eTrade 2010 Annual Report Download - page 26

On July 21, 2010, the Colorado Division of Securities filed an administrative complaint in the Colorado
Office of Administrative Courts against E*TRADE Securities LLC based upon purchases of auction rate
securities through E*TRADE Securities LLC by Colorado residents. The complaint seeks to revoke, suspend, or
otherwise impose conditions upon the Colorado broker-dealer license of E*TRADE Securities LLC. E*TRADE
Securities LLC is defending that action. As of December 31, 2010, the total amount of auction rate securities held
by Colorado customers was approximately $3.7 million.
On August 24, 2010, the South Carolina Securities Division filed an administrative complaint before the
Securities Commissioner of South Carolina against E*TRADE Securities LLC based upon purchases of auction
rate securities through E*TRADE Securities LLC by South Carolina residents. The complaint seeks to suspend
the South Carolina broker-dealer license of E*TRADE Securities LLC until South Carolina customers who
purchased auction rate securities through E*TRADE Securities LLC and who wish to liquidate those positions
are able to do so, and seeks a fine not to exceed $10,000 for each violation of South Carolina statutes or rules that
is proven by the Division. E*TRADE Securities LLC is defending that action. As of December 31, 2010, the total
amount of auction rate securities held by South Carolina customers was approximately $0.5 million.
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
such matters will be resolved, when they will ultimately be resolved, or what any eventual settlement, fine,
penalty or other relief might be. Subject to the foregoing, the Company believes that the outcome of any 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 in the future,
depending, among other things, upon the Company’s or business segment’s income for such period.
An unfavorable outcome in any matter that is not covered by insurance could have a material adverse effect
on the Company’s business, financial condition, results of operations or cash flows. In addition, even if the
ultimate outcomes are resolved in the Company’s favor, the defense of such litigation could entail considerable
cost or the diversion of the efforts of management, either of which could have a material adverse effect on the
Company’s business, financial condition, results of operations or cash flows.
The Company maintains insurance coverage that management believes is reasonable and prudent. The
principal insurance coverage it maintains covers commercial general liability; property damage; hardware/
software damage; cyber liability; directors and officers; employment practices liability; certain criminal acts
against the Company; and errors and omissions. The Company believes that such insurance coverage is adequate
for the purpose of its business. The Company’s ability to maintain this level of insurance coverage in the future,
however, is subject to the availability of affordable insurance in the marketplace.
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