional Code Section 17200 et seq. The plaintiff seeks, among
other things, certification of the class action on behalf of alleged similarly situated plaintiffs, unspecified
damages and restitution of amounts allegedly wrongfully collected by E*TRADE Securities LLC, attorneys fees
and expenses and injunctive relief. The Company intends to vigorously defend itself against the claims raised in
this action.
In addition to the matters described above, the Company is subject to various legal proceedings and claims
that arise in the normal course of business which could have a material adverse effect on its financial position,
results of operations or cash flows. In each pending matter, the Company contests liability or the amount of
claimed damages. In view of the inherent difficulty of predicting the outcome of such matters, particularly in
cases where claimants seek substantial or indeterminate damages, or where investigation or discovery have yet to
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