application/pdf 1 2009-06-13T21:09:34-05:00 3-07-cv-02852-VRW_62_transcript_20080616.pdf 3 787 THE COURT|MR. RUBIN|MR. PRESTON|MR. KAMBER|MR. PARISI|MR. ELVEY 166898 PAGES 1 -50 UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA BEFORE THE HONORABLE VAUGHN R. WALKER, JUDGE IN RE TD AMERITRADE ) ACCOUNTHOLDER LITIGATION, ) ET AL. ) ) NO. C 07-02852 VRW ) ____________________________) SAN FRANCISCO, CALIFORNIA THURSDAY, JUNE 12, 2008 TRANSCRIPT OF PROCEEDINGS APPEARANCES: FOR PLAINTIFF: KAMBEREDELSON LLC 11 BROADWAY 22ND FLOOR NEW YORK, NY 10004 BY: SCOTT A. KAMBER ETHAN PRESTON ATTORNEYS AT LAW FOR DEFENDANT: MAYER BROWN TWO PALO ALTO SQUARE SUITE 300 PALO ALTO, CA 94306 BY: LEE H. RUBIN ATTORNEY AT LAW (APPEARANCES CONTINUED ON FOLLOWING PAGE) REPORTED BY: JAMES YEOMANS, CSR #4039, RPR OFFICIAL REPORTER COMPUTERIZED TRANSCRIPTION BY ECLIPSE APPEARANCES: (CONTINUED) FOR CLASS: THE ELVEY PARTNERSHIP 3042 SACRAMENTO STREET #04 SAN FRANCISCO, CA 94115 BY: MATTHEW ELVEY THURSDAY, JUNE 12, 2008 2:30 P.M. (THE FOLLOWING PROCEEDINGS WERE HEARD IN OPEN COURT:) THE CLERK: CIVIL DOCKET NUMBER 07-2852, MATTHEW ELVEY VERSUS TD AMERITRADE AND CIVIL 07-4903, BRAD ZIGLER VERSUS TD AMERITRADE. COUNSEL, STEP FORWARD AND STATE YOUR APPEARANCE, PLEASE. MR. RUBIN: GOOD AFTERNOON, YOUR HONOR. LEE RUBIN FROM MAYER BROWN ON BEHALF OF TD AMERITRADE. THE COURT: GOOD AFTERNOON. MR. PRESTON: ETHAN PRESTON ON BEHALF OF MATTHEW ELVEY. THE COURT: YOU ARE? MR. PRESTON: ETHAN PRESTON. MR. KAMBER: SCOTT KAMBER ON BEHALF OF PLAINTIFFS, YOUR HONOR. MR. PARISI: GOOD AFTERNOON. DAVID PARISI ALSO ON BEHALF OF PLAINTIFFS, YOUR HONOR. MR. ELVEY: MATTHEW ELVEY. THE COURT: THIS IS THE PLAINTIFF MR. ELVEY? MR. KAMBER: YES, YOUR HONOR. THE COURT: ALL RIGHT. LET'S SEE, WHERE DO I START. LET ME SEE IF I UNDERSTAND THE TERMS OF THE SETTLEMENT CORRECTLY. THE PRECLUSIVE EFFECT WHICH THIS SETTLEMENT WOULD CREATE, WOULD BE OF THE CLASSES --CLASS CLAIMS, BUT NOT THEIR INDIVIDUAL CLAIMS; IS THAT CORRECT? MR. KAMBER: PARTIALLY, YOUR HONOR. IT WOULD BE THEIR CLASS CLAIMS FOR EVERYTHING. THEIR INDIVIDUAL CLAIMS WOULD ONLY SURVIVE WITH RESPECT TO INDIVIDUAL CLAIMS FOR IDENTITY THEFT, NOT INDIVIDUAL CLAIMS FOR RECEIVING SPAM E-MAILS. IT'S SO, WHAT THE SETTLEMENT DOES, IT'S A FULL RELEASE, YOU WOULD BE --USED TO --IN ANY CLASS ACTION FOR CLASS AND INDIVIDUAL RELEASES, EXCEPT AS TO IDENTITY THEFT. THE IDENTITY THEFT CLAIMS WOULD SURVIVE FOR --ON AN INDIVIDUAL BASIS. THE COURT: BUT NOT A CLASS BASIS? MR. KAMBER: CORRECT, YOUR HONOR. THE COURT: WHAT ELSE WOULD SURVIVE, IF ANYTHING? MR. KAMBER: NOTHING ELSE FROM A CLAIMS PERSPECTIVE, NOTHING ELSE WOULD SURVIVE. THE IDENTITY THEFT THERE'S A MECHANISM. THE KEY PIECES, ONE OF THE KEY PIECES OF THE SETTLEMENT IN --ASSOCIATE A PARTICULAR --THERE'S A BUNCH OF PARTICULAR WRONGS, ONE OF THEM POTENTIAL FOR IDENTITY THEFT. THE TWO BREACH OF THE DATA BASES AT TD AMERITRADE, THE ISSUE WITH THAT, IS THAT THERE'S ID ANALYTICS, WHICH IS PROBABLY THE MOST RESPECTED COMPANY FOR --THEY RUN THE ALGORITHMS. THEY GOT THIS BIG DATABASE, BECOME ASSOCIATED WITH THE CREDIT AGENCY'S COMPUTERS, AND THEY ARE ABLE TO DETECT THE BEST ANYONE HAS BEEN ABLE TO, ALGORITHMS WITH REGARD TO PRIVATE AND PUBLIC SECTORS REGARDING ORGANIZED MISUSE OF THE DATA. SO IF THERE'S SOMEBODY, THE IDEA IS IT'S UNLIKELY ANYONE COULD TAKE INFORMATION FROM A DATABASE OF 76.2 MILLION PEOPLE AND USE ONE OR TWO OF THE IDENTITIES. THE IDEA THERE WOULD BE ORGANIZED MISUSE AND THEY GOT -¥ THE COURT: THAT WAS MY NEXT QUESTION: WHAT'S ORGANIZED MISUSE, AS OPPOSED TO UNORGANIZED MISUSE? MR. KAMBER: ORGANIZED MISUSE AS IT'S BEEN EXPLAINED, AS WE UNDERSTAND, IS THAT SOMEBODY HAS TAKEN THE DATA, IT WAS A CRIMINAL PENETRATION OF THE DATABASES. SOMEBODY HACKED INTO THE DATA BASE AT TD AMERITRADE, JUST KEEPING WITH WHAT IS PUBLICLY AVAILABLE INFORMATION, THE --WHOEVER DID THAT WE KNOW WHAT HAS BEEN, WE KNOW THAT CERTAIN SPAM WAS SENT TO ALL OF THE E-MAIL ADDRESSES THAT WERE IN THE DATA BASE. MR. RUBIN: NOT ALL OF THEM. MR. KAMBER: NOT EVERY E-MAIL ADDRESS. CERTAINLY E-MAIL ADDRESSES THAT WERE USED, THERE HAS BEEN, WITH RESPECT TO THE SOCIAL SECURITY NUMBERS, SOMEBODY --IF THE HACKER WAS GOING TO SELL OR TO USE THAT INFORMATION, IT WOULD BE DONE SO THAT THOSE SOCIAL SECURITY NUMBERS WOULD BE USED IN SOME ORGANIZED WAY. THE ORGANIZED WAY THERE WOULD BE SOME, WOULD NOT NECESSARILY BE ALL 76 MILLION SOCIAL SECURITY NUMBERS, BUT MIGHT BE 500, MIGHT BE A 1,000, MIGHT BE 5,000. AND THE ALGORITHMS AND COMPUTER PROGRAMS DEVELOPED BY ID ANALYTICS CAN DETERMINE WHEN THERE HAS BEEN SUCH AN ORGANIZATION MISUSE. LIKE IF I, FOR INSTANCE, IF YOU SEE THAT CREDIT CARD COMMERCIAL ON TV, YOU'RE GOING TO --DECIDE YOU'RE GOING TO STEAL THAT PERSON'S IDENTITY BY USING HIS SOCIAL SECURITY NUMBER, ONE INSTANCE OF THAT YOU WOULDN'T KNOW NECESSARILY WHERE THAT ONE --HOW YOU STOLE THAT PERSON'S IDENTITY OR HOW THAT PERSON'S IDENTITY WAS BEING MISUSED. HOWEVER, IF YOU HAD A BUNCH OF THE SOCIAL SECURITY NUMBERS FROM A PARTICULAR DATABASE AND YOU WERE GOING TO PERPETRATE A FRAUD, AND TO HAVE IDENTITY THEFT YOU WOULD BE USING THEM IN A WAY THAT WOULD SHOW PATTERNS ACCORDING TO ALGORITHMS, SHOW THE PATTERNS IN THEIR USE. YOU WOULD APPLY SOME PATTERN, HOW THE CREDIT CARDS WERE BEING APPLIED FOR, ABOUT THE TIMING OF WHEN THINGS WOULD BE REPORTED CREDIT AGENCIES AND NOT TO GET TOO MUCH INTO WHAT'S PROBABLY MATHEMATICS BEHIND THE ALGORITHM. THERE WAS A CORRELATION BETWEEN ALL 6.2 MILLION PEOPLE. AND SO, IF THERE ARE PARTICULAR CORRELATIONS THAT ARE PART OF THE ALGORITHMS THAT ARE DETECTED BY THE COMPUTER PROGRAMS AT ID ANALYTICS THAT WOULD BE ORGANIZED MISUSE. IT'S FAR BEYOND MY CAPACITY TO DUPLICATE OR MAYBE EVEN FULLY UNDERSTAND THE ALGORITHMS. I WOULD SAY, IN OUR WORK IN DISCUSSIONS WITH DEFENDANT AND DISCUSSIONS WITH OUR EXPERT AND DISCUSSIONS WITH PEOPLE AROUND THE COUNTRY REGARDING THE REPUTATION OF ID ANALYTICS HOW TO DETERMINE IDENTITY THEFT, THEY ARE THE COMPANY THAT EVERYBODY POINTS TO AS BEING CAPABLE OF DOING THIS. AND THEY'RE USED WIDELY THROUGHOUT THE PRIVATE SECTOR AND FORTUNE 500 IN DEALING WITH JUST THESE SITUATIONS. MR. RUBIN: IF I MAY, ID ANALYTICS HAS RUN THREE TESTS NOW AND HAS -¥ THE COURT: WHAT? MR. RUBIN: HAS ALREADY RUN THREE TESTS AGAINST THE TD AMERITRADE DATABASE, THUS FAR WE RECEIVED THREE CERTIFICATIONS THERE IS NO EVIDENCE OF ANY ORGANIZED MISUSE. BUT FURTHER TEST WILL BE RUN PURSUANT TO THE SETTLEMENT AGREEMENT AND THAT WAS SOMETHING THAT WAS NEGOTIATED AND AGREED UPON IN THE SETTLEMENT. AND THAT IS, AS MR. KAMBER INDICATES, WHAT TRIGGERS, THAT WOULD TRIGGER TD AMERITRADE'S COMMITMENTS OR OBLIGATIONS. IF ID ANALYTICS DOES IN ITS REMAINING TESTS OR TEST FIND ANY EVIDENCE OF ORGANIZED MISUSE, THOSE INDIVIDUALS WHO IDENTIFIED IN THAT TEST WOULD THEN BE NOTIFIED AND THEN THEY WOULD HAVE AN OPPORTUNITY TO MAKE ANY INDIVIDUAL IDENTITY THEFT CLAIMS. TD AMERITRADE IN THE SETTLEMENT AGREEMENT HAS AGREED TO PROVIDE ASSISTANCE IN TERMS OF IDENTITY THEFT, IN TERMS OF REMEDIATION, CANCELING CREDIT CARDS AND DOING OTHER THINGS, HAS ALSO COMMITTED TO PROVIDING A REASONABLE RESPONSE TO ANY CLAIM. NO COMMITMENT AS TO WHETHER ANY AMOUNT WOULD BE PROVIDED, BUT A REASONABLE RESPONSE THAT WOULD TAKE ACCOUNT OF ALL THE CIRCUMSTANCES. MR. KAMBER: THAT'S REALLY TO ADDRESS --THAT FOCUSED ON YOUR FIRST QUESTION. ONE OF THE THINGS THAT'S BEEN A GREAT DEAL OF EFFORT IN MANY MONTHS OF NEGOTIATING THIS --WHERE THIS SETTLEMENT HAVE NOT BEEN