eTrade 2012 Annual Report Download - page 26

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
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 attorneys’ fees and costs. On March 18, 2010, the District Court dismissed the
complaint without prejudice. On April 22, 2010, Plaintiffs amended their complaint. The Company has moved to
dismiss the amended complaint. By an Order dated March 31, 2011, the Court granted the Company’s motion
and dismissed the action with prejudice. On May 2, 2011, plaintiffs filed a Notice of Appeal to the U.S. Court of
Appeals for the Second Circuit. Plaintiffs filed their brief on August 12, 2011. The Company’s responsive brief
was filed October 26, 2011. Plaintiffs’ reply brief was filed on November 21, 2011. Prior to any hearings on the
appeal, the lead plaintiffs in this action accepted the terms of the Purchase Offer in connection with the North
American Securities Administrators Association (“NASAA”) settlement (see Regulatory Matters below), and this
class action was dismissed with prejudice in February 2012.
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 was 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 plaintiffs in this action moved for exclusion from the settlement class in
Freudenberg. The Court granted that relief on October 11, 2012 and ordered the parties to provide a status update
within 30 of final approval of that order. Tate and Avakian filed an amended complaint on January 23, 2013,
adding an additional claim under California law. The Company will continue to defend itself vigorously in this
matter.
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 certain corporate governance
procedures and various forms of injunctive relief. The parties agreed to settle this action and a Stipulation of
Settlement was signed on October 2, 2012, which included an agreement to implement or maintain certain
corporate governance procedures. The parties did not reach an agreement on the issue of plaintiffs’ attorneys’
fees, however. Plaintiffs submitted the Stipulation of Settlement to the Court on November 2, 2012, in
connection with an unopposed motion for preliminary approval of the settlement. The parties are awaiting the
scheduling of a hearing for preliminary approval of the settlement. The Stipulation of Settlement contemplates
that the issue of plaintiffs’ attorneys’ fees will be litigated in parallel with, but have no bearing on, final approval
of the settlement. The Company will continue to defend itself vigorously in this matter.
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