eTrade 2011 Annual Report Download - page 163

the Company’s estimate of the current fair value relative to par value of auction rate securities held by
E*TRADE Securities LLC customers, as well as former customers who purchased auction rate securities through
E*TRADE Securities LLC and are covered by the Consent Order. The agreement includes the resolution of all
material individual auction rate securities arbitrations and litigations. The reserve also includes penalties and
other estimated settlement costs.
On August 24, 2010, the South Carolina Securities Division filed an administrative complaint before the
Securities Commissioner of South Carolina against E*TRADE Securities LLC based upon purchases of auction
rate securities through E*TRADE Securities LLC by South Carolina residents. The complaint sought to suspend
the South Carolina broker-dealer license of E*TRADE Securities LLC until South Carolina customers who
purchased auction rate securities through E*TRADE Securities LLC and who wished to liquidate those positions
were able to do so, and sought a fine not to exceed $10,000 for each potential violation of South Carolina statutes
or rules. On March 25, 2011, E*TRADE Securities LLC, without admitting or denying the underlying
allegations, findings or conclusions, resolved the South Carolina administrative action by entering into a consent
order, pursuant to which E*TRADE Securities LLC agreed to pay a $10,000 civil penalty and to reimburse the
South Carolina Securities Division’s investigative costs of $2,500. As of December 31, 2011, no existing South
Carolina customers held any auction rate securities.
Insurance
The Company maintains insurance coverage that management believes is reasonable and prudent. The
principal insurance coverage it maintains covers commercial general liability; property damage; hardware/
software damage; cyber liability; directors and officers; employment practices liability; certain criminal acts
against the Company; and errors and omissions. The Company believes that such insurance coverage is adequate
for the purpose of its business. The Company’s ability to maintain this level of insurance coverage in the future,
however, is subject to the availability of affordable insurance in the marketplace.
Reserves
For all legal matters, reserves are established in accordance with the loss contingencies accounting
guidance. Once established, reserves are adjusted based on available information when an event occurs requiring
an adjustment.
Commitments
In the normal course of business, the Company makes various commitments to extend credit and incur
contingent liabilities that are not reflected in the consolidated balance sheet. Significant changes in the economy
or interest rates may influence the impact that these commitments and contingencies have on the Company in the
future.
Loans
The Company provides access to real estate loans for its customers through a third party company. The
Company structured this arrangement to minimize the assumption of any of the typical risks commonly
associated with mortgage lending. The third party company providing this product performs all processing and
underwriting of these loans. Shortly after closing, the third party company purchases the loans from the Company
and is responsible for the credit risk associated with these loans. The Company had $140.8 million in
commitments to originate loans, $11.7 million in commitments to sell loans and no commitments to purchase
loans at December 31, 2011.
Other Investments
The Company has investments in low-income housing tax credit partnerships and other limited partnerships.
The Company had $6.4 million in commitments to fund low income housing tax credit partnerships and other
limited partnerships as of December 31, 2011.
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