) --

E*Trade Financial

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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

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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.

But to Jonathan Moreland, the director of research at

, a database for company insider trades, the move indicates that Citadel founder and Chairman Ken Griffin does not have confidence that E*Trade's stock will rise materially anytime soon.

"He obviously has doubts about this being a better investment than something else in the market ... and that's the way the common investor should think about it as well," Moreland says. "It seems to be that it's an irrefutable negative. I come across stocks every day where the insiders are buying."

Moreland adds that while it's not to say that E*Trade's stock can't theoretically double in the near future, if Griffin "really thought it would, he would likely not be selling it."

There are other reasons Citadel could be selling the stock. Sandler O'Neill & Partners analyst Rich Repetto writes Citadel's stock sales could be for investment diversification purposes, "rather than fundamental concerns" about E*Trade. Repetto adds that he believes Citadel could sell certain debt as well.

"Coupled with more evidence of a troughing credit delinquencies and possible upturn of the economy, we believe E*Trade's fundamental story has improved," Repetto adds in the note.

An E*Trade spokeswoman declined to comment.

Moreland said he was suspicious of 10b5-1 trading plans in general. He calls them "cover your ass" programs because they provide a legal defense that "lessens the possibility that you will be accused of trading on material non-public information," he says. The plans allow insiders, typically directors and management, the ability to trade during normal blackout periods because they are prearranged, automatic trades.

They are also allowed to be canceled, restarted and otherwise modified, he says, adding that many times company public relations representatives dismiss the significance of the plans.

E*Trade's capital and financial position has been precarious since the credit crisis unfolded. The online broker's banking subsidiary has been slammed by troubled home equity and mortgage loans and from significantly devalued mortgage-backed securities bought earlier in the decade.

Citadel took a large debt and equity stake in the company in late 2007. This past spring regulators forced E*Trade to raise its capital levels, setting off a $1.7 billion debt-for-equity exchange, with Citadel as the primary participant to exchange debt for E*Trade common stock.

Additionally, Griffin was given a seat on E*Trade's board in June.

Citadel disclosed in the filing that it owns a total of 166.2 million shares, or 14.9%, of E*Trade's total common shares outstanding.

On July 1, Citadel said it tendered $1 billion worth of springing lien notes and another $230 million of notes to be exchanged for debentures, according to the filing. Between July 30 and Aug. 10, Citadel also sold roughly $360 million worth of notes leaving it the holder of approximately $1.78 billion of E*Trade debt.

E*Trade shares closed down 4.1% to $1.40 on Thursday.


Written by Laurie Kulikowski in New York