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ATTORNEY GENERAL WINS APPEAL IN SECURITIES FRAUD CASE

PRESS ADVISORY

ATTORNEY GENERAL WINS APPEAL IN SECURITIES FRAUD CASE

September 15, 1998

ATLANTA - Georgia Attorney General Thurbert E. Baker announced today that his office has prevailed in a long-fought securities fraud case. In an opinion issued Monday, the Georgia Supreme Court affirmed a decision of the Superior Court of Tift County finding that GFI Financial, Inc., and Virgil Womack had engaged in the illegal sale of securities. The lower court order had also permanently enjoined and restrained the sale of those illegal securities.

The case, State of Georgia, ex rel. Lewis A. Massey v. The GFI Financial, Inc., and Virgil Womack, was filed in the Superior Court of Tift County on May 20, 1997. It involved the sale of unregistered securities to 90 to 100 consumers for total sales of $6,000,000.

The case began when the Office of the Attorney General on behalf of the Secretary of State successfully obtained a temporary restraining order and the appointment of a receiver. After his appointment, the receiver successfully seized assets held by GFI totaling over $4.75 million. Beginning on January 3, 1997, Mr. Womack and GFI's agents sold GFI "promissory notes" to investors, misrepresenting that the notes would result in high yields of 10 to 28 percent, that 100% of investors' money would go to work for them immediately, and that there were no front or back end loads or management fees charged to investors. Although GFI represented that it had assets of $1.2 billion, the Superior Court in its October 20, 1997, order found that GFI's liabilities exceeded its assets by over $1.6 million. The Superior Court also found that GFI did not engage in any investment activity with the funds received from investors.

A unanimous Supreme Court held on appeal that GFI's promissory notes were securities under Georgia law and that Defendants had failed to carry their burden of showing that the notes were exempt from the requirement of registration with the Secretary of State. The Court rejected all other arguments advanced on appeal by Womack.

Once the Supreme Court's order is final, the receiver will proceed with a plan of liquidation and a distribution of the proceeds of liquidation to the investors and other creditors of GFI.