ABLE TO --THERE IS AN ISSUE CONFRONTING CORPORATE AMERICA REALLY ON A GREATER BASIS DAY TO DAY. AND WHAT THIS SETTLEMENT PROVIDES IS MECHANISM WHICH REALLY HAS BEEN A BIT OF HOLLY GRAIL WHAT THESE PROBLEMS ARE, HOW YOU CREATE A SETTLEMENT OF IDENTITY THEFT ISSUES THAT PROVIDES A COGNIZABLE BENEFIT TO THE CLASS. MAKES IT ABLE TO DEAL WITH IDENTITY THEFT THAT MAY OR MAY NOT HAVE TAKEN PLACE EVEN THOUGH THE BREACH HAS ALREADY TAKEN PLACE AND DOES IT IN A WAY THAT MAKES SENSE. WHAT WE'VE DONE HERE IS WE CREATED A STRUCTURE WITH DEFENDANTS, THAT IN THE NEGOTIATIONS WHAT WE'VE BEEN ABLE TO DO HAVE, ONE, ID ANALYTICS THERE'S IDENTIFICATION THUS FAR, ALL SIGNS POINT TO THE FACT THOSE SOCIAL SECURITY NUMBERS NEVER LEFT THE DATABASE AND WERE NOT MISUSED. IF THEY WERE THEY HAVE A METHODOLOGY, EVERYONE HAS A GREAT DEAL OF CONFIDENCE IN BEING ABLE TO IDENTIFY THOSE PEOPLE. IF THOSE PEOPLE ARE IDENTIFIED, THE MECHANISM THEY RECEIVE A LETTER FROM TD AMERITRADE BECAUSE IDENTIFY THEFT, THE KEY WITH IDENTIFY THEFT IS EARLY IDENTIFICATION. THEY WOULD BE GIVEN A LETTER SAYING YOU'VE BEEN IDENTIFIED AS BEING A POTENTIAL VICTIM OF IDENTITY THEFT. PART OF THE SETTLEMENT PROVIDES THEY ARE GIVEN A HOT LINE AND SUPPORT FOR DOING THE THINGS THEY NEED TO DO AS INDIVIDUALS IN ORDER TO PROTECT THEIR IDENTIFY AND LIMIT DAMAGE FROM IDENTITY THEFT, TURNING OFF YOUR CREDIT CARDS, CALLING CREDIT AGENCY, ET CETERA. THE STUDIES ALL SHOW 80 PERCENT OF THE HARM THAT INDIVIDUALS SUFFER FROM IDENTIFY THEFT, THE TIME IT TAKES BOTH FROM --IN GETTING THE ADMINISTRATIVE TASKS DONE IN ORDER TO ADDRESS IDENTIFY THEFT, AND THE SETTLEMENT SPECIFICALLY PROVIDES ASSISTANCE FOR PEOPLE IN THAT EVENT THAT OCCURS. FURTHER, IT PROVIDES CHOICE OF --PEOPLE CAN CHOOSE TO GO THROUGH A MEDIATION PROCESS, WHICH WOULD BASICALLY -¥BECAUSE THEY BEEN IDENTIFIED BY ID ANALYTICS, HAS A FUNCTIONAL PURPOSE OF PROVIDING THAT CAUSATION IS NOT --WHICH IS USUALLY VERY DIFFICULT TO SHOW HOW IDENTIFY THEFT CAME FROM THAT PARTICULAR BREACH AT THAT PARTICULAR TIME. WE CREATED A MEDIATION OR ARBITRATION PROCESS, IF THEY WERE TOO CLOSE TO GO THROUGH THAT, WHICH WOULD PROVIDE ANY DAMAGES THEY SUFFERED TO BE DEALT WITH FAIRLY BY AMERITRADE. THAT'S WHY THE KEY IS THE INDIVIDUALS AREN'T RELEASING THEIR CLAIMS IF HE THEY WOULD CHOOSE TO DO AN INDIVIDUAL ACTION AGAINST TD AMERITRADE, THEY WOULD BE FREE TO DO THAT. AS A CLASS A PARTICULAR BENEFIT GOING OUT TO EVERYONE AND DEALS WITHIN A PARTICULAR CONSTRUCTIVE WAY GOOD FOR THE CLASS AND ALSO WORKS FOR DEFENDANT AND, I THINK, PROVIDES A MODEL FOR FUTURE SITUATIONS. THE COURT: WHAT YOUR SETTLEMENT IS PREDICATED ON IS THIS NOTION THAT YOU'RE GOING TO BE ABLE TO IDENTIFY ORGANIZED HACKING INTO THE DATABASE AND THEFT OF A GROUP, A LARGE NUMBER OF THE PERSONAL IDENTIFICATION INFORMATION FOR TD AMERITRADE CUSTOMERS. BUT WHAT THE CLASS IS GIVING UP IS ITS CLASS CLAIM, AND TO THE EXTENT THERE IS ANY INJURY WHICH RESULTS IN THE FUTURE, IT'S GOING TO BE AN INJURY THAT THE MEMBERS OF THE CLASS ARE GOING TO HAVE TO PURSUE ON AN INDIVIDUAL BASIS. AND IT MAY VERY WELL BE THAT THE ECONOMIC VALUE OF PURSUING INDIVIDUAL CLAIMS IS NOT GREAT ENOUGH TO MAKE THAT A VIABLE REMEDY, AND YET THAT'S GOING TO BE THE WAY IN WHICH THAT COULD BE REMEDIED, THING ABOUT A CLASS ACTION IS GOING TO BE PRECLUDED UNDER THIS SETTLEMENT. MR. KAMBER: I THINK, WOULD BE HELPFUL AT THIS POINT, IF YOU WOULD INDULGE ME, TAKE ONE STEP BACK. THERE'S REALLY FOUR DISTINCT HARMS THAT ARE ADDRESSED IN THE SETTLEMENT. THEY'RE ADDRESSED IN FOUR DIFFERENT WAYS AND THE IDENTITY THEFT IS PROBABLY THE MOST COMPLICATED OF THEM. BUT, I THINK, WHEN YOU SEE THE OTHER ONES, THE IDENTITY THEFT WILL SEEM LESS TO COME OUT OF THE BLUE AND IT WILL BECOME MORE CLEAR THAT THAT IDENTITY THEFT SOLUTION IS AN APPROPRIATE SOLUTION HERE. THE FIRST, AND WHAT CAME TO EVERYONE, THE REASON THIS CAME TO EVERYONE'S ATTENTION, IS NOT BECAUSE OF IDENTITY THEFT, LATER ON IT BECAME LEARNED AS A RESULT OF LAWSUIT AND DISCOVERY, ET CETERA, THAT SOCIAL SECURITY NUMBERS WERE PART OF THIS. MR. RUBIN: NOT SOCIAL SECURITY NUMBERS PART OF THIS, THEY WERE IN THE DATABASE, JUST TO BE CLEAR THERE WAS A MALICIOUS UNAUTHORIZED CODE PLACED BY OUTSIDER INTO TD AMERITRADE'S SYSTEM. WHAT IS INDISPUTABLE IS THAT E-MAIL ADDRESSES AND SOME OTHER DEMOGRAPHIC INFORMATION WAS OBTAINED BY THIS OUTSIDER. THERE IS AS OF YET, FORTUNATELY, NO EVIDENCE OF SOCIAL SECURITY NUMBERS OR DATES OF BIRTH BEING OBTAINED. AND THAT DISCLOSURE UPON FINDING THAT, I THINK, WE BRIEFLY TOUCHED UPON THIS IN OUR CMC, THAT DISCLOSURE ONCE TD AMERITRADE IDENTIFIED THE UNAUTHORIZED CODE, ELIMINATED IT. WE SENT A NOTICE TO CLASS MEMBERS INDICATING THAT THIS INFORMATION, THERE HAD BEEN UNAUTHORIZED ACCESS OR ACQUISITION TO THIS INFORMATION. THAT THE MALICIOUS CODE HAD BEEN ELIMINATED. THAT E-MAIL ADDRESSES, AT LEAST, E-MAIL ADDRESSES AND SOME DEMOGRAPHIC INFORMATION HAD BEEN OBTAINED. BUT AS OF THAT DATE AND, FORTUNATELY, EVEN AS OF TODAY, NO SOCIAL SECURITY NUMBERS OR DATE OF BIRTH, THERE'S NO EVIDENCE OF THOSE BEING OBTAINED. SO THAT'S SORT OF HOW WE GOT TO WHERE WE ARE NOW. MR. KAMBER: LET ME BACK TO WHERE I WAS TALKING. IN THE ORIGINAL COMPLAINT THE ORIGINAL ISSUE, WHAT WAS BEYOND DISPUTE IS THAT THERE WERE E-MAIL ADDRESSES, THERE WERE E-MAIL ADDRESSES BEING USED TO SPECIFIC TD AMERITRADE CUSTOMERS, SPECIFICALLY SPAM. THEY WERE SENT E-MAILS SAYING, HEY, BUY THIS STOCK. THERE WAS EFFORTS TO MANIPULATE THE STOCK MARKET AND THE TRADING IN PARTICULAR SECURITIES BY TARGETING TD AMERITRADE CUSTOMERS. THE INFORMATION FOR THOSE CUSTOMERS, THEIR E-MAIL ADDRESS IS --NOT THEIR ACCOUNT DATA, THEIR E-MAIL ADDRESSES CAME FROM A PARTICULAR DATABASE THAT WAS HACKED. SO THE FIRST HARM THAT'S BEING ADDRESS IS THE ASPECTS THERE'S A SPAM SENT OUT AND TWO ASPECTS OF THAT SPAM, ONE, THESE PEOPLE ARE GETTING --TD AMERITRADE NOT SUPPOSE TO SHARE THE E-MAIL ADDRESSES, THEY WERE HACKED, SO THE E-MAIL ADDRESSES, PEOPLE WERE BEING ANNOYED BY JUST RECEIVING SPAM GENERALLY. BUT MORE SPECIFICALLY WAS THE SECOND ASPECT OF THAT, THAT IT'S STOCK SPAM, AN EFFORT TO GET PEOPLE TO TRADE THINLY TRADED STOCKS IN ORDER TO TAKE A PROFIT. THE REMEDY PARTICULAR TO THAT ASPECT OF THE CLAIM, IS THERE'S TWO PIECES OF IT. ONE, EVERY MEMBER OF THE CLASS, ALL 6.2 MILLION MEMBERS OF THE CLASS, YOUR HONOR, WILL RECEIVE A CODE FOR TREND MICRO INTERNET SECURITY PRO, WHICH IS INTERNET SECURITY SOFTWARE ON THE COMPANY'S WEBSITE. ON TREAD MICRO'S WEBSITE FOR 69.95 PRODUCT, LIKE NORTON THAT PROVIDES VERY SPECIFIC BENEFITS TO KEEP PEOPLE FROM RECEIVING SPAM, BEING VICTIM OF FISHING, FROM DEALING WITH VIRUSES ON THEIR COMPUTERS, ET CETERA, ALL THESE TYPE OF RISKS. SO IT'S A PARTICULAR BENEFIT THAT HAS REAL VALUE TO THE CLASS THAT IS GOING TO THE CLASS THAT ADDRESSES THAT PARTICULAR HARM. FURTHER, THERE WERE WARNING THAT WILL GO UP ON THE TD AMERITRADE WEBSITE. THE COURT: HOW MUCH IS THAT GOING TO COST? MR. KAMBER: I WILL LEAVE THAT TO DEFENSE COUNSEL. THE ONE THING, HAVING DONE IN MY PAST LIFE ON THE DEFENSE SIDE AND THE PLAINTIFF'S SIDE DONE SECURITY CASES MORE, MY PRACTICE IS NOW ALL CONSUMER CASES, THE ONE THING, THE MAIN REASON FOR THAT IS, I APPRECIATE THAT IN CONSUMER CASES THAT IT'S NOT ALWAYS A ZERO SUM GAME, A LOT OF TIMES A LOT OF OPPORTUNITY THERE'S A TRUE BENEFIT THAT GOES TO THE CONSUMER THAT IS NOT NECESSARILY EQUAL TO THE COST INCURRED BY THE COMPANY. THE COURT: HOW MUCH? MR. RUBIN: YOUR HONOR, I CERTAINLY COULD PROVIDE THAT TO YOU. I DON'T HAVE THE EXACT NUMBER. I CAN TELL YOU IT'S 2 LESS THEN THE RETAIL AMOUNT. THAT IS ABSOLUTELY TRUE. 3 TD AMERITRADE'S BASE ON THE VOLUME PURCHASED, IS ABLE 4 TO PURCHASE THE TREND MICRO SECURITY DEVICES AT A COST LESS 5 THEN WHAT THE RETAIL COST IS, I BELIEVE, THE RETAIL COST. 6 MR. KAMBER: 69.95 THAT'S THE ACTUAL COST THAT'S SOLD 7 ON THEIR WEBSITE AND ALSO IN STORES. 