Citadel To Sell Of Most E*Trade Shares

Feb 24 2011 | 9:53am ET

Citadel Investment Group, twice E*Trade Financial Corp.'s white knight in dark times, is backing further away from the troubled online brokerage.

The hedge fund giant plans to sell most of its shares in the company, of which it is both the largest shareholder and largest creditor. But Citadel, which currently owns just under 10% of E*Trade's common stock, still owns convertible debt that could bring its stake in the company up to nearly 30%.

Indeed, after the planned sale of as many as 27.6 million shares, Citadel is likely to convert some of that debt into equity.

Citadel has twice bailed out E*Trade, although the firm has over the past two years sold off large chunks of its stake in the company. In April, it dumped some 172 million shares in a similar secondary offering. As in that offering, E*Trade will receive none of the proceeds from this one.

Last year, Citadel's order-flow deal with E*Trade, struck when the hedge fund first threw the company a cash lifeline, expired.

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