Lies and fraud alleged in EMI deal

The opening statements in the legal battle between Guy Hands, of private equity firm Terra Firma, and Citigroup over the $6.4 billion buyout of music giant EMI were filled with allegations of fraud and lies. Hands is accusing banker and former friend David Wormsley and Citigroup of duping him into thinking there was a rival bid for EMI when he bought it back in 2007.

(Reuters) – A New York jury was asked on Monday to decide who may have lied in a dispute between British financier Guy Hands and Citigroup over Hands’s $6.4 billion buyout of legendary music company EMI in 2007.

Hands and his onetime Citigroup banker friend David Wormsley sat feet away from each other as the trial, which is expected to last three weeks, began in U.S. District Court.

Hands’s Terra Firma Capital Partners [TERA.UL] accuses Wormsley, 50, and Citigroup of duping Hands into thinking there was a rival bid in the offing by private equity firm Cerberus Capital Management for the EMI company he coveted.

As it turned out, there were no other offers.

Both men are expected to testify, with Terra Firma founder Hands, 51, taking the witness stand as early as Tuesday.

The two had kept up a personal and business relationship after the May 2007 deal, according to court papers. Terra Firma sued two years after the deal was consummated.

Wormsley “was playing two sides of the street at the same time,” Hands’s lawyer, David Boies, told the nine-member jury in a 45 minute-long opening statement.

Boies said email evidence to be presented by Terra Firma at the trial would show that Wormsley “secretly promised EMI to use his relationship with Guy Hands and Terra Firma to help EMI” obtain added value.

Citigroup backed the EMI acquisition with 2.6 billion pounds in loans. The 4 billion-pound ($6.4 billion) deal came to epitomize the perils of loading companies with debt and the associated risks.

Citigroup Inc denies the allegations that Wormsley, one of its top European bankers, had misled Hands in telephone conversations on the weekend of May 19-20, 2007 or otherwise before the May 21 deadline for bids.


The bank’s lawyer, Ted Wells, argued that Citigroup’s evidence would show that as time went on, Hands realized that his purchase of EMI was not a good business deal, so he sued the bank in 2009.
“After a while Mr. Hands had a new story,” Wells told jurors. “There was no fraud, no lies. Nobody tricked him,” Wells, of Paul, Weiss, Rifkind, Wharton & Garrison LLP, said in his opening statement.

Terra Firma was pressured into making a higher bid for the company than it would have if it had known there were no other offers, said Boies, chairman of law firm Boies, Schiller & Flexner.

He called Tim Pryce, Terra Firma’s chief executive and former general counsel, as the first witness.
Pryce testified that he spoke to Wormsley on the phone on May 17 about EMI, four days before the auction. “He said we would have to move very quickly,” Pryce told the jury.

Pryce testified that Hands told him later that year that he had heard Cerberus had not submitted a binding bid for EMI “and asked me to investigate to find out whether or not that was true.”
Presiding U.S. District Judge Jed Rakoff noted that Terra Firma called the EMI deal process Project DICE. “Was this intended to convey this was a dicey transaction?” Rakoff asked Pryce after the jury had been sent home for the day.

“No, absolutely not,” Pryce replied.

Settlement talks between Citigroup and Terra Firma broke down last Wednesday, the Wall Street Journal reported on Saturday, citing two people familiar with the matter.

Lawyers are likely to hold informal talks even during the trial and could halt the process at any point.
Citigroup, which is struggling to distance itself from its near collapse in the financial crisis, reported a higher-than-expected quarterly profit on Monday.

The case is Terra Firma et al v Citigroup et al, U.S. District Court for the Southern District of New York, No. 10-10459.

(Reporting by Grant McCool, editing by Matthew Lewis and Ted Kerr)