69.95 IS THE REAL COST 8 THAT PEOPLE PAY FOR THIS PRODUCT. 9 MR. RUBIN: SIGNIFICANTLY LESS. I DON'T KNOW THE 10 PRECISE NUMBER. MAY EVEN BE TIERED BASED UPON THE AMOUNT, 11 ULTIMATELY THE AMOUNT OF DEVICES ULTIMATELY ORDERED. IF THE 12 COURT FINDS THAT MATERIAL I CAN CERTAINLY GET IT, I DON'T KNOW IT TODAY. 14 15 PAPER? 16 17 DEVICES. 18 19 20 21 THE COURT: WHERE IS THAT ADDRESSED IN THE SETTLEMENT MR. RUBIN: THE PROVISION OF THE ANTI-SPAM FILTER I BELIEVE, THAT'S -¥ THE COURT: YES. MR. RUBIN: --IT'S UNDER SECTION FOUR. THE COURT: PARAGRAPH FOUR? MR. RUBIN: 4A4. SO SETTLEMENT CONSIDERATION 22 COMPANY'S AGREED ACTIONS. AND IF YOU LOOK UNDER NUMBER FOUR 23 THE COMPANY WILL PROVIDE EACH CLASS MEMBER A UNIQUE IDENTIFIER 24 NUMBER THAT MAY BE USED TO OBTAIN A ONE YEAR'S SUBSCRIPTION OR ONE YEAR RENEWAL FOR ANTI-VIRUS, ANTI-SPAM. THE COURT: ONE YEAR SUBSCRIPTION? MR. KAMBER: THAT'S WHAT'S BEING SOLD ON THE WEBSITE. WHAT HAPPENED YOU CAN GET THE SOFTWARE, PLUS YOU GET ONE YEAR'S OF UPDATES. THE COURT: IS THAT THE SOFTWARE PAID FOR BY THE CLASS MEMBER? MR. KAMBER: NO, IT'S NOT. TD AMERITRADE, NO COST TO THE CUSTOMER WHATSOEVER. THE CODE, THERE IS NO COST. YOU DON'T HAVE TO PAY FOR SUBSCRIPTION AFTER A YEAR. THIS WAS A VERY IMPORTANT PART OF OUR NEGOTIATIONS. IF AFTER A YEAR THE CUSTOMER WANTS TO DISCONTINUE, WHATEVER THEY WANT TO DO THEY CAN DO. NO CREDIT CARD NECESSARY, EVERY MEMBER OF THE CLASS GETS A CODE, THEY CAN DO WITH THAT CODE WHAT THEY WILL. IF THEY ALREADY OWN THE SOFTWARE THEY GET ADDITIONAL YEAR ADDED TO THEIR DESCRIPTION. MR. RUBIN: I PROBABLY MISUNDERSTOOD. THERE IS NO COST TO THE CLASS MEMBERS TO TD AMERITRADE. MR. KAMBER: VERY SENSITIVE TO THAT POINT. THE COURT: ALL RIGHT. MR. KAMBER: THE SECOND ASPECT OF PARTICULAR TOUCHED ON, IS THE STOCK NATURE OF THE SPAM THE PEOPLE MAYBE --WE DON'T WANT THE CLASS MEMBERS TO FALL VICTIM, THE EFFORTS TO INDUCE THEM TO TRADE A THINLY TRADED STOCK. IT'S A MORE COMPLICATED ISSUE, AS FAR AS NOT NECESSARILY KNOWING WHETHER THOSE EFFORTS FROM THE COMPANY, ET CETERA, IN THE NEGOTIATIONS, IS THE RELIEF WE DEALT WITH ON TD AMERITRADE'S WEBSITE, PARTICULAR SECURITY ALERTS. PEOPLE WHEN PEOPLE LOG IN THEY WILL ACTUALLY SEE SPECIFIC EXPLANATION AS TO WHAT STOCK SPAM IS AND HOW STOCK TOUTING WORKS. SO PEOPLE ARE ON ALERT THAT IF THEY GOT AN E-MAIL, THEY'RE TRADING IN THE STOCKS, MAYBE BECAUSE --MANY --SOME WRONGFUL EFFORT THE COMPANY WAS VERY SENSITIVE ABOUT, ABOUT NOT ACCUSING OF --THE COMPANIES THEMSELVES THAT ARE THE SUBJECT OF THE STOCK TOUTING E-MAIL, OF ACTUALLY BEING THE ONES THAT ARE SENDING OUT THE STOCK TOUTING E-MAIL. THE THIRD ASPECT IS THAT THERE WAS A SECURITY VULNERABILITY. IT'S BEEN PLAINTIFF'S POSITION THAT IT'S THE SECURITY VULNERABILITY IN THAT DATABASE IN THE FIRST PLACE THAT ALLOWED --THAT ALLOWED THIS BREACH TO HAPPEN. AND THAT THERE WERE CERTAIN BEST PRACTICES IN THE SECURITY AREA THAT COULD KEEP SUCH A BREACH FROM HAPPENING IN THE FUTURE. THE GOOD NEWS ABOUT THIS, IS THAT THERE ARE CERTAIN THINGS THAT ARE BEING DONE, THAT THE COMPANY HAS COMMENCED DOING EVEN BEFORE THE APPROVAL OF THE SETTLEMENT. BECAUSE IN THE WORLD OF SECURITY CASES AND IN TECHNOLOGY CASES, SOMETIMES IT'S NOT TERRIBLY HELPFUL TO --I ALSO SAY TO SETTLE A TWO-POINT --SETTLE AOL 2.0 AFTER 5.0 BEING A --RELEASED. THE COMPANY AGREED TO THE RESPONSIBLE DECISION TO BEGIN THESE PRACTICES IMMEDIATELY. ONE OF THEM WAS TWICE YEARLY PENETRATION TESTING THROUGH DECEMBER 2009, THAT'S WHEN SECURITY COMPANIES COMES THROUGH AND TRACE TRIES TO PENETRATE THE DATABASE, THEY TRY TO BASICALLY DO A HACKER DOES. THEY GAVE REPORT BACK TO THE COMPANY AND THEY'VE SAY THIS IS WHAT YOU NEED TO DO TO FIX THIS IF THERE'S A VULNERABILITY. FURTHER, THERE'S ACCOUNT SEEDING THAT WILL BE DONE REGULARLY THROUGH THE END OF DECEMBER 2008, THAT'S ALREADY BEEN DONE. IT'S THE ACCOUNT SEEDING, WHAT THAT MEANS, IS IT ALLOWED THE DETERMINATION IF --TO FIGURE OUT THE E-MAIL ADDRESS IS -¥ACTUALLY CAME FROM THE DATABASE IN QUESTION. THEY SET UP, BASICALLY, WITHOUT GETTING INTO MUCH SECURITY JARGON AND DETAILS, THEY BASICALLY CREATE FAKE E-MAIL ACCOUNTS. THE ONLY PLACE IN THE WORLD THAT E-MAIL ACCOUNT EXISTS IS IN THAT DATABASE AND THEY'RE ABLE TO SEE IF THOSE, IF THAT SEED GROWS. IF SOMEBODY TAKES THAT PARTICULAR E-MAIL ADDRESS AND USES IT, THAT WOULD TELL YOU THAT THE SOURCE WAS FROM THAT PARTICULAR DATABASE. AND BOTH OF THOSE SECURITY PRACTICES ARE PARTICULARLY IMPORTANT. THEY ALREADY BEGUN. ONE WILL CONTINUE THROUGH DECEMBER 2009, ONE WILL CONTINUE THROUGH DECEMBER 2008. MR. RUBIN: IF I MAY, JUST FOR A MOMENT, I KNOW THAT Case 3:07-cv-02852-VRW Document 62 Filed 06/16/2008 Page 18 of 51 18 1 GENERALLY MR. KAMBER TRIES TO COUCH HIS REPRESENTATIONS IN 2 TERMS OF PLAINTIFF'S POSITION, PLAINTIFF'S ALLEGATIONS, BUT TO 3 THE EXTENT THERE ANY MISUNDERSTANDING, MR. KAMBER SPOKE OF A 4 SECURITY VULNERABILITY. 5 TD AMERITRADE'S POSITION OF, ALTHOUGH FOUND THE 6 UNAUTHORIZED CODE, WE BELIEVE OUR SYSTEMS WERE AND ARE 7 REASONABLE IN --AND TAKE ALL REASONABLE SAFEGUARDS TO PROTECT 8 OUR CUSTOMERS INFORMATION. AND WE DID VIGOROUSLY CONTEST THAT 9 CLAIM AND WOULD HAVE --WOULD IF THIS LITIGATION CONTINUES. 10 SO I DIDN'T WANT THE COURT TO BELIEVE IN ANY WAY WE 11 WERE CONCEDING OR ACKNOWLEDGING SOME VULNERABILITY ON THE PART 12 OF TD AMERITRADE. 13 OBVIOUSLY, THERE IS THE KIND OF SITUATION WHERE YOU 14 CAN HAVE TWO THINGS THAT ARE TRUE AT THE SAME TIME. THAT 15 COMPANIES TAKE ALL REASONABLE STEPS TO SAFEGUARD CUSTOMER 16 INFORMATION AND SOME INGENIOUS PERSON CAN ACTUALLY BREAK THEIR 17 WAY INTO THE SYSTEM. 18 THE COURT: HOW MANY CLASS MEMBER DO WE HAVE? 19 MR. KAMBER: 6.2 MILLION, APPROXIMATELY. 20 THE COURT: HOW DID YOU COME UP WITH THAT NUMBER? 21 MR. KAMBER: THAT WAS THE NUMBER OF RECORDS IN THE 22 DATABASE. 23 THE COURT: THAT ONE RECORD FOR EACH INDIVIDUAL 24 CUSTOMER? 25 MR. KAMBER: YES, YOUR HONOR. AS I UNDERSTAND IT. MR. RUBIN: I THINK, THERE CAN OCCASIONALLY BE MORE THAN ONE. MR. KAMBER: THERE CAN, BUT THE EXPECTATION THERE WILL BE 6.2 MILLION CODES THAT WILL BE GIVEN OUT TO PEOPLE AND THAT TIES IN WITH THE NOTICE ITSELF. THE NOTICE, THERE WILL BE DIRECT MAIL NOTICE GIVEN THROUGH EITHER E-MAIL OR PEOPLE HAVE OPTED OUT OF E-MAIL AND I SAID THEY PREFER TO RECEIVE REGULAR MAIL. A LOT OF PEOPLE ARE VERY E-MAIL AND TEXT SAVEY. IN THAT SITUATION ALL OF THEM WILL BE RECEIVING FROM THE DATABASE DIRECT NOTICE, EITHER BY E-MAIL OR BY POSTCARD NOTICE. MR. RUBIN: IF THE E-MAIL BOUNCES BACK WE'LL DO A POSTCARD NOTIFICATION. MR. KAMBER: IT'S QUITE AN EXTENSIVE NOTICE PROGRAM. THE FINAL, YOUR HONOR, WE COME BACK TO THE ISSUE THAT BROUGHT US TO THIS POINT, WHICH IS YOUR INITIAL POINT, WHICH IS THAT OF IDENTIFY THEFT. THE ISSUE WITH RESPECT TO, THERE IS NO EVIDENCE THUS FAR, AND I'M ONLY COUCHING CERTAIN TERMS BECAUSE THERE WAS A DEPOSITION TAKEN IN THIS CASE THAT'S PARTICULAR RELEVANT, THAT WAS OF THE HEAD SECURITY PERSON AT TD AMERITRADE. BECAUSE OF THE, OBVIOUSLY, PARTICULAR SECURITY ISSUES THAT DEPOSITION WAS DESIGNATED ATTORNEYS EYES ONLY. AND I'M TRYING TO BE CAREFUL NOT TO GET INTO THE ISSUES IN OPEN COURT THAT