Citadel's E*Trade Support Shows Cracks

NEW YORK (TheStreet) -- E*Trade Financial (ETFC Quote) investors should perhaps be concerned that the company's largest stakeholder, Citadel Investment Group, is planning to sell as much as 70% of its equity holdings in the online broker through a prearranged trading plan over the next few months.

Citadel Equity Fund entered into a Securities and Exchange Commission Rule 10b5-1 trading plan on Tuesday in connection with its holdings of E*Trade, according to a regulatory filing. It plans to sell as much as 120 million shares of common stock it currently owns. The Chicago-based investment firm had recently sold 13.9 million shares of the company, bringing its total to 166.2 million shares.

The plan, "under which Citadel will exercise no further discretion or control, will permit Citadel to reduce its aggregate exposure to [E*Trade] in an orderly manner," according to a Citadel press release. Still, even after a sale of the shares is completed, Citadel and its affiliates will remain E*Trade's largest shareholder, it said.

According to a regulatory filing by Citadel on Thursday, the transaction is expected to commence on Aug. 31 and be completed by the time E*Trade reports third-quarter earnings on Oct. 26. Citadel will sell the shares at a minimum of $1.20 a share, it said.

Citadel has engaged Credit Suisse (CS Quote) as its acting broker for the trading plan, it said in the filing.

The 10b5-1 trading plans allow individuals and firms who are not at the time in possession of material non-public information regarding the company to establish pre-arranged automatic plans to buy or sell stock, Citadel explains in a press release. The plans are typically entered into by management and directors of public companies, Citadel says.