E*Trade Financial Corporation has reached an agreement in principle to settle the subprime-related securities class action lawsuit pending against the company and certain of its directors and officers, the company reported in its December 21, 2011 filing on Form 8-K. The agreement calls for the company and its D&O insurance carriers to pay a total of $79 million, of which the company’s portion is approximately $10.75 million. The agreement is subject to court approval.


As reflected in greater detail here, the plaintiffs first filed their securities actions against E*Trade in October 2007, alleging that the company had failed to disclose deterioration in its mortgage and home equity loan portfolio. The defendants moved to dismiss, arguing among other things that the company’s losses were the result of a "worldwide economic catastrophe" and the plaintiffs’ claims were nothing more than "fraud by hindsight."


In a May 10, 2010 order (here), Southern District of New York Judge Robert Sweet denied the defendants’ motion to dismiss. Judge Sweet rejected the "global meltdown" argument, saying that "because the issue in this action is what the Defendants knew and when they knew it, a securities violation has been adequately alleged." 

With the announcement of the settlement to which the D&O insurers will be contributing about $68.25 million, the E*Trade case becomes the late subrime-related securities class action lawsuit to be settled largely with D&O insurance proceeds. For example, the $90 million Lehman Brothers directors and officers settlement (about which refer
here), the $10.5 million Colonial Bank settlement (refer here), and $105 million of the $208.5 million Washington Mutual securities class action lawsuit settlement (refer here).


These and many other examples suggest that the subprime and credit crisis-related litigation wave have produced very substantial aggregate losses for the D&O insurance industry, with many more cases yet to be resolved. Even though the litigation wave is about to enter its sixth year, the losses are still accumulating and will do so for some time to come.


I have in any event added the E*Trade settlement to my running tally of subprime and credit crisis-related case resolutions, which can be accessed here.


‘Tis the Season: In light of the yuletide season that is now upon us, The D&O Diary will be taking a short holiday break for the next few days. The D&O Diary’s normal publication schedule will resume on January 3. To put everyone in the holiday spirit, here is a little Christmas cheer, flash mob style (watch for the dancing security guard). Best wishes for a happy and healthy holiday season to all.