CAME SPECIFICALLY FROM THAT DEPOSITION. SO WITH RESPECT TO THE IDENTIFY THEFT, AT THIS JUNCTURE IT APPEARS FROM THE WORK DONE BY ID ANALYTICS AND ALSO INFORMATION FROM THE INFORMATION SECURITY SIDE OF TD AMERITRADE, THAT THERE IS NO EVIDENCE THAT ANY SOCIAL SECURITY NUMBERS WERE EVER TAKEN FROM THE DATABASE. OKAY. WE AS PLAINTIFF'S COUNSEL AND AS THE PLAINTIFF, MR. ELVEY, AND THE OTHER PLAINTIFFS THOUGHT IT WAS PARTICULARLY IMPORTANT, THAT THE POSSIBILITY OF IDENTIFY THEFT BE ADDRESSED BECAUSE IT IS A POSSIBILITY. THERE'S NO WAY TO PROVE THE NEGATIVE IN THIS CASE. IT'S UNLIKELY, THERE HASN'T BEEN ANYTHING DEMONSTRATED TO SHOW THAT IT'S HAPPENED, BUT IT'S IMPORTANT TO BE ABLE TO ADDRESS IT. THAT'S A KEY ASPECT REALLY OF THIS WHOLE SETTLEMENT, AND THE PIECE OF THAT IS THAT ID ANALYTICS, A LOT OF THIS COMES FROM ID ANALYTICS, FROM THE INTEREST SHOWN. THE COURT WERE TO GRANT PRELIMINARY APPROVAL, AT THE TIME OF THE FINAL APPROVAL AT THE FAIRNESS HEARING, I THINK, IT WOULD PROBABLY BE APPROPRIATE TO HAVE EITHER SOMEBODY FROM ID ANALYTIC COME INTO TESTIFY REGARDING THE PROGRAM OR, AT LEAST, SUBMIT AN EXTENSIVE AFFIDAVIT TO THE COURT DETAILING WHAT IT IS ID ANALYTICS DOES AND THE CONFIDENCE --AND WHY WE HAVE THE CONFIDENCE WHAT THEY DO THEY DO RIGHT. AND IN THIS PARTICULAR SITUATION, YOUR HONOR, THE IDEA IS, WE'RE SETTLING SOMETHING TODAY, BUT WE WON'T KNOW FOR ANOTHER YEAR, FOR ANOTHER EIGHT MONTHS. AND WHEN WE WERE DEALING WITH THE SETTLEMENT AGREEMENT IT WAS ABOUT A YEAR AWAY, WE DIDN'T KNOW FOR SURE WHETHER THOSE SOCIAL SECURITY NUMBERS WERE USED FOR IDENTIFY THEFT OR NOT. THE TERM ORGANIZED MISUSE, IT'S NOT MEANT TO BE A TERM WITH A WIGGLE ROOM, NOT MEANT TO BE, OKAY, THERE'S SUCH A THING AS DISORGANIZED MISUSE. THERE REALLY ISN'T, YOUR HONOR. ORGANIZED MISUSE REFLECTS THE IDEA THAT SOMEBODY BROKE INTO THIS DATABASE, TOOK THE SOCIAL SECURITY NUMBERS AND USED THEM. IF THEY'RE WALL PAPERING THEIR HOUSE WITH THOSE SOCIAL SECURITY NUMBERS NOT A LOT OF DAMAGE, NOT PARTICULARLY RELEVANT. IT BECOMES RELEVANT TO THE CUSTOMERS IN --THE CLASS MEMBERS IN THE CASE IF THE SOCIAL SECURITY NUMBERS ARE ACTUALLY USED. THAT USE OF THE SOCIAL SECURITY NUMBERS WHEN IT'S DONE NOT JUST ON AN INDIVIDUAL BASIS BUT ON A MULTI-TIER BASIS IS QUOTE-UNQUOTE "ORGANIZED MISUSE." SO I WANT TO MAKE SURE THE COURT DIDN'T THINK WE WERE USING THAT TERM AS A WIGGLE ROOM. THE COURT: LET ME THROW IN A QUESTION. HOW DO I VALUE THIS SETTLEMENT? MR. KAMBER: THERE ARE LOT OF WAYS ONE COULD VALUE THE SETTLEMENT, FROM THE CLASS MEMBER AS A CONSUMER CASE, TO A CLASS MEMBER THE VALUE OF THIS SETTLEMENT IS THE INTERNET SECURITY PRODUCT THEY ARE RECEIVING. IT IS THE FURTHER CONFIDENCE THEY'LL HAVE THEIR INFORMATION IS PROTECTED GOING FORWARD. AND IT IS THE FURTHER PROTECTION THAT IF THERE WAS -¥SOCIAL SECURITY NUMBER WAS TAKEN AND THEY ARE VICTIM OF IDENTITY THEFT DUE TO THIS PARTICULAR BREACH, THAT THEY HAVE A MECHANISM THAT IS AS PAINLESS OF THE MECHANISM AS POSSIBLE FOR DEALING WITH IDENTIFY THEFT, WHICH IS A REALLY NASTY PROBLEM TO DEAL WITH. THAT'S HOW --AND THAT IS HOW A PLAINTIFF WOULD VALUE THE SETTLEMENT. THE COURT: LET ME ASK MR. RUBIN, HOW A DEFENDANT WOULD VALUE THE SETTLEMENT? MR. RUBIN: OBVIOUSLY, YOUR HONOR, THIS IS --IT CAN BE DIFFICULT IN CERTAIN RESPECTS TO MONETIZE THIS. I THINK, CLASS --WHAT THE COURT'S ASKING IT CAN BE BECAUSE YOU'RE LOOKING AT SOME RESPECTS PEACE OF MIND. IT'S SOME FUTURE SECURITY ASSUREDLY THAT YOUR INFORMATION IS SAFE. SOME PREVENTIVE MEASURES. IF IT TURNS OUT, ALTHOUGH, THERE'S NO EVIDENCE OF IT NOW, THERE WAS SOME INDICATION SOMEBODY USING YOUR SOCIAL SECURITY NUMBER, YOU HAVE SOME PROCEDURES IN PLACE THAT MAY HELP YOU RESOLVE THAT. HOW TO PLACE A NUMBER ON IT, I THINK, IS DIFFICULT. I THINK, YOU PROBABLY --WOULD PROBABLY BE ABLE TO GET SOME BUSINESS VALUATION EXPERTS TO COME AND BEGIN TO TALK ABOUT SOME OF THOSE ASPECTS. 2 BUT ONE POINT I DO WANT TO MAKE IS, I THINK, 3 TYPICALLY, AND I DON'T WANT TO PREDICT WHERE YOUR QUESTION'S 4 GOING, BUT OFTENTIMES SETTLEMENT FEES AND COST ARE BASED UPON 5 THINGS LIKE HOW MUCH IS THE SETTLEMENT WORTH. 6 YOU HAVE A COMMON FUND CASE SECURITY FRAUD ACTION YOU 7 HAVE AN AMOUNT. 8 9 ARISEN. 10 11 MEASURE. 12 13 14 THE COURT: WE HAVE HERE A LOSS WHICH HAS NOT YET MR. RUBIN: FOR THAT PIECE, RIGHT, IT'S PREVENTIVE THE COURT: RIGHT. MR. RUBIN: THERE'S NO LOSS YET ARISEN. BY THE WAY, GOING BACK TO YOUR PRIOR POINT ABOUT WHEN 15 YOU WERE INITIALLY POSING THE QUESTION MR. KAMBER, 16 UNDERSTANDING WHAT CLASS CLAIMS WERE BEING GIVEN AWAY VERSUS 17 INDIVIDUAL CLAIMS. 18 OUR POSITION THAT WE STATED, I THINK, RATHER ADAMANTLY 19 AND FORTHRIGHTLY, MR. KAMBER WAS --IT WOULD BE A VERY 20 DIFFICULT, IF NOT POSSIBLE CAUSATION CASE HERE, EVEN IF IT WERE 21 TO OCCUR AND THE UNLIKELY EVENT -¥ 22 THE COURT: THEN IF WHAT? 23 MR. RUBIN: SOME ORGANIZED MISUSE OF TD AMERITRADE 24 CUSTOMERS' INFORMATION, EVEN IF IT WERE TO OCCUR, LET'S ASSUME JUST FOR PURPOSE OF EXAMPLE THERE WAS SOME ORGANIZED MISUSE FOUND, AS A CLASS MATTER IF THIS WERE TO BE LITIGATED, TK AMERITRADE WOULD HAVE EXTREMELY STRONG ARGUMENTS GIVEN THE NATURE OF THE BREACH UNAUTHORIZED ACCESS. IT DID ALL THE LAW WOULD EVER REQUIRE IN TERMS OF REASONABLE SAFEGUARDS, AND ESSENTIALLY A CRIMINAL ACT OCCURRED, IT CAN'T BE HELD RESPONSIBLE FOR, IS THERE IS NO STRICT LIABILITY SIMPLY BECAUSE WE LOST THE INFORMATION AND SOMEBODY ILLEGALLY IN AN UNAUTHORIZED MANNER OBTAINED THE INFORMATION, DOESN'T UNDER THE LAW, AT LEAST, AS WE READ THE LAW, WOULDN'T HOLD TD AMERITRADE LIABLE FOR THAT. WE DON'T THINK THE CLASS CLAIMS HAVE MUCH VALUE, BUT ON THE OTHER HAND, WE HAVE CUSTOMER SATISFACTION ISSUE. AND WE'RE CONCERNED, OBVIOUSLY, PUTTING ASIDE THE LIABILITY HERE, WE WERE, OBVIOUSLY, CONCERNED WITH THE CLASS, WE SENT OUT NOTICES. THE COURT: LET'S TALK ABOUT THAT LINE. WHAT'S YOUR OPINION ABOUT THE SETTLEMENT WHAT YOUR CLIENT IS OBTAINING, MR. RUBIN, IS PRECLUSION OF ANY OF THESE CLAIMS OF LIABILITY? MR. RUBIN: FOR CLASS ONLY ON THE IDENTIFY THEFT? THE COURT: CORRECT. MR. RUBIN: FOR THE OTHER CLAIMS ALL RELEASES, RIGHT. THE COURT: YOU CAN GO OUT AND BUY AN INSURANCE POLICY AGAINST THAT, WE HAVE A DISCRETE PERIOD OF TIME HERE, DON'T WE? MR. RUBIN: A PERIOD OF TIME, RIGHT. THE COURT: WHICH THIS EXPOSURE IS GOING TO OCCUR OR NOT OCCUR, BUT THAT'S A INSURABLE RISK, ISN'T IT? MR. RUBIN: I WOULD ASSUME THE OLD ADAGE, THERE'S INSURANCE FOR EVERYTHING, SURE. THE COURT: HOW MUCH IS THE PREMIUM GOING TO BE ON THAT POLICY? MR. RUBIN: THAT WOULD BE ONE WAY TO MONETIZE THIS. THE COURT: WHAT IS THAT? MR. RUBIN: I DO NOT KNOW, YOUR HONOR. I DON'T KNOW WHAT AN INDIVIDUAL CLAIM OR INDIVIDUAL POLICY WOULD BE. THERE ARE --I CERTAINLY KNOW THAT THERE ARE INSURANCE COMPANIES OR INSURANCE POLICIES THAT DO PROVIDE PROTECTION AGAINST IDENTIFY THEFT NOW. THE COURT: OF COURSE. CAN I ASK YOU TO GET THAT QUOTE? MR. RUBIN: SURE. HAD, OF COURSE, WITH A LOT OF -¥ THE COURT: THAT WILL TELL US WHAT THIS EXPOSURE IS WORTH, WON'T IT? MR. RUBIN: I CAN TELL YOU PURPOSE, FOR TD AMERITRADE'S PURPOSE IN TERMS OF THE ACTUAL WORD HERE, AS YOU SAW IN THE SETTLEMENT AGREEMENT WE COULDN'T AGREE ON FEES, WE WERE FAIRLY FAR APART ON FEES, SO WE HAD TO TURN TO A JAMS MEDIATOR, WAS AGREED UPON BY THE PARTIES IN A MEDIATION SESSION. WE WILL CERTAINLY PROVIDE THIS INFORMATION. I CAN TELL YOU FROM OUR ADVANTAGE POINT TD AMERITRADE DID NOT ATTEMPT TO VALUE ALL PIECES OF THE SETTLEMENT IN TERMS OF AN AWARD AND ANALYZED IT AS A COMMON