eTrade 2004 Annual Report Download - page 124

Table of Contents
Index to Financial Statements
particular period. The Company believes that its current reserves are adequate in view of its assessment of exposure at this time.
Except as to matters that we have reported as settled or tentatively settled, we intend to defend vigorously against the foregoing claims.
An unfavorable outcome in any matter that is not covered by insurance could have a material adverse effect on our business, financial
condition, results of operations and cash flows. In addition, even if the ultimate outcomes are resolved in our favor, the defense of such
litigation could entail considerable cost and the diversion of the efforts of management, either of which could have a material adverse effect on
our results of operation. 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. The Company contests liability and/or the amount of damages in each pending matter. 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
investigations and proceedings are in the early stages, the Company cannot predict with certainty the loss or range of loss related to such
matters, how such matters will be resolved, when they will ultimately be resolved, or what the eventual settlement, fine, penalty or other relief
might be. Subject to the foregoing, the Company believes, based on current knowledge and after consultation with counsel, that the outcome of
each such pending matter will not have a material adverse effect on the consolidated financial condition of the Company, although the outcome
could be material to the Company’s or a business segment’s operating results for a particular future period, depending on, among other things,
the level of the Company’s or a business segment’
s income for such period. Legal reserves have been established in accordance with SFAS No.
5. Once established, reserves are adjusted when there is more information available or when an event occurs requiring a change.
Regulatory Matters
The securities and banking industries are subject to extensive regulation under Federal, state and applicable international laws. As a
result, the Company is required to comply with many complex laws and rules and its ability to so comply is dependent in large part upon the
establishment and maintenance of a qualified compliance system. From time to time, the Company has been threatened with, or named as a
defendant in, lawsuits, arbitrations and administrative claims involving securities, banking and other matters. The Company is also subject to
periodic regulatory audits and inspections. Compliance and trading problems that are reported to regulators, such as the SEC, the NYSE, the
NASD or the OTS by dissatisfied customers or others are investigated by such regulators, and may, if pursued, result in formal claims being
filed against the Company by customers and/or disciplinary action being taken against the Company by regulators. Any such claims or
disciplinary actions that are decided against the Company could harm the Company’s business.
Insurance Matters
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, 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.
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