Citigroup won "hands down" over British financier Guy Hands, as a British jury cleared the bank of any wrongdoing over its role in the sale of EMI Group, the ailing music company - saving a potential $8 billion award to the plaintiff.  Mr. Hands sought an $8 billion recovery, plus punitive damages - but was awarded nothing.

Terra Firma Capital Partners, the P.E. firm controlled by Mr. Hands, sued Citigroup - based in New York - accused the bank of defrauding him during the auction of EMI.  It was alleged that David Wormsley, Citigroup’s star British banker and his once-trusted adviser, lied to Mr. Hands 3 times that there was another bidder for EMI.  Mr. Hands said those misrepresentations duped him into paying $6.8 billion for the company. But EMI and Mr. Hands are running out of options, although Terra Firma said the buyout firm reserved its right to appeal.

Meanwhile, EMI Group risks defaulting on its debt and, barring a sharp turnaround in its business, could be forced to file for bankruptcy next year.  In that case, Citigroup, as EMI’s lender, would take ownership of the company and likely sell it off.  Despite its troubles, EMI still has desirable assets, particularly its music publishing unit.

The 3-week case opened a window into the frenzied deal-making of last decade’s leveraged buyout boom. Fueled by banks’ lax lending practices, private equity firms borrowed trillions of dollars to gobble up a large swath of corporate America and businesses around the world.  Companies including Harrah’s Entertainment, the world’s largest casino company, and Clear Channel Communications, the country’s largest radio business, fell into private hands.  Mr. Hands’s expensive, debt-laden acquisition of EMI, struck just as the credit markets began to seize up in August 2007, was a poster child for the excesses of that era.

Citigroup’s lawyers depicted Mr. Hands as having buyer’s remorse.  And Mr. Wormsley testified that he never lied to Mr. Hands.  The case captivated the British media, whose reporting ranks often outnumbered the American media in the courtroom.  The 113-year-old EMI, which once housed both the Beatles and the Rolling Stones, is one of Britain’s most storied companies.  And Mr. Hands, who testified at trial and sat in the Lower Manhattan courtroom each day, is something of a legendary figure in England.  Like the Blackstone Group’s Stephen A. Schwarzman in the U.S., Mr. Hands came to symbolize the excesses of the financial bubble in Britain.

Now, Mr. Hand's future as a PE investor is in doubt, and Terra Firma’s investors are miffed that he allocated so much of his fund - about 1/3 of the $7.7 billion pool - to one failed investment.  And having destroyed his relationship with Citigroup, Mr. Hands perhaps doomed EMI’s fate - Citi, as lender,Mr. Hands has also destroyed his relationship with Citigroup, which as EMI’s lender is unlikely to be accommodating in future restructuring talks.

The trial featured two of the country’s most highly regarded trial lawyers:  David Boies of Boies, Schiller & Flexner, represented Mr. Hands;  Theodore Wells of Paul, Weiss, Rifkind, Wharton & Garrison represented Citigroup. [NYT Dealbook, 11/4]