eTrade 2011 Annual Report Download - page 159

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 claim against the
Company for misappropriation of trade secrets. Although the Company paid Ajaxo the full amount due on the
above-described judgment, the case was remanded back to the trial court, and on May 30, 2008, a jury returned a
verdict in favor of the Company denying all claims raised and demands for damages against the Company.
Following the trial court’s filing of entry of judgment in favor of the Company on September 5, 2008, Ajaxo filed
post-trial motions for vacating this entry of judgment and requesting a new trial. By order dated November 4,
2008, the trial court denied these motions. On December 2, 2008, Ajaxo filed a notice of appeal with the Court of
Appeal of the State of California for the Sixth District. Oral argument on the appeal was heard on July 15, 2010.
On August 30, 2010, the Court of Appeal affirmed the trial court’s verdict in part and reversed the verdict in part,
remanding the case. E*TRADE petitioned the Supreme Court of California for review of the Court of Appeal
decision. On December 16, 2010, the California Supreme Court denied the Company’s petition for review and
remanded for further proceedings to the trial court. On September 20, 2011, the trial court granted limited
discovery at a conference on November 4, 2011, and set a motion schedule and trial date. The trial will continue
on May 14, 2012. The Company will continue to defend itself vigorously.
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 then Chief
Executive Officer and Chief Financial Officer, Mitchell H. Caplan and Robert J. Simmons, respectively, by Larry
Freudenberg on his own behalf and on behalf of others similarly situated (the “Freudenberg Action”). On July 17,
2008, the trial court consolidated this action with four other purported class actions, all of which were filed in the
United States District Court for the Southern District of New York and which were based on the same facts and
circumstances. On January 16, 2009, plaintiffs served their consolidated amended class action complaint in
which they also named Dennis Webb, the Company’s former Capital Markets Division President, as a defendant.
Plaintiffs contend, among other things, that the value of the Company’s stock between April 19, 2006 and
November 9, 2007 was artificially inflated because the 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 included assets backed by mortgages; and based on the
foregoing, lacked a reasonable basis for the positive statements made about the Company’s earnings and
prospects. Plaintiffs seek to recover damages in an amount to be proven at trial, including interest and attorneys’
fees and costs. The parties entered into a Memorandum of Understanding (“MOU”) on December 17, 2011 to
settle these consolidated actions. Under the terms of the MOU, the Company and its insurance carriers will pay
$79 million in return for full releases. Approximately $10.8 million of the total settlement figure will be paid by
the Company, and was recorded in the other operating expense line item of the consolidated statement of income
(loss) for the year ended December 31, 2011. This settlement is subject to Court approval and it has not yet been
finalized. The defendants continue to deny that they committed any violations of law or breached any fiduciary
duty to shareholders.
On August 15, 2008, Ronald M. Tate as trustee of the Ronald M. Tate Trust Dtd 4/13/88, and George
Avakian filed an action in the United States District Court for the Southern District of New York against the
Company, Mitchell H. Caplan and Robert J. Simmons based on the same facts and circumstances, and containing
the same claims, as the Freudenberg consolidated actions discussed above. By agreement of the parties and
approval of the court, the Tate action was consolidated with the Freudenberg consolidated actions for the purpose
of pre-trial discovery. Plaintiffs seek to recover damages in an amount to be proven at trial, including interest,
attorneys’ and expert fees and costs. The plaintiffs in this action will be part of the anticipated settlement class
for the consolidated actions described above.
Based upon the same facts and circumstances alleged in the Freudenberg consolidated actions discussed
above, a verified shareholder derivative complaint was filed in the United States District Court for the Southern
District of New York on October 4, 2007 by Catherine Rubery, against the Company and its then Chief
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