Terra Firma ‘Lost Midas Touch’

The opening exchanges of Terra Firma versus Citigroup were arguably more suited to international prizefights staged at Madison Square Garden than a Manhattan District Court, as each side lined up a team of expensive lawyers to prove the other is a liar.

“You will have to decide who is telling the truth and who is not telling the truth,” Judge Jed Rakoff told the jury.

British private equity heavyweight Guy Hands, as the New York Post called him, is going toe-to-toe with the American bank to prove he was tricked into paying too much money for British record label EMI in 2007.

“Citi was playing two sides of the street at the same time,” Terra Firma lawyer David Boies, a former head of the U.S. Senate Antitrust Subcommittee, explained.

There’s no question that Citigroup earned fees from EMI for running the auction and also profited by lending Terra Firma the money to complete the deal.

“Mr. Hands thought he had the golden touch, and he did for quite a while – until he bought EMI,” Citigroup’s chief lawyer Theodore Wells – an expert in white-collar criminal defense – hit back with a sharp counterpunch.

In 2008 Wells successfully defended Citigroup against a $2 billion fraud claim involving Parmalat, the Italian dairy food corporation. It was one of the largest civil fraud jury trials of the decade.

In the EMI case, Citigroup’s defense appears to rest on it demonstrating that Terra Firma started squabbling about the EMI deal more than two years after it was done, prompted by the realisation it had bought a bum steer.

It denies misleading the UK private equity firm during the lead up to the sale.

It says there is no evidence that its main London dealmaker David Wormsley knew that Cerberus Capital Management, which was the other bidder for EMI, already dropped out of the auction when he told Hands’ company that it needed to bid 265 pence per share to ensure it would win.