FUND CASE. WE LOOKED WHAT WE THOUGHT WAS A REASONABLE LOAD STAR EFFORT, BASE THE NEGOTIATIONS IN THAT SETTING WHICH, I THINK, IS --AND WE, OBVIOUSLY, PUSH AS HARD AS WE COULD TO KEEP IT AS LOW AS WE COULD UNTIL WE REACHED AGREEMENT. I CERTAINLY CAN AND WILL GET YOU TO INFORMATION. I DON'T THINK IT'S THE ONLY WAY TO GO ABOUT UNDERSTANDING. THE COURT: ARE THERE OTHER WAYS OF UNDERSTANDING THE SETTLEMENT? OTHER WAYS OF VALUING THE SETTLEMENT BESIDES FIGURING OUT WHAT IT WOULD COST TO INSURE AGAINST THIS RISK? THAT YOUR CLIENT IS BEING PROTECTED AGAINST BY THIS SETTLEMENT? MR. RUBIN: I THINK, EVEN THE INSURANCE IS, AND AGAIN, JUST THINKING ABOUT THIS IN THE MONETIZING SENSE, A CREDIT CARD COMPANY, MOST CREDIT CARD COMPANIES WOULD NOT HOLD YOU RESPONSIBLE FOR ANY FRAUDULENT CHARGES, OBVIOUSLY. SO TO THAT EXTENT, IN OTHER WORDS, SOMEBODY GOES OUT AND GETS INSURANCE, THEY'RE COVERING ESSENTIALLY FOR THE SURPLUS AMOUNT. THIS REALLY WAS CREATING PROCEDURALLY STATE OF MIND EASE OF THE CUSTOMER. EVEN THE INSURANCE POLICY COULD BE DIFFERENT THAN THE VALUE HERE. OBVIOUSLY, FOR THE ANTI-SPAM DEVICES THAT IS, I THINK, EASIER TO MONETIZE. AS MR. KAMBER SAID THERE'S A RETAIL AMOUNT HOW MUCH SOMEBODY WOULD HAVE TO PAY FOR THE DEVICE OFF-THE-SHELF OR IF THEY WANTED TO PURCHASE IT, AND THAT PART, I THINK, CAN BE MONETIZE OR MAKING SOME CONTRIBUTIONS TO ORGANIZATIONS THAT DEVOTE THEMSELVES TO CYBER SECURITY. THAT CAN BE MONETIZED, THAT'S AN ACTUAL MONETARY AMOUNT THAT WE'RE PROVIDING. SO, I THINK, CERTAIN SEGMENTS OF THIS, BUT I CERTAINLY CAN GET THE INFORMATION. THE COURT: YOUR CLIENT IS PAYING WHATEVER THE SETTLEMENT IS GOING TO COST, AND WHAT I'M SUGGESTING IS THERE MAY BE SOME ALTERNATIVES TO CONSIDER WHICH MAY GIVE US AN IDEA WHAT THE VALUE OF THIS SETTLEMENT REALLY IS. MR. RUBIN: I APPRECIATE THAT AND WE CAN CERTAINLY, I THINK, THAT WOULD BE ONE ALTERNATIVE. THE COURT: THIS IS THE CASE IN WHICH WE'RE NOT HAVING A SETTLEMENT FOR A CERTAIN AMOUNT OF MONEY. BASICALLY WHAT YOUR --WHAT THIS SETTLEMENT DOES, PRECLUDE CLAIMS IN THE FUTURE WHICH MAY OR MAY NOT ARISE. MR. RUBIN: MAY I INTERJECT SOMETHING HERE WITH RESPECT TO THE VALUATION? I UNDERSTAND WE'VE APPROACHED THIS AND, I THINK, MY PAST EXPERIENCE ON DEFENSE SIDE FAIRLY GOOD EXPERIENCE WITH RESPECT TO VALUING THINGS FROM THE DEFENSE SIDE. I THINK, ONE THING, I DETECT TWO TIERS. THE COURT: YOU BEEN ON BOTH SIDES OF THIS KIND OF CASE, COUNSEL? MR. RUBIN: I HAVE. THE COURT: I'VE BEEN ON ALL THREE SIDES. MR. RUBIN: THAT'S RIGHT. AND WHAT I WANTED TO ADD HERE, YOUR HONOR, WHICH I THINK IS RELEVANT BECAUSE I DETECT TWO TIERS TO YOUR QUESTION. I THINK, KIND OF UNUSUALLY DEFENSE COUNSEL MR. RUBIN WAS ADDRESSING IT FROM A FEE PROSPECTIVE, I WAS ALSO HEARING FROM YOUR HONOR THE QUESTION OF YOUR TRYING TO ALSO VALUE IT, WHETHER TO EVALUATE WHAT THE CLASS IS GETTING IS FAIR FOR WHAT THEY'RE GIVING UP. THE COURT: TRYING TO PUT A VALUE ON THE SETTLEMENT, A MONETARY VALUE ON THE SETTLEMENT THAT'S GOING TO TELL US SOMETHING ABOUT THE REASONABLENESS OF THE FEE AWARD THAT'S BEING APPLIED FOR. OVERALL WHEN YOU LOOK AT IT FROM THE PLAINTIFF'S PROSPECTIVE, NO MATTER HOW YOU VALUE THE SETTLEMENT INCOME, ANYWAY THE SETTLEMENT CAN BE VALUED FROM THE CONSERVATIVE END ON, THE FEE AWARD YOU CAN VALUE IT IN ANY PARTICULAR WAY, NOT COMING TO YOU AS PLAINTIFF'S COUNSEL AND NEEDING A PARTICULAR TYPE OR QUANTITY OF EVALUATION, FROM THE DISCUSSION WITH YOU AND MR. RUBIN REALLY FOCUSING ON WHAT THAT IS WORTH TO DEFEND IT AS FAST AS THE COST. AS A PLAINTIFF'S COUNSEL ONE OF THE THINGS THAT'S IMPORTANT AND ONE OF THE REASONS THINGS WE REALLY FOCUS ON ON CONSUMER CASES, ONE OF THE REASONS MY FIRM HAS BEEN PARTICULARLY SUCCESSFUL IN RESOLVING CONSUMER CASES IS THIS ABILITY TO LOOK AT IT. ALSO, UNDERSTAND WE'RE NOT HERE AS PLAINTIFFS TO PUNISH THE DEFENDANT, OUR PROSPECTIVE IS TO GET THE BENEFIT FOR THE CLASS THAT MAKES THEM BETTER OFF DOING THIS SETTLEMENT THAN NOT. IN THIS PARTICULAR CASE WHAT WE ARE GETTING THE CLASS FOR IDENTIFY THEFT, WE HAVE A HIGH LITIGATION RISK WITH RESPECT TO ANY CLASS CERTIFICATION ISSUES ON IDENTIFY THEFT. I DON'T THINK THERE IS A SINGLE INSTANCE WHERE IDENTITY THEFT, WHERE DAMAGE CLAIM FOR IDENTIFY THEFT HAVE BEEN CERTIFIED FOR CLASS LITIGATION. A HIGH RISK THERE. WHAT THE CLASS IS GETTING WITH RESPECT TO IDENTIFY THEFT, IF THEY ARE VICTIM OF IDENTIFY THEFT THEY'RE GETTING, FROM OUR LOOKING AT IT, THEY'RE GETTING FULL VALUE BACK. THE DAMAGES, THE GREAT MAJORITY OF DAMAGES IT'S BEEN ESTIMATED TO BE ANYWHERE FROM 70 TO 90 PERCENT FROM --MY NUMBERS ARE OFF FROM THE WHITE PAPER, RIGHT, IN THE DAMAGES FROM IDENTIFY THEFT ARE THE TIME PEOPLE MISS FROM WORK AND DOING THINGS TO GET ALL THE PAPERS WORK IN ORDER. BANKS WON'T HOLD YOU RESPONSIBLE IF THEY'RE PROMPTLY NOTIFIED, CREDIT CARD COMPANIES DON'T HOLD YOU RESPONSIBLE IF THEY'RE PROPERLY NOTIFIED, THE KEY IS THE PROMPT NOTIFICATION. WHAT WE GIVE CLASS MEMBERS HERE IS PROMPT NOTIFICATION. THERE IS ID ANALYTICS AND MR. RUBIN CAN TELL YOU HOW MUCH THEY'RE PAYING TO ID ANALYTICS, OBVIOUSLY, I BELIEVE THAT IS A FAIRLY LARGE QUANTITY OF MONEY THAT IS BEING PAID TO THEM RELATIVELY SPEAKING. THAT WHAT THEY ARE GETTING IS BESIDES THE PROMPT NOTIFICATION IF THERE IS SUCH IDENTITY THEFT, THEY ARE GETTING A CUSTOMER SUPPORT HOT LINE, WHICH WILL HELP EACH INDIVIDUAL PERSON WHO'S VICTIM OF THE IDENTITY THEFT NOTIFY THEIR BANKS AND CREDIT CARD COMPANIES, ET CETERA, WITH AN EXPERTISE FROM THE CUSTOMER HOT LINE. SO THAT IS ALLOWING PEOPLE TO SAVE THE TIME THAT MAKES SOME THE GREAT BULK OF DAMAGES IN IDENTITY THEFT. THE COURT: ARE THESE THINGS THAT THE CLASS WOULD NOT GET WITHOUT THIS LITIGATION? MR. KAMBER: THAT IS CORRECT. THE COURT: THAT TRUE, MR. RUBIN? MR. RUBIN: THEY CERTAINLY WOULD NOT IN THIS RESPECT. THE PROCEDURES THAT ARE SET FORTH IN 800 NUMBER AND THE METHODOLOGY IT CERTAINLY WOULDN'T HAVE BEEN IN PLACE. WOULD CUSTOMER SERVICE REPRESENTATIVES BE AVAILABLE TO HELP AND HEAR COMPLAINT? YES, OF COURSE, WE'RE A CUSTOMER SERVICE COMPANY, WE'RE AN ON LINE BROKERAGE FIRM AND ALSO BROKERAGE HOUSE. THE COURT: IF YOU HAD EVIDENCE. MR. RUBIN: I SO CAN'T, SO I DON'T THINK THE PROCEDURES THAT ARE IN PLACE -¥ THE COURT: AND IF YOU -¥ MR. RUBIN: --ENHANCED. THE COURT: CLIENT HAD NOTICE OF ORGANIZED MISUSE OF THIS DATA IT WOULD NOT PROMPTLY NOTIFY ITS CUSTOMERS? MR. RUBIN: WELL, ID ANALYTIC. THE COURT: THAT WHAT YOU'RE SAYING? MR. RUBIN: AM I SAYING IT WOULDN'T NOTIFY ITS CUSTOMERS? THE COURT: YES. MR. RUBIN: NO. IF WE HAD RETAINED, TO THE EXTENT ID ANALYTICS HAS ALREADY BEEN RETAINED, WHICH AS YOU KNOW IT HAS, AND THERE WERE INDICATION OF PARTICULAR INDIVIDUALS POTENTIALLY BEING THE SUBJECTS OF ORGANIZATION MISUSE, OF COURSE, TD AMERITRADE. THE COURT: YOU WOULDN'T SET UP A HOT LINE TO DEAL WITH THIS? MR. RUBIN: IT'S SPECULATIVE. MR. KAMBER: WITH ALL DUE RESPECT -¥ THE COURT: MR. KAMBER, I'M TALKING TO MR. RUBIN. MR. KAMBER: I'M SORRY. MR. RUBIN: THE PROCEDURES THAT WERE NEGOTIATED AND SET OUT HERE ARE ENHANCED PROCEDURES. THERE WAS, OBVIOUSLY, AN EYE TOWARD CREATING A MECHANISM THAT WOULDN'T NECESSARILY HAVE BEEN IN PLACE WITHOUT THE LITIGATION, WITHOUT THE PROPOSED SETTLEMENT, THAT WILL ENHANCE THE EASE WITH WHICH PEOPLE ARE, WHO ARE IDENTIFIED UNDER ID ANALYTIC'S PLANS, THE EASE WHICH THEY CAN DEAL WITH THESE PEOPLE. PROBLEMS I DON'T HAVE ANY REASON TO SUGGEST THERE WHAT WOULD BE A DEVOTED GROUP OF PEOPLE THAT WERE DEDICATED TO THIS IN THE ABSENCE OF THE SETTLEMENT, WHAT I'M SIMPLY