eTrade 2010 Annual Report Download - page 23

offered the Company as well as damages and other relief against the Company for their alleged misappropriation
of Ajaxo’s trade secrets. Following a jury trial, a judgment was entered in 2003 in favor of Ajaxo against the
Company for $1.3 million for breach of the Ajaxo non-disclosure agreement. Although the jury found in favor of
Ajaxo on its claim against the Company for misappropriation of trade secrets, the trial court subsequently denied
Ajaxo’s requests for additional damages and relief. On December 21, 2005, the California Court of Appeal
affirmed the above-described award against the Company for breach of the nondisclosure agreement but
remanded the case to the trial court for the limited purpose of determining what, if any, additional damages
Ajaxo may be entitled to as a result of the jury’s previous finding in favor of Ajaxo on its claim against the
Company for misappropriation of trade secrets. Although the Company paid Ajaxo the full amount due on the
above-described judgment, the case was remanded back to the trial court, and on May 30, 2008, a jury returned a
verdict in favor of the Company denying all claims raised and demands for damages against the Company.
Following the trial court’s filing of entry of judgment in favor of the Company on September 5, 2008, Ajaxo filed
post-trial motions for vacating this entry of judgment and requesting a new trial. By order dated November 4,
2008, the trial court denied these motions. On December 2, 2008, Ajaxo filed a notice of appeal with the Court of
Appeal of the State of California for the Sixth District. Oral argument on the appeal was heard on July 15, 2010.
On August 30, 2010, the Court of Appeal affirmed the trial court’s verdict in part and reversed the verdict in part,
remanding the case. E*TRADE petitioned the Supreme Court of California for review of the Court of Appeal
decision. On December 16, 2010, the California Supreme Court denied the Company’s petition for review and
remanded for further proceedings to the trial court. The Company will continue to defend itself vigorously.
On October 11, 2006, a state class action was filed by Nikki Greenberg on her own behalf and on behalf of
all those similarly situated plaintiffs, in the Superior Court for the State of California, County of Los Angeles on
behalf of all customers or consumers who allegedly made or received telephone calls from the Company that
were recorded without their knowledge or consent. On February 7, 2008, class certification was granted and the
class defined to consist of (1) all persons in California who received telephone calls from the Company and
whose calls were recorded without their consent within three years of October 11, 2006, and (2) all persons who
made calls from California to the Beverly Hills branch of the Company on August 8, 2006. Plaintiffs sought to
recover unspecified monetary damages plus injunctive relief, including punitive and exemplary damages,
interest, attorneys’ fees and costs. On October 16, 2009, the court granted final approval of the parties’ proposed
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. The Company paid the
settlement amount to the Claims Administrator on March 5, 2010. Administration of the settlement was
completed in August 2010 for an amount that had no material impact on the Company and the action is now
concluded.
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 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’
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