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E-Trade Chief Resigns

The unexpected move comes after a gloomy 2003 outlook and a high-profile pay flap.

January 25, 2003|Walter Hamilton and Josh Friedman | Times Staff Writers

NEW YORK — For Christos Cotsakos, the revolution ended abruptly Friday.

The controversial head of online trading firm E-Trade Group Inc., a key player in the late- 1990s Internet stock-trading frenzy whose ads once proclaimed, "Welcome to the next revolution," unexpectedly resigned as chairman and chief executive of the company.

Cotsakos' departure came two days after Menlo Park, Calif.-based E-Trade announced its second straight annual net loss and warned that it would fall short of Wall Street profit estimates this year. It followed by eight months a high-profile pay flap in which Cotsakos was forced to scale back his compensation after shareholders objected that he was paid more than the heads of Wall Street's biggest firms.

E-Trade didn't explain the reasons for the resignation, though it indicated it was Cotsakos' decision.

Cotsakos said in a statement that he was "extremely proud of what we have accomplished over the past seven years." He could not be reached for further comment, and company officials denied speculation that Cotsakos was pushed out.

"He absolutely made the decision to resign," said Connie Dotson, chief knowledge officer. "It is something he's been talking about for some time."

Though Cotsakos, 54, was less well-known than Charles Schwab, the founder of E-Trade's much larger discount brokerage rival, in many ways he was a more apt symbol of the Internet-investing craze.

A former executive at FedEx Corp. and A.C. Nielsen Co., Cotsakos joined E-Trade in 1996 and began using high-style marketing to give cachet to the low-brow business of filling stock orders.

E-Trade gave $1 million to the investor who guessed the Dow Jones industrial average's price at year-end 1999. It funded elaborate Super Bowl halftime shows. And it ran ads tweaking full-service brokerages, its distinctive purple and lime-green colors seemingly omnipresent. Cotsakos extolled the prospects of the Internet and forecast that it would dramatically alter the future of investing.

"We rattled the very foundations of Wall Street," Cotsakos boasted in E-Trade's 1999 annual report. "We reinvented the industry and created a new one."

But after a fast start, E-Trade's growth stagnated as online trading firms, like Wall Street in general, struggled with the grinding bear market.

E-Trade named Mitchell H. Caplan, its president, to replace Cotsakos as CEO. George Hayter, a board member, was appointed chairman.

The moves cheered some analysts, who said E-Trade was stigmatized by the controversy that often seemed to surround Cotsakos.

E-Trade's stock, which has plummeted 93% from its 1999 peak, traded higher for much of Friday after the resignation was announced, before closing unchanged at $4.49 on the New York Stock Exchange.

"I thought it was long overdue," said Rachel Barnard, an analyst at Morningstar Inc. "Cotsakos was a bit of an anachronism from the hype-filled Internet days, and in that sense it was about time the company matured out of that early stage."

Caplan "seems more focused on the fundamentals rather than just go-go-go," she said. "It will also help the company jettison its image of lax governance standards. It gives E-Trade a chance to make a fresh start."

Cotsakos sparked outrage among corporate governance watchers and triggered an investor lawsuit when his 2001 pay package of $78 million -- for a year in which E-Trade's stock fell 53% -- was made public.

The company later reduced the pay package, but the controversy lingered as some critics saw Cotsakos as a symbol of corporate greed.

"The pay package was a hard pill for investors to swallow," said Todd Halky, analyst at Putnam Lovell NBF Securities.

Given their qualms about Cotsakos, Halky added, "a lot of institutions sold their positions, and they may be leery of reinvesting in the company, even with these attractive valuations on the stock."

Halky credited the "visionary" Cotsakos with successfully building E-Trade from a discount brokerage into a diversified financial platform, starting with the acquisition of Telebanc Financial Corp. in 2000. But Caplan, the analyst said, has the knowledge base from his experience in both the banking and brokerage industries to lead the company in its next phase.

Caplan has been with E-Trade throughout its evolution and has worked closely with Cotsakos, Halky noted.

As for Cotsakos, E-Trade's Dotson said, he plans to write business books, teach underprivileged children and mentor young entrepreneurs.

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