SAYING IS WOULD PEOPLE, WOULD THE COMPANY TRY TO TAKE CARE OF ITS CUSTOMER? OF COURSE, IT WOULD. WOULD STEPS BE TAKEN? YES, BUT IT WOULDN'T NECESSARILY BE IN THE MECHANISM. AND THERE'S A PROVISION THAT SAYS THE COMPANY WILL EVALUATE, WE WOULD AGREE TO A FORUM. SO IF ID ANALYTICS IN ITS TEST FINDS THAT THERE'S ORGANIZED MISUSE, WE IDENTIFY THESE INDIVIDUALS, THERE'S GOING TO BE AN AGREED UPON FORUM AND IT STREAMLINES THE PROCESS THAT IS, MR. KAMBER SAID I THINK IT'S TRUE OTHERWISE CAN BE VERY TIME CONSUMING, FRUSTRATING. AND SO THEY'RE NOT GOING TO JUST DEAL WITH JOHN SMITH ON THE TD AMERITRADE CUSTOMER LINE, THERE WILL BE A DEDICATED GROUP OF PEOPLE WHO ARE DEALING WITH THIS --IF I COULD JUST FINISH. MR. KAMBER: OKAY, NO, THERE'S --YOU WEREN'T INVOLVED IN THOSE NEGOTIATIONS, THOSE ANSWER TO THE JUDGE'S QUESTION. THE COURT: I WAS INVOLVED. MR. KAMBER: NOT YOU, MR. RUBIN. MR. RUBIN: YES, GO AHEAD. MR. KAMBER: MR. RUBIN MISSING A PIECE, HE WAS NOT INVOLVED IN THE NEGOTIATIONS. REASON I'M BEING EMPATHETIC, I APOLOGIZE IF I WAS RUDE, WHEN YOU LOOK AT THIS, THIS WAS ONE OF THE MOST CONTENTIOUSLY NEGOTIATED PARTS, IT TOOK PLACE OVER SEVERAL MONTHS. THE REASON TD AMERITRADE WOULD NOT, COULD NOT AND WOULD DO THIS, IS NO ONE COMPANY HAS EVER DONE THIS SYSTEM. MY OFFICE DEVELOPED THIS PARTICULAR SET OF PROCEDURES. THE NEGOTIATIONS TO GET INTO BE APART OF THE SETTLEMENT AGREEMENT WERE PARTICULARLY CONTENTIOUS. IF YOU LOOK AT THE HISTORY OF THE BREACH, YOUR HONOR, WE FILED OUR COMPLAINT MAY 31ST, TD AMERITRADE DID NOT PUBLICLY ACKNOWLEDGE WHAT WE PLED IN THE COMPLAINT AS BEING ACCURATE UNTIL SEPTEMBER, UNTIL SEPTEMBER 14TH, YOUR HONOR. IT WAS ONLY AFTER WE MOVED FOR PRELIMINARY INJUNCTION FOR THEM TO DISCLOSE THE INFORMATION THAT IT WAS DISCLOSED. TIME CHRONOLOGICALLY. IF YOU LOOK AT THE CHRONOLOGY MAY 31ST WE FILED OUR COMPLAINT, WE MOVED FOR PRELIMINARY INJUNCTION ON JULY 10TH, THERE WERE --WE THEN GO THROUGH, THERE'S SOME BRIEFING AND THEN TD AMERITRADE DISCLOSED THIS INFORMATION IN SEPTEMBER. PLAINTIFFS BROUGHT PARTICULAR VALUE TO THIS, WE WERE THE ONES WHO FIRST IDENTIFIED THIS PUBLICLY. WE MOVED FOR PRELIMINARY INJUNCTION BEFORE THIS WAS PUBLICLY ACKNOWLEDGED. AND WE TOOK THE DEPOSITION OF THE SECURITY OFFICER ON LESS THAN A WEEK AFTER THE PUBLIC DISCLOSURE. THE NEGOTIATIONS REGARDING SETTLEMENT BEGAN IMMEDIATELY, THE SAME EVENING AS THE DEPOSITION TERMINATED AGAINST THE SECURITY OFFICER AND CONTINUED FOR MANY MONTHS THEREAFTER. TO SUGGEST, AND I THINK IF MR. CHRIS WAS HERE OR COUNSEL FOR THE IN-HOUSE COUNSEL FOR AMERITRADE, I THINK, THEY WOULD CERTAINLY ACKNOWLEDGE THAT THE SYSTEM PUT INTO PLACE IN THIS SETTLEMENTS FOR IDENTIFY THEFT IS BOTH UNIQUE AND IT WAS, IT CAME AS A PRODUCT OF INTENSE NEGOTIATIONS, AND ITSELF WAS DEVELOPED BY PLAINTIFF'S COUNSEL. AND, I THINK, THAT IS AN IMPORTANT POINT BECAUSE WE TAKE GREAT PRIDE IN HAVING PUT TOGETHER THIS SETTLEMENT IN A WAY THAT WE THINK IS SENSITIVE TO THE BUSINESS SIDE OF THINGS, BUT ACCOMPLISHES WHAT THE CLASS NEEDS. AND WE THINK IS THE SINGLE BEST SETTLEMENT TO THE AREA OF SECURITY THAT'S EVER BEEN PRESENTED FOR APPROVAL. BECAUSE NO OTHER SETTLEMENT HAS BEEN ABLE TO DEAL WITH THIS PARTICULAR ISSUE, WE THINK IT'S VERY PROGRESSIVE. I APPRECIATE THE QUESTION YOUR HONOR ASKING, CERTAINLY A LOT OF TIMES YOU SEE SETTLEMENTS AND YOU SEE LITIGATION THAT YOU GO THEY WOULD HAVE DONE THAT ANYWAY AND THERE'S A FEE AT THE END OF THE DAY, THAT'S NOT THE CASE HERE. WE BELIEVE THAT THE DISCLOSURE ROSE DIRECTLY OUT OF THIS LITIGATION AND THAT WE TAKE A PRIDE OF AUTHORSHIP IN DEVELOPING THESE THINGS AND WE ARE PLEASE WITH EFFORTS TD AMERITRADE HAS MADE IN BEGINNING TO IMPLEMENT SOME OF THESE THINGS BEFORE THE SETTLEMENT IS PUT INTO PLACE. MR. RUBIN: SIMPLY BECAUSE THINGS COULD BE MISSTATED ON SOME PUBLIC RECORD, I DO WANT TO JUST SIMPLY SAY, AND I DON'T WANT THIS TO TURN INTO A MOTION FOR PRELIMINARY INJUNCTION OR MOTION TO DISMISS INSTEAD OF A PRELIMINARY APPROVAL, BUT GOING TO MR. KAMBER'S POINT, HE CERTAINLY IS ENTITLED TO SAY HE WAS A CATALYST OR IMPETUS. I DO WANT TO POINT OUT TO THE COURT THE CLASS DISCLOSURE WAS MADE TO OUR CUSTOMER SEPTEMBER 14TH. WAS A DISCLOSURE THAT WAS MADE AFTER WE HAD IDENTIFIED THE MALICIOUS CODE THAT HAD BEEN PLACED IN OUR SYSTEM WHICH, I THINK, DURING THE CMC AS WE EXPLAINED TO THE COURT WAS ON OR ABOUT AUGUST 19TH. SO I WILL JUST GIVE LEAVE IT AT THAT, BUT THAT WAS THE PRECIPITATING EVENT IN TERMS OF HAVING SOMETHING CONCRETE AND SPECIFIC TO SAY TO OUR CUSTOMERS TWO WEEKS LATER, A FEW WEEKS LATER, AFTER WE FIGURED OUT WHAT IT WAS AND ELIMINATED IT TO EXPLAIN TO CUSTOMERS WHAT HAD HAPPENED. THE COURT: ALL RIGHT. WELL, LET ME SUBMIT THE MATTER AND GIVE IT SOME FURTHER NOT. THANK YOU, COUNSEL. MR. RUBIN: CAN YOU IDENTIFY, ONE THING THAT MAY GIVE YOU SOME COMFORT WHICH HASN'T COME OUT AND NOT ANY PAPERS WILL TAKE TWO SECONDS. THE COURT: WHO AM I TO REJECT ANY COMPORT. MR. RUBIN: YOUR HONOR -¥ MR. KAMBER: REFERRING TO YOUR HONOR'S DECISION IN RE CHEVRON, WILL COMFORT THE COURT THAT IN ORDER TO GET TO THE 1.87 NUMBER, WHICH IS THE FEE NUMBER, THAT FOLLOWING YOUR JUDGE'S PRIOR DECISIONS THAT WE ARE SQUARELY DOWN THE MIDDLE OF THE PLATE WITH RESPECTS TO MULTIPLIER. AND EVEN IF ONE WERE TO USE THE LAFFEY (PHONETIC) MATRIX FOR HOURLY RATE, ET CETERA, WE STILL COMPLY AND FIT AND CONFORM TO YOUR JUDGE'S PRIOR DECISION. THE COURT: DO YOU HAVE THAT DATA? MR. KAMBER: THE DATA, YES. THE COURT: DO WE? MR. KAMBER: DOES THE COURT, NO, WE HAVE NOT SUBMITTED OUR TIME WITH RESPECT TO, I ACTUALLY NEVER DONE THAT PRELIMINARY, I'M HAPPY TO DO THAT, IF IT WOULD PLEASE THE COURT. THE COURT: BE HAPPY TO RECEIVE IT. MR. KAMBER: THANK YOU. THE COURT: MR. ELVEY. MR. ELVEY: MAY I SPEAK? THE COURT: OF COURSE. MR. ELVEY: I JUST WANT TO SAY, EXPRESS SOME RESERVATIONS I HAD ABOUT THE SETTLEMENT. THE COURT: THIS IS THE CLASS REPRESENTATIVE? MR. ELVEY: YES. SO AS YOU KNOW, THE BREACH ACTUALLY WENT SIGNIFICANTLY FURTHER BACK THEN, IS ANNOUNCED IN THE COMPLAINT, IT WAS IN OCTOBER OF 2005 THAT AMERITRADE WAS INFORMED OF THE BREACH, OCTOBER 2005, NOT '06. SO IN OTHER WORDS, IT TOOK THEM TWO YEARS TO ADDRESS THE ISSUE. THERE WAS AN ONGOING SECURITY BREACH IN THEIR SYSTEMS FOR TWO YEARS. THE COURT: HOW IS IT THAT YOUR AWARE OF THIS? MR. ELVEY: THERE PUBLIC REPORTS OF PEOPLE WHO PROVIDED INFORMATION TO AMERITRADE, VERY CREDIBLE INFORMATION OF THE SAME KIND THAT I PROVIDED, SHOWING THERE HAD BEEN A SECURITY BREACH, EXCEPT THEY PROVIDED IT A YEAR EARLIER AND THERE ARE ACKNOWLEDGMENTS FROM TD AMERITRADE TO HAVING RECEIVED THAT INFORMATION. THE COURT: YOU SAY PUBLIC REPORTS? MR. ELVEY: I CAN PROVIDE THEM. THEY WERE ON THE INTERNET, FROM PEOPLE THAT I KNOW. THE COURT: I SEE, THIS IS NOT SOME SEC FILING OR SOMETHING OF THAT KIND? MR. ELVEY: NO, I'D BE HAPPY TO FILE IT WITH THE COURT, IF YOU LIKE. THE COURT: ALL RIGHT. MR. ELVEY: SO THAT'S THE FIRST POINT I WANTED TO MAKE. AND SO I DON'T WANT TO GO OVER EVERYTHING, BUT I DID WANT TO POINT OUT THAT --I'M SKIMMING HERE, I GOT FIVE PAGES, I DON'T WANT TO TAKE UP TOO MUCH OF YOUR TIME. THE COURT: THAT'S FINE, I'M HERE TO TRY TO DEAL WITH THIS. MR. ELVEY: SO -¥ THE COURT: SO WHAT'S THE IMPLICATION OF WHAT YOU'RE SAYING? LET'S ASSUME THAT THERE WERE THESE COMPLAINTS THAT WENT BACK BASICALLY A YEAR, NO, I GUESS, TWO YEARS EARLIER THEN ARE ALLEGED IN THE PRESENT ACTION, WHAT'S THE IMPLICATION OF THAT? MR. ELVEY: IT WAS JUST SAID THE DISCUSSIONS A LITTLE EARLIER THAT AMERITRADE RESPONDED PROMPTLY AND REASONABLY, THEY DID ALL THEY SHOULD HAVE, I THINK, WHAT WAS SAID. THEY KNEW ABOUT IT FOR TWO YEARS BEFORE THEY CLOSED THE BREACH. I DON'T THINK THAT'S DOING ALL THAT YOU CAN REASONABLY BE EXPECTED TO DO. THAT'S JUST MY FIRST POINT. THE COURT: THAT'S SUGGESTING THAT THE DEFENDANT DID NOT ACT PROMPTLY IN ADDRESSING THE PROBLEMS? MR. ELVEY: YES. THE COURT: ALL RIGHT. THERE'S ANOTHER ANGLE TO THAT, THOUGH, ISN'T THAT IS IF THERE WAS THIS BREACH AS LONG AGO AS 2005 AND THERE'S NOT BEEN SOME ORGANIZED MISUSE OF THE DATA, THEN THAT SUGGESTION THAT THE EXPOSURE OR THE DANGER OF THE ACCESS OF TD AMERITRADE INFORMATION MAY NOT BE VERY GREAT. MR. ELVEY: I'D LIKE TO ADDRESS THAT POINT. I Case 3:07-cv-02852-VRW Document 62 Filed 06/16/2008 Page 39 of 51 39 1 DISAGREE IN TERMS WHETHER THERE HAS BEEN ORGANIZED MISUSE, I 2 HAVE SOME INFORMATION ON THAT. 3 THE COURT: DO YOU HAVE EVIDENCE OF THAT? 4 MR. ELVEY: WELL . . . 