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Terra Firma v Citigroup: Forensic accounting denied

By | Published on Monday 1 November 2010

Although some commentators have an inkling as to which way the Terra Firma v Citigroup trial will go, officially it is too soon to say who will win. However, what we do know is that, if Terra Firma is victorious, the company’s favoured way for calculating damages will not be used. 

We know that Terra Firma and top man, Gary ‘The Guy’ Hands, want billions in damages from Citigroup which, they claim, tricked them into buying EMI at an overly inflated price back in 2007. One way of calculating damages so that Terra Firma gets a particularly big pay day is to consider “lost profit” – ie had Terra Firma not invested in EMI, where might it have invested its money instead, and what profits might those investments have made? 

Terra Firma’s legal team had hoped to wheel out a so called ‘forensic accountant’, called Marianne DeMario, to speculate about such things in front of the jury hearing the case. But the judge in charge, Jed Rakoff, asked to hear said expert’s evidence without the jury present last week, and ruled that her approach – which concluded Terra Firma would have made 4.4 billion euros in alternative investments – was too speculative to form part of the main trial. 

Rakoff: “I will not allow her to testify about ‘lost profits’. I think the process is speculative, and the methodology rather flawed”.

However, DeMario will be allowed to testify before the jury on what she thinks would be ‘fair market value damages’, though Rakoff added that it would be for the jury to decide whether that approach was appropriate, or whether any system for calculating damages put forward by Citigroup’s legal team was more appropriate. 

As previously reported, even with the ‘lost profits’ approach rejected, Terra Firma could still push for a multi-billion damages payment, especially if there are grounds for punitive damages, which there will be if is ruled Citigroup was deliberately dishonest and behaved without morals. 

The Terra Firma v Citigroup legal squabble enters its third week later today.



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