Cases

E*TRADE Financial Corporation Securities Fraud Class Action

Gardy & Notis, LLP has filed a securities fraud class action lawsuit on behalf of purchasers of E*TRADE Financial Corporation (NASDAQ: ETFC) securities during a class period of April 20, 2006 to November 9, 2007.

The complaint charges that E*TRADE and its Chief Executive Officer (Mitchell H. Caplan) and Chief Financial Officer (Robert J. Simmons) misled shareholders by making false statements regarding the company's transition into the banking business for mortgages and home equity loans. As a result of the Company's expansion into lending, a majority of E*TRADE's recent revenue growth has been driven by its mortgage assets. By 2006, the Company derived about 58% of its revenues from net interest earned on its loan portfolio, while brokerage commissions and revenue from primarily market making transactions accounted for only about 30% of revenue. During this transition period, E*TRADE concealed an enormously risky and unsound subprime mortgage portfolio, and as the subprime market began to unravel in 2006 and continue its plunge into 2007, E*TRADE failed to increase its level of provision for loan losses, as is required under Generally Accepted Accounting Principles or GAAP. Despite the housing correction becoming more severe each quarter with reports of increased delinquencies and foreclosures, E*TRADE failed to make any of the necessary adjustments to its reserve for loan losses or to its level of charge-offs for the substantial mortgage portfolio that it was holding in its efforts to prop-up its overall earnings in light of its sagging brokerage business. Remarkably, E*TRADE increased its earnings guidance despite the abundant warning signs of impending problems in the subprime housing market. While E*TRADE made generic statements about increased risk from its loan operations, it wholly failed to adequately disclose the devastating effects that even slight value reductions to its mortgage portfolio would (and eventually did) have on the Company's earnings and balance sheet. As the truth about the actual risks and true value of E*TRADE's various mortgage backed securities were revealed to the market, E*TRADE has been forced to incur massive write downs of the value of its mortgage backed assets held on its balance sheet.

The case is Ferenc v. E*TRADE Financial Corporation, in the United States District Court for the Southern District of New York.

For more information regarding the lawsuit or to obtain a copy of the complaint or any Court filings, please contact us.