5 THE COURT: COUNSEL, TELL ME THERE HAS BEEN NO 6 ORGANIZED MISUSE? 7 MR. KAMBER: THERE, YOUR HONOR, JUST TO INTERJECT, 8 THERE IS INFORMATION THAT I HAVE THAT MR. RUBIN HAS, THERE WAS 9 AN EXTENSIVE DEPOSITION THAT WAS DONE FOR ATTORNEY'S EYES ONLY, 10 WE KNOW SPECIFICALLY WHEN THE BREACHES BEGAN, ET CETERA. 11 IF THE JUDGE WOULD LIKE TO GO IN CAMERA WE ARE HAPPY 12 TO SHARE INFORMATION THAT IS OTHERWISE EXTREMELY SENSITIVE, FOR 13 THE INFORMATION FROM THAT DEPOSITION COULD ENABLE SOMEBODY TO, 14 MORE LIKELY FOR SOMEBODY TO BE ABLE TO COMPROMISE TD 15 AMERITRADE'S SECURITY SYSTEM. 16 MR. ELVEY: FIRST, I'M AN IDENTITY THEFT VICTIM. 17 EVERYBODY POINTS TO THE THEFT OF MY IDENTITY BEING A RESULT OF 18 THIS BREACH. I DON'T HAVE ANY OTHER LEADS AS TO HOW MY SOCIAL 19 SECURITY NUMBER, ET CETERA, WAS STOLEN. 20 SECONDLY, I HAVE A PRETTY GOOD UNDERSTANDING OF 21 STATISTICAL EVIDENCE TOOLS BY THE KIND USED BY ANALYTIC'S GRAPH 22 BASE ANOMALY PROTECTION, I DON'T BELIEVE IT'S CREDIBLE BASED ON 23 MY UNDERSTANDING OF COMPUTER SCIENCE. 24 I HAVE A COMPUTER SCIENCE DEGREE FROM YALE, WE STUDIED 25 THIS STUFF. I'VE SPOKEN TO STATISTICIANS. I DON'T BELIEVE YOU'VE BEEN GIVEN THE ACCESS THAT THEY PRESUMABLY HAVE TO THE ENTIRE COUNTRY, CREDIT REPORTS THEY CAN IDENTIFY HOW LEVELS OF IDENTITY THEFT OF SAY THE HUNDREDS THAT WERE MENTIONED. AND, THIRD, I WANTED TO MENTION CHRIS HOFFNAGEL PROFESSOR AT STANFORD AND CALIFORNIA LAW, HE OBTAINED SOME DATA FROM FTTC UNDER FOIA AND THAT INDICATES THERE WERE APPROXIMATELY 2,200 IDENTIFY THEFT IN 2006 AND 2007 RELATED TO AMERITRADE. SO I THINK THE CLAIM -¥ THE COURT: WHAT'S YOUR POSITION WITH REFERENCE TO THE SETTLEMENT THAT'S BEFORE THE COURT? MR. ELVEY: I HAVE BEEN OPPOSED TO THE SETTLEMENT. THE COURT: WHY? MR. ELVEY: I'VE BEEN OPPOSED TO IT ALL ALONG. FIRST OF ALL, I DON'T BELIEVE THE FIRST COMPONENT OF THE SETTLEMENT IS THE SOFTWARE. IT'S A PIECE OF SOFTWARE THAT'S AVAILABLE FOR FREE AFTER REBATE. I HAVE A COUPON, MAKING THAT AVAILABLE FROM THE PAPER A COUPLE WEEKS AGO. I DO BELIEVE IT'S A GOOD COMPONENT OF THE SETTLEMENT, IT'S VALID FOR ONE YEAR, BUT I WOULD SIMPLY POINT OUT IT IS AVAILABLE FOR FREE AFTER REBATE. AND SECOND POINT -¥ THE COURT: IT'S AVAILABLE FOR FREE. MR. ELVEY: FOR FREE AFTER REBATE. I CAN GO DOWN TO FRIES AND I CAN GET IT, I PAY $50 OR $70 AND THEN I SUBMIT A COUPON AND I GET MY MONEY BACK, I BELIEVE, INCLUDING SALES TAX. SO THAT'S THE FIRST POINT. SECOND POINT IS -¥ THE COURT: THEY SELL IT TO YOU, THEN THEY GIVE YOU A REBATE FOR ONE YEAR HOPING THAT YOU'RE GOING TO RENEW IT AT THE END OF THE YEAR AND THAT'S WHERE THEY'RE GOING TO MAKE MONEY, IS THAT THE BUSINESS MODEL? MR. ELVEY: THAT IS THE BUSINESS MODEL, YES. ONE OF THE THINGS I SUGGESTED, WE MAKE THIS SOFTWARE AVAILABLE FOR THREE YEARS AS A MORE SUBSTANTIAL SETTLEMENT. SECOND POINT IS MOST PEOPLE HAVE --WHO ARE TD AMERITRADE CUSTOMER HAVE BROADBAND ACCESS AND BROADBAND ACCESS FOR MOST MAJOR PROVIDERS COMES WITH SECURITY SOFTWARE ROUGHLY COMPARABLE TO WHAT'S BEING OFFERED HERE. I THINK, IT'S A GOOD COMPONENT OF THE SETTLEMENT. I DO THINK IT'S A WIN WIN TO HAVE THIS BE APART OF THE COMPONENT, BUT JUST IN TERMS OF HOW WE VALUE IT, I WOULD TAKE THOSE THINGS INTO CONSIDERATION. THE ONLY REASON I LIKE IT AS A COMPONENT, IT ADDRESSES THE BROADER ISSUE OF COMPUTER SECURITY WORLD-WIDE BEING A COMPONENT IN THIS ISSUE. SECOND THING IS I DID WANT TO ASK THE COURT TO CONSIDER ALLOWING ME TO SEE A COPY OF THIS DEPOSITION? I COULD GO INTO CREDENTIALS I HAVE AS A COMPUTER PROFESSIONAL AND INTO WHY I THINK I COULD HANDLE THAT INFORMATION SUCCESSFULLY, IF YOU LIKE. THE COURT: THIS IS SOMETHING THAT YOU NOT RECEIVED? MR. ELVEY: CORRECT. I HAVE REQUESTED IT REPEATEDLY, IT'S BEEN MARKED ATTORNEY'S EYES ONLY. WE REQUESTED IT FROM COUNSEL OR WAS REQUESTED ON MY BEHALF THAT I BE GRANTED ACCESS TO IT AND I AM A COMPUTER PROFESSIONAL. I HAVE --I CAN GET PLENTY OF REFERENCES FROM, FOR EXAMPLE, MEMBERS OF THE SWISS GOVERNMENT, IF ANYBODY -¥ THE COURT: TELL ME WHAT YOUR PROFESSION IS, WHAT YOUR EDUCATION IS AND SO FORTH? MR. ELVEY: OKAY. I'M JUMPING AROUND. I HAVE A COMPUTER SCIENCE DEGREE FROM YALE. I -¥ THE COURT: COMPUTER SCIENCE? MR. ELVEY: COMPUTER SCIENCE. THE COURT: WHEN DID YOU RECEIVE THAT? MR. ELVEY: 1995. THE COURT: AND IS THAT A BACHELOR OF SCIENCE? MR. ELVEY: YES. I ALSO COMPLETED ALL THE REQUIREMENTS FOR THE MAJOR IN MECHANICAL ENGINEERING, COMPLETELY SEPARATELY. THE COURT: ALL RIGHT. MR. ELVEY: I HAVE WORKED IN IT SECURITY AND IT IN GENERAL, IT MEANING INFORMATION TECHNOLOGY, SINCE BEFORE I GRADUATED, UNDER MORE OR LESS CONTINUOUS BASIS. I WORK AT GOLDMAN SACHS, I'VE BEEN THROUGH THEIR ENTIRE TRAINING PROGRAM. I -¥ THE COURT: WHAT DID YOU DO AFTER GRADUATING FROM YALE IN 1995? MR. ELVEY: FIRST THING I DID WAS WORK AT GOLDMAN SACHS FOR TWO YEARS. THE COURT: UNTIL 1997? MR. ELVEY: YES. THE COURT: THEN WHAT? MR. ELVEY: I WORKED FOR FIND SVB, IT'S A RELATIVELY SMALL COMPANY. THE COURT: FIND SVB? MR. ELVEY: YES. THE COURT: WHERE ARE THEY LOCATED? MR. ELVEY: THEY'RE OUT OF NEW YORK CITY. THE COURT: ALL RIGHT. AND HOW LONG DID YOU WORK FOR FIND SVP? MR. ELVEY: APPROXIMATELY, TWO YEARS. THE COURT: UNTIL ABOUT '99? MR. ELVEY: YES. THE COURT: WHAT DID YOU DO AT FIND SVB? MR. ELVEY: I WAS DIRECTOR OF THEIR IT, ESSENTIALLY DIRECTOR OF IT INFRASTRUCTURE AND DATABASE DEVELOPMENT, I THINK. THE COURT: YOU WERE A TRAINEE, I THINK, YOU SAID AT GOLDMAN SACHS? MR. ELVEY: YES. THEN I MOVED TO THE WEST COAST WHERE I DID A VARIETY OF COMPUTER RELATING THINGS. FOR EXAMPLE, I HELPED DEVELOP THE INFRASTRUCTURE FOR, PERHAPS, THE LARGEST SWISS BANK IN THE WORLD WORTH A TRILLION DOLLARS IN ASSETS, I DEVELOPED THE INFRASTRUCTURE FOR THEIR WEBSITE. THE COURT: FOR UBS? MR. ELVEY: CREDIT SWISS. THE COURT: AND? MR. ELVEY: I DO HAVE SOME FAMILIARITY. THE COURT: DO THAT AS EMPLOYEE OR INDEPENDENT CONTRACTOR? MR. ELVEY: I WAS A SUBCONTRACTOR. THE COURT: THAT WAS BEGINNING WHAT, ABOUT '99? MR. ELVEY: THAT WAS LITTLE LATER ON, YEAH, '99, 2000, 2001. THE COURT: ALL RIGHT. MR. ELVEY: I CAN SUBMIT A RESUME. THE COURT: PERHAPS --YOU HAVE A RESUME WITH YOU? MR. ELVEY: I DO NOT. THE COURT: PERHAPS, MR. KAMBER SUBMIT THAT. MR. KAMBER: I WOULD BE HAPPY TO SUBMIT THAT. MR. ELVEY: I WOULD LIKE PERMISSION TO FILE THAT MYSELF. THE COURT: WHAT IS THIS? MR. ELVEY: JUST SO I CAN ELECTRONIC FILE THINGS. I DON'T KNOW IF THAT'S THE WAY TO DO IT OR NOT. I ALREADY SIGNED UP WITH PACER, I ALREADY SIGNED UP WITH ECF. THE COURT: I SEE. THIS IS ALREADY ON THE WEBSITE, IS IT? THE CLERK: