Georgia Supreme Court Blog

February 8, 2010

Court Certifies Former WorldCom Investor’s Fraud Claim Against Citigroup

Filed under: commercial litigation, fraud, George Carley, torts — bce30064 @ 8:17 pm

The Georgia Supreme Court ruled that investors seeking to recover more than $200 million of losses in WorldCom stock has a fraud case against their former security broker his employer (now Citigroup).

Jack Grubman and his investment companies alleges that he wanted to sell his 2.1 million WorldCom shares in 1999, but his broker convinced him to retain his shares and invest more in WorldCom. WorldCom collapsed amid massive accounting fraud and Grubman claims his broker covered up the problems at WorldCom to protect his employer’s money-making relationship with WorldCom.

The matter came before the Georgia Supreme Court as a certified question from the U.S. Second Circuit Court of Appeals. On occasion, federal courts may certify a question of state law to a state supreme court. In this case, the Second Circuit asked the Georgia Supreme Court whether Grubman et al have a valid claim under Georgia law.

The Georgia Supreme Court, in a unanimous opinion authored by Justice Carley (data), held that Georgia law recognizes a fraud claim where investors have been induced to not sell securities and that, under Georgia law, a brokerage firm owes a fiduciary duty to a non-discretionary account. Additionally, the Court noted that Grubman et al must prove the alleged fraud proximately caused their losses.

This case is far from over. We might expect the Second Circuit to rule in Grubman et al’s favor against Citigroup based on the response from the Georgia Supreme Court, but predicting the outcome of a case as complicated and high stakes as this is far from an exact science.

Georgia Supreme Court Database: Holmes et al. V. Grubman et al. (S09q1585): Full Text and Visual Summary

Legal Resources:
Georgia Commercial Litigation Information: From the Center for Legal Solutions

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