## Facts

- William K. Holmes and related entities held about 2.1 million shares of WorldCom, Inc.
- Holmes alleged that on June 25, 1999, he instructed his broker at Citigroup Global Markets, Inc. (then Salomon Smith Barney, Inc.) to sell all WorldCom shares at about $92 per share.
- Holmes alleged the broker persuaded him not to sell by invoking analyst Jack Grubman’s research and reputation.
- Holmes alleged the broker and analyst promoted WorldCom while conflicted by investment-banking interests and despite knowledge that the stock was overvalued.
- Holmes alleged he bought additional shares as the price fell.
- In October 2000, Holmes alleged he was forced to liquidate his WorldCom position to meet margin calls, causing nearly $200 million in losses.
- Holmes later filed bankruptcy and asserted Georgia-law claims including fraud, negligent misrepresentation, negligence in disclosures, and breach of fiduciary duty.
- A federal district court dismissed the complaint for failure to state a claim; the Second Circuit certified three Georgia-law questions to the Supreme Court of Georgia.

## Issues

1. Does Georgia common law recognize fraud claims by holders of publicly traded securities based on forbearance from selling in reliance on misrepresentations (“holder” claims)?
2. In tort claims involving misrepresentations or omissions about publicly traded securities, is proximate cause adequately pleaded without alleging that a corrective disclosure entered the marketplace and caused a price drop?
3. Under Georgia law, does a brokerage firm owe a fiduciary duty to a customer with a non-discretionary account?

## Decision

- The court answered that Georgia common law recognizes holder fraud claims, but only within narrow, proof-focused limits.
- The court held that Georgia proximate cause pleading does not require allegations of a market-wide corrective disclosure; traditional foreseeability principles apply.
- The court held that a brokerage firm does not automatically owe a broad fiduciary duty to a holder of a non-discretionary account, but a limited fiduciary or confidential relationship may arise based on particular facts.

## Legal Principles

- Georgia fraud may be based on inducement to act or to forbear, including refraining from selling securities, if the plaintiff can show specific reliance, causation, and non-speculative damages.
- Holder claims are constrained by requirements aimed at avoiding speculative “what-if” proof, including a concrete decision point and individualized reliance rather than generalized market reliance.
- For Georgia tort claims tied to public securities, proximate cause turns on whether the loss was a reasonably foreseeable consequence of the alleged misrepresentation or omission; no corrective-disclosure pleading rule is imposed as an element of state-law causation.
- A non-discretionary brokerage relationship generally entails duties of honest dealing and due care in execution, but not trustee-like oversight; fiduciary or confidential duties may arise when the broker undertakes advisory functions, exercises substantial control, or the customer justifiably places special trust in the broker.

## Conclusion

The Supreme Court of Georgia confirmed that Georgia law can support fraud claims by securities holders who allege specific, individualized reliance causing them to hold rather than sell, rejected any state-law requirement to plead a corrective market disclosure to establish proximate cause, and clarified that non-discretionary brokerage accounts do not create automatic fiduciary duties though limited fiduciary obligations may arise from the parties’ particular relationship.


Holmes v. Grubman, 286 Ga. 636, 691 S.E.2d 196 (Ga. 2010)