According to court documents, the firm alleged that Citigroup tricked the firm into paying an inflated price for the music business by claiming that another party was interested in the acquisition.
The case focuses on conversations between City banker David Wormsley and Guy Hands, founder of Terra Firma.
Mr Wormsley is thought to have told the latter that Cerberus Capital Management, a private equity firm, was still looking to acquire the business when they had actually given up on the deal.
In a statement by Terra Firma, which was quoted by the Guardian: âCritically, Citi has been unable to rebut the central allegation in this case: that Wormsley made false statements to Hands during the final days of the 2007 auction of EMI, and that Terra Firma relied on those statements when deciding to buy EMI."
The legal action also claimed that Citigroup was motivated to inflate the price of the acquisition due to the financial benefits of the deal going ahead.
Citigroup is believed to have earned Â£6 million in advisory fees and Â£80 million in underwriting fees on loans from the acquisition.
The investment bank denied the charges stating that none of the evidence provided by Terra Firma could corroborate the claims.
By Jim Ottewill