eTrade 2010 Annual Report Download - page 25

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.
Beginning in approximately August 2008, representatives of various states attorneys general and FINRA
initiated inquiries regarding the purchase of auction rate securities by E*TRADE Securities LLC’s customers. On
February 9, 2011, E*TRADE Securities LLC received a “Wells Notice” from FINRA Staff stating that they have
made a preliminary determination to recommend that disciplinary action be brought against E*TRADE
Securities LLC for alleged violations of certain FINRA rules in connection with the purchases of auction rate
securities by customers of E*TRADE Securities LLC. E*TRADE Securities LLC is cooperating with these
inquiries and will submit a Wells response to FINRA setting forth the bases for E*TRADE Securities’ belief that
disciplinary action is not warranted. As of December 31, 2010, the total amount of auction rate securities held by
all E*TRADE Securities LLC customers was approximately $138.2 million.
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 January 19, 2010, the North Carolina Securities Division filed an administrative petition before the
North Carolina Secretary of State against E*TRADE Securities LLC seeking to revoke the North Carolina
securities dealer registration of E*TRADE Securities LLC or, alternatively, to suspend that registration until all
North Carolina residents are made whole for their investments in auction rate securities purchased through
E*TRADE Securities LLC. E*TRADE Securities LLC is defending that action. As of December 31, 2010, no
existing North Carolina customers held any auction rate securities.
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.
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