Terra Firma draws first blood in suit against Citigroup

UK private equity firm Terra Firma, owner of the UK-based EMI Group, drew first blood in a New York Court against Citigroup over its acquisition of EMI in 2007, when the judge refused the banking giant's plea to move the case to the UK.

The US District Court in Manhattan rejected Citigroup's request to dismiss the case on the grounds that the UK was the right place for the case to be heard since Terra Firma, EMI and a large number of people related to the case were based in London.

The ruling opens the way for a jury trial to determine whether Citi was guilty of fraud in inducing Terra Firma to buy EMI.

London-based Terra Firma, formed through the spin-off of Nomura Group's principal finance group in 2002 by British financier and investor Guy Hands, had filed a lawsuit in New York state court in December 2009 alleging that Citigroup, which brokered the sale of EMI Group had artificially inflated the price of the music publisher during its takeover in 2007 by falsely claiming that other bidders were in the race. (See: Terra Firma sues Citigroup on EMI acquisition)

Citigroup allegedly had told Terra Firma that Cerberus Capital Management was also in the running to buy EMI, when the private equity firm had actually withdrawn from the auction hours before it closed, Terra Firma said.

Terra Firma is accusing Citigroup, which made about $185 million from the sale through services, of intentionally inflating EMI's price by misrepresenting fundamental facts that Cerberus Capital Management was also in the race although Cerberus had withdrawn from the bidding.