EMI Fraud Case Goes To Court

Terra Firma’s fraud case against Citigroup has been given the go-ahead, although U.S. District Judge Jed Rakoff has dismissed a couple of the charges.

He rejected Sept. 14 two of the UK buyout firm’s arguments alleging Citigroup was guilty of negligent misrepresentation and tortuous interference when it brokered the sale of EMI.

But he also ruled a New York jury will decide if the U.S. banker is guilty of fraudulent misrepresentation and fraudulent concealment. The case is scheduled for Manhattan District Court Oct. 18.

On Sept. 10 Citigroup tried to get Judge Rakoff to toss the entire Terra Firma case, claiming there’s not a scrap of evidence to support it.

At the end of March the judge also denied the bank’s effort to get the case moved to London. He later explained “there is a legitimate U.S. interest in learning whether Citi, a major American bank, may be liable for fraudulent inducement, and thus subject to substantial damages.”

Terra Firma’s lawsuit claims Citigroup inflated the price of EMI Group Plc. by not revealing that the only remaining bidder had withdrawn from the auction.

It says Citigroup deal-maker David Wormsley misled Terra Firma chief Guy Hands into believing rival bidder Cerberus remained in the auction with an offer of 262 pence per share. Wormsley is alleged to have convinced Hands his prospects of competing hinged on him bidding 265 pence per share.

The private equity firm eventually paid £4.2 billion for the label, but has since struggled to pay back the £3.2 billion it borrowed from Citi to facilitate the deal.

EMI profits are just about high enough to cover the interest payments.

Last month Terra Firma, which has poured millions into EMI since taking over ownership in 2007, revealed it will need further cash injections if it’s to avoid breaching future banking covenants.

Both Terra Firma and Citigroup are claiming to be happy with the trial ruling put down by Judge Rakoff Sept. 14.

Terra Firma spokesman Jonathan Doorley said his company is looking forward to the trial, when “Citi will have to answer to a group of New York jurors.”

A Citigroup spokesman told Financial Times the bank is pleased Judge Rakoff dismissed two of the four claims in the case. He said it is confident of prevailing at trial on the two remaining charges.

Terra Firma’s seeking to recover “lost equity of billions of dollars” from Citigroup plus punitive damages.