eTrade 2011 Annual Report Download - page 27

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.
Several cases have been filed nationwide involving the April 2007 leveraged buyout (“LBO”) of the Tribune
Company (“Tribune”) by Sam Zell, and the subsequent bankruptcy of Tribune. In William Niese et al. v. A.G.
Edwards et al., in Superior Court of Delaware, New Castle County, former Tribune employees and retirees
claimed that Tribune was actually insolvent at the time of the LBO and that the LBO constituted a fraudulent
transaction that depleted the plaintiffs’ retirement plans, rendering them worthless. E*TRADE Clearing LLC,
along with numerous other financial institutions, is a named defendant, but has not been served with process. One
of the defendants removed the action to federal district court in Delaware on July 1, 2011. In Deutsche Bank
Trust Company Americas et al. v. Adaly Opportunity Fund et al., filed in the Supreme Court of New York, New
York County on June 3, 2011, the Trustees of certain notes issued by Tribune allege wrongdoing in connection
with the LBO. In particular the Trustees claim that the LBO constituted a constructive fraudulent transfer under
various state laws. E*TRADE Capital Markets, LLC, along with numerous other financial institutions, is a
named defendant. In Deutsche Bank et al. v. Ohlson et al., filed in the U.S. District Court for the Northern
District of Illinois, noteholders of Tribune asserted claims of constructive fraud. E*TRADE Capital Markets LLC
is a named defendant. In EGI-TRB LLC et al. v. ABN-AMRO et al, filed in the Circuit Court of Cook County
Illinois, creditors of Tribune assert fraudulent conveyance claims against multiple shareholder defendants.
E*TRADE Clearing LLC is a named defendant. There have been several motions filed by various parties to
transfer venue and to consolidate these actions. The Company’s time to answer or otherwise respond to the
complaint has been stayed pending further orders of Court. The Company will defend itself vigorously in these
matters.
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. 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 is unable to reasonably estimate a range of possible losses on its remaining
outstanding legal proceedings; however, the Company believes any losses would not be reasonably likely to have
a material adverse effect on the consolidated financial condition or results of operations of the Company.
An unfavorable outcome in any matter 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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