eTrade 2011 Annual Report Download - page 160

Executive Officer, President/Chief Operating Officer, Chief Financial Officer and individual members of its
board of directors. The Rubery complaint was consolidated with another shareholder derivative complaint
brought by shareholder Marilyn Clark in the same court and against the same named defendants. On July 26,
2010, Plaintiffs served their consolidated amended complaint, in which they also named Dennis Webb, the
Company’s former Capital Markets Division President, as a defendant. Plaintiffs allege, among other things,
causes of action for breach of fiduciary duty, waste of corporate assets, unjust enrichment, and violation of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The complaint seeks, among other
things, unspecified monetary damages in favor of the Company, changes to corporate governance procedures and
various forms of injunctive relief.
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 attorneys’ 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. By an Order dated March 31, 2011, the Court granted E*TRADE’s motion and
dismissed the action with prejudice. On May 2, 2011, Plaintiffs filed a Notice of Appeal to the U.S. Court of
Appeals for the Second Circuit. Plaintiffs filed their brief on August 12, 2011. The Company’s responsive brief
was filed October 26, 2011. Plaintiffs’ reply brief was filed on November 21, 2011. Oral argument has not yet
been scheduled.
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. Following preliminary discovery, Plaintiffs moved to amend their verified complaint for a
second time, to assert new allegations and to add a plaintiff. The Company filed its opposition to this motion on
December 27, 2011. The Company intends to vigorously defend itself against the claims raised in this action.
On May 16, 2011, Droplets Inc., the holder of two patents pertaining to user interface servers, filed a
complaint in the U.S. District Court for the Eastern District of Texas against E*TRADE Financial Corporation,
E*TRADE Securities LLC, E*TRADE Bank N.A. and multiple other unaffiliated financial services firms.
Plaintiff contends that the defendants engaged in patent infringement under federal law. Plaintiff seeks
unspecified damages and an injunction against future infringements, plus royalties, costs, interest and attorneys’
fees. On September 30, 2011, the Company and several co-defendants filed a motion to transfer the case to the
Southern District of New York. Venue discovery occurred throughout December 2011. On January 1, 2012, a
new judge was assigned to the case. The Company will defend itself vigorously in this matter.
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