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Citigroup Says Toss EMI Suit
U.S. banker Citigroup has asked a federal judge to toss the lawsuit that UK private equity firm Terra Firma has brought against it, claiming there’s not a scrap of evidence to support it.
Terra Firma claims it has documentary evidence to show the bank misled it over its purchase of EMI in 2007 and says the case should go ahead. It’s seeking to recover “lost equity of billions of dollars” from Citigroup plus punitive damages.
U.S. District Judge Jed Rakoff says he may take until Sept. 15 to decide whether the case should be dismissed, but it appears likely it will go ahead. The trial remains scheduled for Oct. 18.
“Someone is lying and someone is telling the truth and a jury needs to sort that out,” he said, deferring a judgment on what he described as “a classic dispute of fact.”
At the end of March Judge Rakoff denied Citigroup’s effort to get the case moved to London.
The Terra Firma suit claims Citigroup tricked it into paying £4.2 billion for EMI Group Ltd. by misleading it into thinking there was a rival bidder in the market.
Terra Firma chief Guy Hands says Citi benefited from being EMI’s advisers during the sale process and also by lending his London-based company most of the money it needed to nail the deal. He says the U.S. banker acted out of greed because it was due to make £85 million out of the sale of EMI.
Since then, Hands’ investment company has poured millions more into EMI to avoid breaching the covenants of the Citigroup loan deal. Earlier in the summer it had to stump up another £125 million to prevent the U.S. bank from foreclosing.
Citigroup’s legal team told a Manhattan federal court Sept. 10 that there is no evidence to show that David Wormsley, the Citigroup employee named in the EMI suit, knew that Cerberus Capital Management LP had pulled out of the auction.
“There is not a scrap of evidence in this record that shows that Wormsley intended to lie,” Citigroup lawyer Jay Cohen told Judge Rakoff.
Cohen also argued there’s no evidence to show that Terra Firma relied on information about a Cerberus bid before making its own bid.
Terra Firma lawyer David Boies argued that there is e-mail and documentary evidence that the company had discussions with Citigroup regarding the Cerberus bid and then raised its own bid as a result of those discussions.
He says Wormsley misled Hands in a series of phone conversations in May 2007.
“Wormsley’s statements about the purported Cerberus bid were the pivotal factor in Terra Firma’s decision to place a bid for EMI when it did, and at the price it did,” said the private equity firm’s court papers opposing Citibank’s motion to have the case dismissed.
Cohen said Hands and Wormsley continued to have “a close personal and social relationship” after the deal was done and that it only soured when Terra Firma brought the fraud charge against Citigroup.
He told Judge Rakoff that for 26 months Terra Firma didn’t say anything about Citigroup’s “big lie” and only made its claim when it became obvious EMI was a financial mess.