eTrade 2010 Annual Report Download - page 164

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 the 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. On May 11, 2010, the Court issued an order denying defendants’
motion to dismiss. The Company filed an Answer to the Complaint on June 25, 2010. Fact discovery and expert
discovery are expected to conclude on May 15, 2012. 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 discussed
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. The Rubery complaint was consolidated with another shareholder derivative complaint
brought by shareholder Marilyn Clark in the same court and against the same named defendants. On July 26,
2010, Plaintiffs served their consolidated amended complaint, in which they also named Dennis Webb, the
Company’s former Capital Markets Division President, as a defendant. Plaintiffs allege, 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 complaint seeks, among other
things, unspecified monetary damages in favor of the Company, changes to corporate governance procedures and
various forms of injunctive relief. Pursuant to a stipulation, defendants’ motion to dismiss the consolidated
federal derivative actions is not due until July 2012.
Three similar derivative actions, based on the same facts and circumstances as the federal derivative actions,
but alleging exclusively state causes of action, were filed in the Supreme Court of the State of New York, New
York County and were 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 sought unspecified monetary damages against the Individual Defendants in
favor of the Company, plus an injunction compelling changes to the Company’s corporate governance policies.
As a result of the decision denying the motion to dismiss in the Freudenberg consolidated actions discussed
above, the stay in this action was lifted and defendants moved to dismiss the amended complaint on July 12,
2010. Briefing on the motion to dismiss concluded on October 25, 2010. The motion was scheduled for oral
argument on February 7, 2011, but instead, the plaintiffs withdrew their claims by filing a Stipulation of
Dismissal, which was so ordered by the Court on February 4, 2011.
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