Citadel Hammers Away At E*Trade

Jul 26 2011 | 12:57pm ET

Citadel Investment Group continued to ratchet up the pressure on troubled online brokerage E*Trade Financial Corp., calling the company's decision to consider a sale insufficient.

E*Trade last week announced that it had hired Morgan Stanley to consider strategic alternatives, including a possible sale, after Citadel, which has twice bailed the company out in recent years and is its largest shareholder, blasted it in a July 20 letter. It is the second time in less than a year that E*Trade has turned to an investment bank for a strategic review; one conducted in the fourth quarter by JPMorgan Chase came to nothing.

"E*Trade believes that it has already addressed the substance of Citadel's proposals and that it is not in the best interest of shareholders to call a special meeting at this time," as Citadel had demanded.

The hedge fund, which last week accused E*Trade's board of "destroying more than $9 billion in stockholder value," was neither assuaged nor amused.

"Once again, E*Trade's board has failed to act in shareholders' best interest," Citadel wrote to the company yesterday. "Your response to our July 20 letter further demonstrates the board's entrenchment and the lengths to which members of the board will go to maintain the status quo to the detriment of shareholders."

Citadel is moving forward with its plans to force a special meeting, which requires 10% support from E*Trade shareholders. Citadel owns 9.8% of the brokerage.

E*Trade also rejected Citadel's call for it to boot two member from the board "inappropriate, and contrary to Delaware law."

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