eTrade 2012 Annual Report Download - page 168

commenced on February 21 and 22, 2012 and concluded on June 12, 2012. The parties await decision on whether
there will be a second phase of this bench trial. 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 contended, 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. The parties entered into a Stipulation of Settlement on May 17, 2012, which was submitted to the
Court for approval. The settlement was approved by the Court and the class was certified by a final judgment and
order of dismissal dated October 22, 2012. Under the terms of the settlement, the Company and its insurance
carriers paid $79.0 million in return for full releases. Approximately $11.0 million of the total settlement figure
was paid by the Company, which was expensed in the year ended December 31, 2011. As of January 14, 2013,
all appeals and requests for attorneys’ fees have been resolved and the settlement is final.
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 the Company’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. Prior to any hearings on the
appeal, the lead plaintiffs in this action accepted the terms of the Purchase Offer in connection with the North
American Securities Administrators Association (“NASAA”) settlement (see Regulatory Matters below), and this
class action was dismissed with prejudice in February 2012.
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 moved for exclusion from the settlement class in
Freudenberg. The Court granted that relief on October 11, 2012 and ordered the parties to provide a status update
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