Back to top

Citigroup (C) & Guy Hands End Legal Tussle in London

Read MoreHide Full Article

On Jun 10, British financier Guy Hands withdrew its seven-year long litigation against Wall Street giant – Citigroup Inc. (C - Free Report) -- in London. The lawsuit was related to Terra Firma Capital Partners’, the private equity firm owned by Guy Hands, purchaser of EMI Group Ltd. in 2007.

Both the parties confirmed the dismissal of the case. Justice Michael Burton said at a special hearing: “I’m sure this is the right result.”

“These claims were brought in good faith,” Mr. Hands said in a statement. “However, it has become evident that our documentation of the fast-moving and complex events, and memories of these events after nine years, are no longer sufficient to meet the high demands of proof required for a fraud claim in court.

Citigroup said in a statement: “We have always maintained that the allegations made by Terra Firma were entirely baseless and that Citi, specifically [Citi bankers] David Wormsley, Michael Klein and Chad Leat, acted at all times with absolute honesty and professional integrity throughout the EMI transaction. We are very pleased that Terra Firma has unreservedly withdrawn the allegations, agreed to the dismissal of the proceedings and will pay Citi’s costs in relation to the matter.”

Background

In 2007, Guy Hands and his private equity team at Terra Firma offered $6.7 billion (£4 billion) as the bidding amount for EMI but failed to meet the loan payments provided by Citigroup to finance the deal. Therefore, Citigroup finally took EMI over and vended it in two parts in Nov 2011.

EMI’s recorded music division, EMI Music was sold to Vivendi’s Universal Music Group (UMG) for $1.9 billion (£1.2 billion), while the publishing division was divested to a group of investors led by Sony Corporation of America (SCA) – a U.S. subsidiary of Sony Corporation (SNE - Free Report) – for $2.2 billion.

Back in Dec 2009, Guy Hands filed a lawsuit against Citigroup claiming that a Citi banker convinced him to buy EMI at a higher price. Terra Firma claimed $8 billion (£5 billion) as damages, which was reduced to $2.2 billion (£1.5 billion) at a trial.

Further, in 2013, a federal appeals court turned down a 2011 jury verdict, which was in favor of Citigroup. As per the verdict, Citigroup was cleared of committing any wrongdoing against Tierra Firma. Therefore, the federal court’s move provided a fair opportunity to Guy Hands to seek compensation for the bank’s wrongdoings.

However, Citigroup denied the allegations and in turn accused Guy Hands of being involved in "legal tourism" by trying to prove his claims in both the U.S. and England prior to the mutual agreement in 2014, under which Guy Hands and Citigroup ended their legal tussle in the U.S. However, both parties agreed to pursue the case in England.

Conclusion

Pending lawsuits are not only a burden on a company’s financials but they also dent its reputation. Thus, resolving legal issues at the earliest are in the best interests of any organization. Currently, Citigroup carries a Zacks Rank #3 (Hold).

Better-ranked finance stocks include Enterprise Financial Services Corp. (EFSC - Free Report) and Heartland Financial USA, Inc. (HTLF - Free Report) , both with a Zacks Rank #2 (Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>