And now lawyers representing these angry investors have posted a site encouraging E*Trade customers to join their class-action suit and provide information on their experiences with the service.
The site, posted earlier this week, explains the allegations charged in the lawsuit, while detailing the action's goal of obtaining damages and pushing the brokerage to upgrade its system. It also asks E*Trade customers to fill out an information request form.
The law firms of Bernstein Litowitz Berger & Grossmann in New York and Brian Newcomb in Menlo Park, California, posted the site, dubbed "E*Trade Class-Action Lawsuit."
The suit in question alleges that the company took on more accounts than its system could handle, and marks the latest such complaint against the online trading industry.
Plaintiffs in the suit cited the trading days of October 27 and 28, when the markets posted their largest one-day drop and one-day gains, respectively, as the basis of their complaint. Investors say that excessive volume cost time and money as delays in logging onto the heavily trafficked E*Trade site on those days caused a bottleneck, the lawsuit said. As E*Trade's systems were overloaded with requests, some investors were temporarily shut out of selling and buying shares. E*Trade later felt compelled to send out a letter of apology.
The civil complaint filed on November 21 in California's Santa Clara County Superior Court seeks an injunction prohibiting the brokerage from advertising or marketing its services for potential new accounts until E*Trade's "system capabilities can handle not only the trades of members of the class, but any trades that result from the opening of new accounts," according to the complaint.
The suit alleges that the company has been aggressively marketing its services despite the fact that its system was not capable of handling any new volume. E*Trade now has 250,000 active accounts, up from 225,000 at the end of its fourth fiscal quarter, which ended September 30. That compares to 91,000 active accounts at the end of the fourth fiscal quarter of 1996.
Kim Shepard, an E*Trade spokeswoman, responded to the allegations of the suit in an interview earlier this week. "Based upon our preliminary understanding at this point, we are confident that E*Trade has done nothing improper in this matter," she said. "Clearly, we intend to defend this litigation vigorously. Our track record, reflecting a more than 90-percent customer retention rate, underscores how fairly we treat our customers, and speaks for itself."