eTrade 2007 Annual Report Download - page 138

NOTE 23—COMMITMENTS, CONTINGENCIES AND OTHER REGULATORY MATTERS
Legal Matters
Litigation Matters
In June 2002, the Company acquired from MarketXT Holdings, Inc. (formerly known as “Tradescape
Corporation”) the following entities: Tradescape Securities, LLC; Tradescape Technologies, LLC; and Momentum
Securities, LLC. Disputes subsequently arose between the parties regarding the responsibility for liabilities that first
became known to the Company after the sale. On April 8, 2004, MarketXT filed a complaint in the United States
District Court for the Southern District of New York against the Company, certain of its officers and directors, and
other third parties, including SBI and Softbank Corporation, alleging that defendants were preventing plaintiffs from
obtaining certain contingent payments allegedly due, and as a result, claiming damages of $1.5 billion. On
April 9, 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 unspecified monetary
damages for defendants’ fraud in connection with the 2002 sale, including, but not limited to, having presented the
Company with fraudulent financial statements regarding the condition of Momentum Securities, LLC during the
due diligence process. Subsequently, MarketXT was placed into bankruptcy, and the Company filed an adversary
proceeding against MarketXT and others in January 2005, seeking declaratory relief, compensatory and punitive
damages, 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.” In that same court, the Company filed a
separate adversary proceeding against Omar Amanat in those Chapter 7 bankruptcy proceedings entitled, “In re
Amanat, Omar Shariff.” In October 2005, MarketXT answered the Company’s adversary proceeding and asserted
its counterclaims, subsequently amending its claims in 2006 to add a $326.0 million claim for “promissory
estoppel” in which MarketXT alleged, for the first time, that the Company breached a prior promise to purchase the
acquired entities in 1999-2000. In April 2006, Omar Amanat answered the Company’s separate adversary
proceeding against him and asserted his counterclaims. In separate motions before the Bankruptcy Court, the
Company has moved to dismiss certain counterclaims brought by MarketXT including those described above, as
well as certain counterclaims brought by Mr. Amanat. In a ruling dated September 29, 2006, the Bankruptcy Court
in the MarketXT case granted the Company’s motion to dismiss four of the six bases upon which MarketXT asserts
its fraud claims against the Company; its conversion claim; and its demand for punitive damages. In the same
ruling, the Bankruptcy Court denied in its entirety MarketXT’s competing motion to dismiss the Company’s claims
against it. On October 26, 2006, the Bankruptcy Court subsequently dismissed MarketXT’s “promissory estoppel”
claim. By order dated December 18, 2007, the United States Bankruptcy Court for the Southern District of New
York approved a settlement agreement between the parties under the terms of which the Company agreed, without
admitting liability, to pay $3,995,000 to the Trustee for the bankruptcy estate of MarketXT in exchange for a
general release from MarketXT as well as its promise to defend and indemnify the Company in certain other actions
up to a maximum of $3,995,000. By order dated January 8, 2008, the same Court subsequently approved a separate
settlement agreement between the Company and the Trustee for the bankruptcy estate of Omar Amanat under the
terms of which the Company paid to said Trustee the sum of $50,000 in exchange for a general release.
Accordingly, these cases have been resolved, and the Company will no longer report them in its subsequent filings.
On October 27, 2000, a complaint was filed in the Superior Court for the State of California, County of
Santa Clara, entitled, “Ajaxo, Inc., a Delaware corporation, Plaintiff, versus E*TRADE GROUP, INC., a
Delaware corporation; and Everypath, Inc., a California corporation; and Does 1 through 50, inclusively,
Defendants.” Through this complaint, Ajaxo sought damages and certain non-monetary relief for the Company’s
alleged breach of a non-disclosure agreement with Ajaxo pertaining to certain wireless technology offered to the
Company by Ajaxo as well as damages and other relief against both the Company and defendant Everypath, Inc.,
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 dollars for breach of the Ajaxo non-disclosure agreement.
Although the jury also found in favor of Ajaxo on its misappropriation of trade secrets claim against the
Company and defendant Everypath, the trial court subsequently denied Ajaxo’s requests for additional damages
and relief on these claims. Thereafter, all parties appealed, and on December 21, 2005, the California Court of
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