eTrade 2005 Annual Report Download - page 191

Table of Contents
of its officers and directors and other third parties, including Softbank Finance Corporation and Softbank Corporation, alleging that the
defendants acted improperly in preventing plaintiffs from obtaining certain contingent payments and claiming damages of $1.5 billion.
On April9, 2004, the Company filed a complaint in the United States District Court for the Southern District of New York against certain
directors and officers of MarketXT seeking declaratory relief and monetary damages in an amount to be proven at trial for defendants’
fraud in connection with the 2002 sale transaction, including, but not limited to, having presented the Company with fraudulent
financial statements of the condition of Momentum Securities during the due diligence process. The Company amended its complaint
in October 2004 to add additional defendants. In January 2005, the Company filed an adversary proceeding against MarketXT and
others seeking compensatory and punitive damages, and certain declaratory relief in those Chapter 11 bankruptcy proceedings in the
United States Bankruptcy Court for the Southern District of New York entitled, “In re MarketXT Holdings Corp., Debtor” and a
separate adversary proceeding against Omar Amanat, in the same bankruptcy court in those Chapter 7 bankruptcy proceedings
entitled, “In re Amanat, Omar Shariff.” In October 2005, MarketXT answered the Company’s adversary proceeding and asserted
various counterclaims, including some of the claims MarketXT had asserted in its district court action (which action MarketXT
subsequently abandoned), seeking unspecified damages according to proof at trial. The Company has moved to dismiss certain
aspects of MarketXT’s counterclaim, and discovery related to the adversary proceeding continues. The Company continues to believe
that the claims brought against it by MarketXT and Omar Amanat are without merit and intends both to vigorously defend all such
claims and to fully pursue its own claims as described above.
In September 2001, the Company engaged in certain stock loan transactions that resulted in litigation between the Company and
certain counterparties to the transactions including Nomura Securities, Inc. and certain of its affiliates (“Nomura”). In the lawsuits,
Nomura sought approximately $10.0 million in damages and asserted the right to keep an additional $5.0 million, plus interest,
unspecified punitive damages, attorney fees, and other relief from the Company for conversion and breach of contract. The Company
asserted claims and defenses against Nomura relating to the same amount and alleged,
inter alia
, that Nomura, among others,
participated in a stock lending fraud and violated federal and state securities laws among other allegations. The Company sought,
among other things, compensatory damages for all expenses and losses that it had incurred to date. On December5, 2005, the Company
entered into an agreement with Nomura and its subsidiaries and affiliates to settle the lawsuits pending between the parties in New
York and Minnesota.Pursuant to that agreement, Nomura, without admission of liability, agreed to pay, and has paid,$35.0 millionto the
Company to resolve these disputes;the Company and Nomura further agreed to dismiss their claims against each other. With the
resolution of these matters, this litigation will no longer be included in our disclosures.
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.
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2006. EDGAR Online, Inc.