One E*Trade commercial features a baby who does well enough investing with the firm that he can afford a tailor.

A few years ago, Citadel saved E*Trade with a $2.5 billion cash infusion. Now, the giant hedge fund manager is slamming the online brokerage company and pushing for a sale.

In a letter on Wednesday to Steven J. Freiberg, E*Trade’s chief executive and interim chairman, Citadel said the board had “squandered” a “phenomenal franchise.” The hedge fund, which owns 9.8 percent of E*Trade’s stock, highlighted a numbers of problems, including a “still weak capital position,” poor-performing stock and “inaction” by the directors.

“Since November of 2007, the board has continually failed to act in the best interest of E*Trade shareholders,” Citadel said in the letter. “Having endured nearly four years of value destruction and lost opportunity, we believe it is time for change.”

The hedge fund, which is run by Kenneth Griffin, is pressuring E*Trade to pursue a possible sale in the hope of unlocking shareholder value. Since late 2007, shares of the online brokerage have fallen to less than $13 from about $50.

Jonathan Alcorn/Bloomberg NewsKenneth Griffin, chief of Citadel.

“We believe a sale of the company could be achieved promptly and generate significantly higher shareholder value, avoiding the risks of operating as an independent company lacking leadership and financial capabilities,” Citadel wrote in the letter.

Citadel is also looking to shake up the board. It wants fill the empty board seats with independent directors “who are not tainted by the company’s past and ongoing management failures.”

The hedge fund also wants to change corporate governance measures by eliminating the staggered board structure, which prevents activist shareholders from nominating a full slate of directors in a single year. As Citadel wrote, the current system “encourages entrenchment and shields poorly performing directors from accountability.”

“E*Trade has reached a pivotal moment where decisive action can be taken to generate value for all shareholders,” Citadel said in the letter.

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