eTrade 2010 Annual Report Download - page 165

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 attorney’s 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. Decision on this motion is pending. The Company intends to continue to
vigorously defend itself against the claims raised in this action.
Prior to Lehman Brothers’ declaration of bankruptcy in September 2008, E*TRADE Bank was a
counterparty to interest rate derivative contracts with a subsidiary of Lehman Brothers. The declaration of
bankruptcy by Lehman Brothers triggered an event of default and early termination under E*TRADE Bank’s
International Swap Dealers Association Master Agreement. As of the date of the event of default, E*TRADE
Bank’s net amount due to the Lehman Brothers subsidiary was approximately $101 million, the majority of
which was collateralized by securities held by or on behalf of the Lehman Brothers subsidiary. In April 2010,
E*TRADE Bank reached an agreement with Lehman Brothers to pay its remaining obligations to Lehman’s
bankruptcy estate.
On February 3, 2010, a class action complaint was filed in the United States District Court for the Northern
District of California against E*TRADE Securities LLC by Joseph Roling on his own behalf and on behalf of all
others similarly situated. The lead plaintiff alleges that E*TRADE Securities LLC unlawfully charged and
collected certain account activity fees from its customers. Claimant, on behalf of himself and the putative class,
asserts breach of contract, unjust enrichment and violation of California Civil Code Section 1671 and seeks
equitable and injunctive relief for alleged illegal, unfair and fraudulent practices under California’s Unfair
Competition Law, California Business and Professional Code Section 17200 et seq. The plaintiff seeks, among
other things, certification of the class action on behalf of alleged similarly situated plaintiffs, unspecified
damages and restitution of amounts allegedly wrongfully collected by E*TRADE Securities LLC, attorneys fees
and expenses and injunctive relief. The Company moved to transfer venue on the case to the Southern District of
New York; that motion was denied. The Court granted E*TRADE’s motion to dismiss in part and denied the
motion to dismiss in part. The Court bifurcated discovery to permit initial discovery on individual claims and
class certification. Discovery on the merits will not commence until a class could be certified; the Court set
March 6, 2011 as the date on which the initial phase of discovery will conclude. The Company intends to
vigorously defend itself against the claims raised in this action.
On March 8, 2010, Lindsay Lohan filed a complaint in the New York Supreme Court, Nassau County,
against E*TRADE Bank and E*TRADE Securities LLC. The Plaintiff alleged that E*TRADE’s television
advertising made unauthorized use of her characterization and likeness in violation of Section 51 of the New
York State Civil Rights Law. The Claimant sought $100 million in damages. This matter was settled in
September 2010 pursuant to a confidential agreement for an amount that had no material impact on the
Company.
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 which could have a material adverse effect on its financial position,
results of operations or cash flows. In each pending matter, the Company contests liability or the amount of
claimed damages. 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 investigation or discovery have yet to
be completed, the Company cannot reasonably estimate the loss or range of loss related to such matters, how
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