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Freudenberg v. E*Trade Fin. Corp.

United States District Court for the Southern District of New York

May 10, 2010, Decided; May 11, 2010, Filed

07 Civ. 8538

Opinion

 [*175]  Sweet, D.J.

Defendants E*TRADE Financial Corporation ("E*TRADE" or the "Company"), CEO Mitchell Caplan ("Caplan"), CFO Robert J. Simmons ("Simmons") and Capital Markets Division ("EGAM") President Dennis E. Webb ("Webb") (collectively, the "Individual Defendants") have moved to dismiss the Consolidated Amended Class Action Complaint for Violations of the Federal Securities Laws (the "Complaint") 1 pursuant to Rules 9(b) and 12(b) (6) of the Federal Rules of Civil Procedure and the Private Securities Litigation Reform Act of 995 (the "PSLRA"), 15 U.S.C. §§ 78u-4 et seq. Based upon the conclusions set forth below, the motion is denied.

By the Fall of 2007, the collapse of the subprime mortgage and the housing markets and the decline in the housing market were widely recognized. At the close of the third quarter in October 2007, many of the world's largest financial institutions  [**2] announced their first in a wave of crippling write-downs of mortgage-related assets, including $ 11 billion by Citigroup, $ 10 billion by UBS and $ 8 billion by Merrill Lynch. UBS Posts Fresh $ 10bn Write-Down, BBC News, Dec. 10, 2007); Remarks of Senator Barack Obama: Our Common Stake in America's Prosperity (Sept. 17, 2007), available at http://www.barackobama.com/2007/09/17/remarks of senator barack obam 24.php (indicating the connection between corporation's risky investments in the subprime mortgage market and the financial crisis). Class actions alleging securities act violations have followed particularly in this district, of which this case is one. See, also, Kreysar et al v. Syron et al, No. 09-cv-832 (MGC); In Re The Bear Stearns Companies, Inc. Sec. Litig., No. 08-CV-2793 (RWS); In Re Lehman Bros. Holdings, Inc., No. 08-CV-8869 (DLC); In Re Fannie Mae Sec. Litig., No. 08-CV-7831 (PAC); In Re Moody's Corp. Sec. Litig., No. 07-CV-08375 (GBD); In Re Morgan Stanley ERISA Litig., No. 07-CV-11285 (DAB).

 [*176]  Defendants, including the Defendants in this action, urge that the losses incurred were the result of a "worldwide economic catastrophe" (Def's Memo in Support of Mot. to Dismiss  [**3] ("MTD") at 1) and that the complaints set forth a case of fraud by hindsight rather than the violation of the securities laws.

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712 F. Supp. 2d 171 *; 2010 U.S. Dist. LEXIS 46053 **; Fed. Sec. L. Rep. (CCH) P95,743

LARRY FREUDENBERG, Individually and On Behalf of All Others Similarly Situated, Plaintiff, -against- E*TRADE FINANCIAL CORPORATION, MITCHELL H. CAPLAN, ROBERT J. SIMMONS and DENNIS E. WEBB, Defendants.

Prior History: Freudenberg v. E*Trade Fin. Corp., 2008 U.S. Dist. LEXIS 62767 (S.D.N.Y., July 16, 2008)

CORE TERMS

loans, Defendants', originators, class period, mortgage, investors, portfolio, scienter, disclosure, losses, allegations, subprime, misrepresentations, misleading, omissions, loan loss, misstatements, due diligence, concealed, disclose, risks, discipline, purchasing, superprime, billion, organic, pools, risky, stock, underwriting

Civil Procedure, Defenses, Demurrers & Objections, Motions to Dismiss, Failure to State Claim, Pleadings, Complaints, Requirements for Complaint, Heightened Pleading Requirements, Fraud Claims, Securities Law, Postoffering & Secondary Distributions, Securities Exchange Act of 1934 Actions, Heightened Pleading Requirements, Implied Private Rights of Action, Elements of Proof, Duty to Disclose, Materiality, Questions of Fact & Law, Administrative Law, Judicial Review, Standards of Review, Rule Interpretation, Governments, Courts, Judicial Precedent, Trials, Jury Trials, Province of Court & Jury, Class Actions, Puffery, Civil Liability Considerations, Disclosures, Forward Looking Statements, Securities Litigation Reform & Standards, Safe Harbor, Predictions of Future Performance, Scienter, Accounting Irregularities, Recordkeeping & Reporting Requirements, Issuers of Securities, GAAP & GAAS, Secondary Liability, Primary & Secondary Liability, Group Pleading Doctrine, Evidence, Inferences & Presumptions, Inferences, Relevant Factors, Recklessness, Motive & Opportunity, Causation, Connection Requirement, Preclusion of Judgments, Estoppel, Judicial Estoppel, General Overview, Amendment of Pleadings, Relation Back, Controlling Persons, Definition of Control