eTrade 2007 Annual Report Download - page 19

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
Appeal affirmed the above-described award against the Company for breach of the nondisclosure agreement but
remanded the case to the trial court for the limited purpose of determining what, if any, additional damages
Ajaxo may be entitled to as a result of the jury’s previous finding in favor of Ajaxo on its misappropriation of
trade secrets claim against the Company and defendant Everypath. Following the foregoing ruling by the Court
of Appeal, defendant Everypath ceased operations and made an assignment for the benefit of its creditors in
January, 2006. As a result, defendant Everypath is no longer defending the case. Although the Company paid
Ajaxo the full amount due on the judgment against it above, the case, consistent with the rulings issued by the
Court of Appeal, has now been remanded back to the trial court, and the re-trial of this case is now set to
commence on April 7, 2008, solely on the issue of what, if any, additional damages Ajaxo may be entitled to
receive on its misappropriation of trade secrets claim. In specific, Ajaxo continues to seek unstated monetary
damages and injunctive relief, lost profits in the amount of $500,000 per month since November, 1999, and
punitive damages. The Company denies that Ajaxo is entitled to any further damages or relief of any kind and
will vigorously defend itself against Ajaxo’s renewed damage claims.
On October 2, 2007, a class action complaint alleging violations of the federal securities laws was filed in
the United States District Court for the Southern District of New York against the Company and its Chief
Executive Officer and Chief Financial Officer entitled, “Larry Freudenberg, Individually and on Behalf of All
Others Similarly Situated, Plaintiff, versus E*TRADE Financial Corporation, Mitchell H. Caplan and Robert J.
Simmons, Defendants.” Plaintiff contends, among other things, that between December 14, 2006, and
September 25, 2007 (the “class period”) defendants issued materially false and misleading statements and failed
to disclose that the Company was experiencing a rise in delinquency rates in its mortgage and home equity
portfolios; failed to timely record an impairment on its mortgage and home equity portfolios; materially
overvalued its securities portfolio, which includes assets backed by mortgages; and based on the foregoing,
lacked a reasonable basis for the positive statements it made about the Company’s earnings and prospects.
Plaintiff seeks to recover damages in an amount to be proven at trial, including interest and attorneys’ fees and
costs. Four additional class action complaints alleging similar violations of the federal securities laws and
alleging either the same or somewhat longer class periods were filed in the same court between October 12, 2007
and November 21, 2007 by named plaintiffs William Boston, Robert D. Thulman, Wendy M. Davidson, and
Joshua Ferenc, respectively. On January 23, 2008, the trial court heard motions from various plaintiffs seeking to
be appointed lead plaintiff in these actions but has yet to issue its decision. Once the court rules on the lead
plaintiff motions, the cases are to be consolidated. A consolidated amended complaint is expected to be filed
within 60 days of the court’s ruling. The Company intends to vigorously defend itself against these claims.
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