eTrade 2012 Annual Report Download - page 170

was assigned to the case. On March 28, 2012, a change of venue was granted and the case has been transferred to
the United States District Court for the Southern District of New York. The Company filed its answer and
counterclaim on June 13, 2012 and plaintiff has moved to dismiss the counterclaim. The Company filed a motion
for summary judgment. Plaintiffs sought to change venue back to the Eastern District of Texas on the theory that
this case is one of several matters that should be consolidated in a single multi-district litigation. On
December 12, 2012, the Multidistrict Litigation Panel denied the transfer of this action to Texas. 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 in this case, 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. G1 Execution Services, LLC (formerly known as E*TRADE Capital
Markets, LLC), along with numerous other financial institutions, is a named defendant in this case. 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 and G1 Execution Services, LLC is a named defendant in this case.
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 and E*TRADE Clearing
LLC is a named defendant in this case. 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 complaints has been
stayed pending further orders of the Court. The Court has set a motion schedule for omnibus motion to dismiss to
be heard on March 1, 2013. Discovery remains stayed during this period. 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.
Regulatory Matters
The securities and banking industries are subject to extensive regulation under federal, state and applicable
international laws. From time to time, the Company has been threatened with or named as a defendant in,
lawsuits, arbitrations and administrative claims involving securities, banking and other matters. The Company is
also subject to periodic regulatory audits and inspections. Compliance and trading problems that are reported to
regulators, such as the SEC, FINRA or OCC by dissatisfied customers or others are investigated by such
regulators, and may, if pursued, result in formal claims being filed against the Company by customers or
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