YES, THAT'S THE FORM HE HAS TO SUBMIT AND THEN HE CAN BE ELECTRONIC COURT FILING USER. THE COURT: ALL RIGHT. NO LONGER PRACTICING LAW I HAVEN'T SEEN THAT BEFORE. ALL RIGHT. ANYWAY, SO YOU WORKED THEN CREDIT SWISS FOR A WHILE AND THEN WHAT? MR. ELVEY: I WORKED --WELL, I WORKING FOR COMPANY CALLED FIND, SORRY, I WAS WORKING FOR ACCOMPANY CALLED SILICON REEF (PHONETIC) WHO IS THE SUBCONTRACTOR FOR CREDIT SWISS. THEN I'VE BEEN DOING MORE SMALL BUSINESS CONSULTING, SO I HANDLED THE IT NEEDS, FOR EXAMPLE, OF ONE OF THE WEALTHIEST FAMILY IN SAN FRANCISCO. SO I HAVE ACCESS TO THEIR FINANCIAL RECORDS, SECURITY NUMBERS, THAT SORT OF THING. THE COURT: YOU BEEN DOING THAT SINCE APPROXIMATELY THE YEAR 2000? MR. ELVEY: MORE OR LESS THERE WAS A BUSINESS I WAS INVOLVED IN WITH MY FATHER THE ELVEY PARTNERSHIP, WE STARTED A VENTURE CAPITAL FUND I WAS INVOLVED WITH THAT. THE COURT: OKAY. MR. ELVEY: I WAS INVOLVED IN A COUPLE OF START UPS. THE COURT: ALL RIGHT. WHAT ARE YOU DOING NOW? MR. ELVEY: INDEPENDENT CONSULTING STILL. THE COURT: IN THAT SAME FIELD? MR. ELVEY: YES, SO I HAVE SMALL INVESTMENT BANK AS A CLIENT, THAT SORT OF THING. THE COURT: ALL RIGHT. AND YOU LIVE HERE IN SAN FRANCISCO? MR. ELVEY: YES. THE COURT: I BELIEVE YOU'RE THE ONLY CLASS REPRESENTATIVE, ARE YOU NOT? MR. KAMBER: NO, YOUR HONOR, THERE ARE THREE CLASS REPRESENTATIVES YOUR HONOR, THERE'S MR. ZIGLER, MR. GRIFFITH AND MR. ELVEY. MR. ELVEY: I ALSO POINT OUT, I ACTUALLY FOUND MR. -¥THE GADGET GUY, ONE OF THEM HAD BROUGHT HIM TO COUNSEL TO BE A REPRESENTATIVE. THE COURT: THIS WAS --WHO DID YOU FIND? MR. ELVEY: IT'S IN MY NOTES. MR. KAMBER: THE OWNER OF GADGET MR. GRIFFITHS. THE CONTENTION -¥ THE COURT: I'M SORRY, JOEL GRIFFITH. ALL RIGHT. MR. ELVEY: SO BASICALLY IN A SENSE IT WAS MY CASE, I FOUND THE BREACH, I DID BUNCH OF LEGAL RESEARCH, I FOUND COUNSEL WHO KIND OF CREDIBLE AND FOUND THE CLAIMS CREDIBLE. THE COURT: HOW DID YOU FIND MR. KAMBER? MR. ELVEY: I ACTUALLY FOUND IT AND I FOUND COLLEAGUE THROUGH ETHAN PRESTON. THE COURT: YES. MR. ELVEY: MR. PRESTON HAD CONTACTED ME REGARDING SOME THINGS I DONE ON THE INTERNET THAT HE THOUGHT I MIGHT HAVE SOME INFORMATION ON ANOTHER CASE. SO I KEPT HIS INFORMATION AROUND. THE COURT: I SEE. HAVE YOU BEEN DEPOSED IN THE CASE? MR. ELVEY: I SUBMITTED A, WHAT DO YOU CALL IT, A TESTIMONY? THE COURT: A DECLARATION? MR. ELVEY: DECLARATION, YES. THE COURT: YOU HAVEN'T BEEN DEPOSED? MR. ELVEY: NO, I HAVE NOT. THE COURT: I SEE. ALL RIGHT. VERY WELL. VERY INTERESTING PROCEEDING. THANK YOU, COUNSEL. MR. KAMBER: YOUR HONOR, I WILL SAY, I WOULD HAVE, HAD I KNOWN OF THE PRESENTATION, I CERTAINLY WOULD HAVE PUT THE COURT ON NOTICE. I SHOULD FURTHER ADD NOT WANTING TO GET INTO A BIGGER DISCUSSION, WE HAVE A GREAT DEAL OF RESPECT FOR MR ELVEY AND HIS OPINION AND HIS CREDIBILITY IN THIS AREA AND CERTAINLY AS OUR PAPERS SUBMIT HE WAS VERY IMPORTANT PART OF THIS CASE. I THINK, WHAT'S ALL IMPORTANT TO UNDERSTAND, I HAD NUMEROUS CONVERSATIONS WITH MR. ELVEY REGARDING THE SETTLEMENT. MR. ELVEY SIGNED THE SETTLEMENT AGREEMENT, ALL THE PLAINTIFF'S CLASS REPRESENTATIVES SIGNED THE SETTLEMENT AGREEMENT. AT TIME MR. EVLEY HAD CONSISTENTLY BEEN IN FAVOR AND IN SUPPORT OF ALL THE TERMS OF SETTLEMENT. WHEN HE WAS DENIED ACCESS TO THE DEPOSITION AN ATTORNEY'S EYES ONLY, I THINK, THAT WAS A BIT OF A TURNING POINT. I THINK, THAT HE WAS UPSET BY THAT. I THINK, IN MY PRACTICE IN DEALING WITH SECURITY CASES, ET CETERA, DEFENDANTS REQUEST THEY WOULD ONLY DO THE DEPOSITION AS ATTORNEY'S EYES ONLY, AND GIVEN THE DETAILS OF THE SECURITY PROCEDURES I THOUGHT THAT THAT WAS THE ALTERNATIVE, THAT WAS A FAIR ALTERNATIVE AND THAT CERTAINLY JUDGMENT OF COUNSEL WAS THAT WE WOULD BE ABLE TO EVALUATE AND STILL WORK WITH THE SETTLEMENT. I THINK THAT MUCH OF WHAT MR. ELVEY HAS TO SAY WOULD PROBABLY HAVE NOT BEEN THE CASE HAD HE HAD ACCESS TO THAT INFORMATION. BUT AS COUNSEL AND COUNSEL FOR THE CLASS WITH A FIDUCIARY OBLIGATION TO THE CLASS, I THOUGHT THE RESPONSIBLE THING TO DO WAS TO NOT --WAS TO KEEP THAT DESIGNATED ATTORNEY'S EYES ONLY. ESPECIALLY AFTER DEFENDANTS REFUSED TO SHARE THAT INFORMATION, THAT CERTAINLY WASN'T TO ME A DISPOSITIVE ELEMENT OF THE PARTICULAR SETTLEMENT. THE OTHER THING IS THERE MAY HAVE BEEN REBATE COUPONS ON OCCASION FOR THIS SOFTWARE, IT IS NOT CONSIDERED AND IS IT NOT A FREE PIECE OF SOFTWARE. YOU CAN BUY THE SOFTWARE FOR THE PRICE ON THE PURCHASE PRICE ON THE WEBSITE. THE REBATE IS NOT OFFERED. THERE MAY BE TIMES WHERE REBATES ARE OFFERED, BUT THAT GOES TO A BREAKAGE ISSUE. THIS SOFTWARE IS AN IMPORTANT PIECE OF THE SETTLEMENT, BY NO MEANS IS THE ONLY PIECE OF THE SETTLEMENT. THE COURT: ALL RIGHT, COUNSEL. MR. ELVEY: CAN I ADDRESS THAT? MR. RUBIN: I THINK, IT'S MY TURN. I DO JUST WANT TO EXPLAIN THIS DEPOSITION, IT DID CONTAIN THE SPECIFIC DETAILS OF TD AMERITRADE SECURITIES SYSTEMS WHICH WE THINK LIE AT HEART OF OUR ABILITY TO PROTECT CUSTOMER INFORMATION. SO THE DESIGNATION OF HIGHLY CONFIDENTIAL DIDN'T HAVE ANYTHING TO DO WITH MR. EVLEY PARTICULAR, BUT ABOUT ANYTHING OTHER THEN ATTORNEY'S EYES, OTHER OUTSIDE COUNSEL. AND AS MR. KAMBER SAID SHARING WITH THE COURT IS A DIFFERENT MATTER, BUT THESE ARE THE DETAIL ABOUT WHICH DATABASES AND SYSTEMS WERE UNLAWFULLY INTRUSIVE AND I JUST WANTED TO EXPLAIN. THE COURT: I UNDERSTAND ALREADY. THANK YOU, COUNSEL. MR. KAMBER: THANK YOU. THANK YOU, MR. EVLEY. MR. ELVEY: CAN I ADDRESS THAT? THE COURT: ADDRESS WHAT? MR. ELVEY: THE CHRONOLOGY OF EVENTS WILL SHOW THAT'S NOT THE CASE IF I CAN PRESENT THEM. THE COURT: YES. MR. ELVEY: WHETHER OR NOT I SAW THAT DEPOSITION HAD NOTHING TO DO WITH HOW I FEEL ABOUT THE SETTLEMENT. THE COURT: WELL, I DON'T THINK THAT REALLY IS, I DON'T THINK THAT'S REALLY IMPORTANT. WHAT DOES CONCERN ME, OBVIOUSLY, ONE OF THE CLASS REPRESENTATIVES OPPOSES THE SETTLEMENT. MR. RUBIN: IT WAS REPRESENTED TO US THAT OBVIOUSLY MR. EVLEY SIGNED IT VOLUNTARILY AND FREELY AND ADOPTED THE SETTLEMENT, SO THIS IS NEWS TO US. MR. KAMBER: IT NEWS TO US, HE SIGNED THE SETTLEMENT, HE APPEARS AT THE CMC WITH YOUR HONOR A FEW WEEKS AGO, HE SAT HERE WITH US SPEAKING, HE DID NOT INTERJECT WE SPOKE OF THE SETTLEMENT AND PRESENTED HERE. THIS IS FIRST I HEARD MR. EVLEY HAS ANY RESERVATION REGARDING THE SETTLEMENT THAT WOULD MAKE HIM IN THE POSITION NOT TO APPROVE IT. MR. ELVEY: I HAVE LOTS OF RECORDS THAT DISPUTES THAT. I WAS THREATENED, YOUR HONOR. THE COURT: WELL, MAYBE I GIVE THIS MATTER SOME THOUGHT. YOU CAN CONSULT WITH ONE ANOTHER AND POSSIBLY IRON SOME OF THESE PROBLEMS OUT. IF NOT, WE'LL SIMPLY DEAL WITH THEM ONE WAY OR THE OTHER. THANK YOU VERY MUCH. (PROCEEDINGS ADJOURNED.) CERTIFICATE OF REPORTER I, THE UNDERSIGNED, HEREBY CERTIFY THAT THE FOREGOING PROCEEDINGS WERE REPORTED BY ME, A CERTIFIED SHORTHAND REPORTER, AND WERE THEREAFTER TRANSCRIBED UNDER MY DIRECTION INTO TYPEWRITING; THAT THE FOREGOING IS A FULL, COMPLETE AND TRUE RECORD OF SAID PROCEEDINGS. I FURTHER CERTIFY THAT I AM NOT OF COUNSEL OR ATTORNEY FOR EITHER OR ANY OF THE PARTIES IN THE FOREGOING PROCEEDINGS AND CAPTION NAMED, OR IN ANY WAY INTERESTED IN THE OUTCOME OF THE CAUSE NAMED IN SAID CAPTION. THE FEE CHARGED AND THE PAGE FORMAT FOR THE TRANSCRIPT CONFORM TO THE REGULATIONS OF THE JUDICIAL CONFERENCE. FURTHERMORE, I CERTIFY THE INVOICE DOES NOT CONTAIN CHARGES FOR THE SALARIED COURT REPORTER'S CERTIFICATION PAGE. IN WITNESS WHEREOF, I HAVE HEREUNTO SET MY HAND THIS 13TH DAY OF JUNE, 2008. /S/ JAMES YEOMANS JAMES YEOMANS, CSR, RPR 2009-06-19T09:16:32-05:00