Updated from Tuesday, June 9

Ken Griffin is bucking his tendency to duck the limelight to take a more active role in shoring up Citadel Investments' floundering investment in

E*Trade Financial

(ETFC) - Get Report

.

Griffin, whose hedge fund is E*Trade's largest shareholder, is taking a seat on E*Trade's board of directors, according to press release from the online brokerage. Griffin will serve as a member of E*Trade's finance and risk oversight committee

The move is significant because the typically media-shy Griffin does not currently serve on any public company board of directors, according to Citadel's Web site. Griffin, 40, is the director of the Chicago Public Education Fund. He is also a member of the boards of Trustees for the Art Institute of Chicago and the Museum of Contemporary Art.

"E*Trade is among the most recognized and innovative brands in America," Griffin said in a statement. "I look forward to working with the members of E*Trade's board to help create and take advantage of the many market opportunities that these unique times provide."

E*Trade CEO Don Layton said that Griffin's "perspective of the capital markets and on managing a sophisticated investment business will complement the wide range of expertise" among the company's board members, according to the release.

It will be particularly interesting to see how Griffin's presence on E*Trade's board affects how the troubled company addresses its capital issues. Citadel is E*Trade's largest debt and stockholder.

E*Trade said Griffin's appointment came after Citadel "exercised its right under the 2007 Citadel Investment Agreement to appoint" a director to the board.

"This is -- at the very least -- a strong symbolic gesture," says Jason Ren, an analyst at Morningstar. "To me it kind of also sends out a message -- any deal regarding E*Trade's future will have to go through Citadel."

The brokerage firm is being prodded by regulators to raise capital, even though its November application for funding from the Troubled Asset Relief Program remains unanswered.

Griffin joining E*Trade's board is "almost an indication that they won't get any TARP funds," one former E*Trade executive says. "I can only assume that it means that the company is in worse shape than anyone believes."

Griffin's addition to the board "could possibly be the precursor of Citadel converting its debt into equity and taking a controlling stake in the company," he speculates. "The other option may be to try and sell the brokerage and get some return back for Citadel."

Others say that E*Trade will have to do something drastic to raise capital such as splitting into a good bank/bad bank structure or a possible sale of some or all of the company.

The

Wall Street Journal

, citing people familiar with the matter, reports E*Trade is is working on a deal with Citadel to to shore up its financial position. Terms of the deal aren't known but the two have been negotiating for weeks to try reach a deal to strengthen E*Trade's fortunes.

E*Trade said in a statement that "as a board member, Mr. Griffin will serve the interests of all shareholders." The firm declined to comment further.

Rivals such as

Charles Schwab

(SCHW) - Get Report

and

TD Ameritrade

(AMTD) - Get Report

could be interested in the firm's brokerage operations.