On Nov. 4, after 2-1/2 weeks of testimony and five hours of deliberation, the jury presiding over Terra Firma Capital Partners Ltd. versus Citigroup Inc. delivered the unanimous verdict required of it by the federal court for the Southern District of New York. That verdict absolved Citi from the charge of fraudulent misrepresentation three years ago while assisting London-based Terra Firma in its ill-fated purchase of EMI Group plc. But it fell far short of establishing Citi's innocence. Were it possible, the judge and maybe the jury would have sided not only against the private equity firm that took its bank to court but also against the bank itself.

That's because David Wormsley, Citi's London-based rainmaker on the EMI deal, and Guy Hands, Terra Firma's chairman, acted equally entitled throughout the auction leading to Terra Firma's bid of £2.65 per share for the U.K. record company on May 21, 2007. Wormsley appeared especially culpable for having played, officially and unofficially, several roles for Citi. In addition to serving as adviser to seller EMI and to buyer Terra Firma, he acted as the bank's lending liaison to the auction's winner. And though these roles were fraught with conflicts, there's no denying they served Wormsley and his employer well. Citi earned £6 million ($9.7 million) in advisory fees on the deal and £80 million for underwriting the loan that allowed it to happen. Hands' primary sin, by extension, was assuming Wormsley's place at the vortex of EMI negotiations would benefit Terra Firma as much as it did Citi. The private equity titan thought that he, too, deserved to partake in the professional equivalent of friends with benefits.

Not that the trial addressed such matters. But their influence on repercussions from Terra Firma versus Citi was clearly on the mind of Judge Jed S. Rakoff. As he put it during a break from closing arguments, with the jury safely out of earshot, "There's an ironic issue at work in this case that both sides have studiously avoided, which is that an argument can be made that any of the conversations Mr. Wormsley had about bidding with Mr. Hands were improper." The judge added that Hands, like Wormsley, "knew darn well they were improper." Yet Hands remained "party to these improper conversations because that's the way both of them did business in this cold, cynical, cruel world, where not everyone always abides by the rules." Finally, Rakoff concluded: "That's not an argument either of you are making. [It's] just an argument that might appeal to common sense."

Call it the trial that might have been, a trial that adjudicated the complaint filed last December by Terra Firma against its longtime banker in the spirit of the law (for more on the trial and its colorful participants, see Movers & Shakers). But, as Judge Rakoff so eloquently acknowledged, the trial that took place was by design more limited to the letter of the law. It did not question every conflict of interest, examine every breach in what should have been a Chinese wall or even hold its limited cast of characters to the standard operating procedures of other businesses. Still, for all its shortcomings, for all the limitations imposed by its adherence to technicalities, the trial that did take place proved pretty damning.

At its core, Terra Firma versus Citi featured three crucial phone calls between Hands and Wormsley. Records show these calls took place over the weekend preceding the private equity firm's placing a binding bid for EMI on a Monday morning. That the conversations remained in dispute throughout the trial kept much of the testimony from rising above the level of "he said, she said."

Citi asserted that, to the degree Wormsley remembered, the calls addressed only the financing of EMI should Terra Firma happen to win it. Never mind that the banker followed the last of the three with an e-mail to EMI's chief executive: "Just had a call from GH. He is going to credit at 6 am and hopes to get something to you by 9. I reinforced the point that he should not play games on price. He said 'I hear you.' " On the stand, nonetheless, Wormsley maintained the calls never strayed from the subject of financing, never got into such urgencies and practicalities as the price Terra Firma should pay for EMI, when to pay it and whom that price had to beat.

Terra Firma countered that the calls motivated its general partners to shell out £4 billion to secure a deal that now ranks among the worst in private equity. In fact, of the £1.5 billion of its own capital it sank into EMI, Terra Firma wrote off £1.2 billion in March 2009. So, even though more than two years had elapsed, the buyout firm tried to build a fraud case by hammering home two points.

The first had Wormsley using the three calls to encourage a binding offer of £2.65 per share from Terra Firma. This he allegedly did by contending, either as subterfuge or out of ignorance, that such an offer was necessary to beat a bid of £2.62 per share from hedge fund Cerberus Capital Management LP. (Suffice it to say Cerberus did not bid.) The second point had to do with Terra Firma's reaction to Wormsley's coaxing. Did it play a substantial role in inducing the private equity firm to bid £2.65? Was it seductive enough to override such other deal considerations as due diligence, outside intelligence and old-fashioned gut instinct?

Qualified observers contend that Terra Firma's inability to put the second point over with the jury allowed Citi to prevail in court. "Terra Firma certainly succeeded in framing the questions: Did Citi lie to it? And did Terra Firma rely on those lies?" says a corporate law specialist who admits a fascination with the case. "It also pretty much established Citi's lying as an open fact. It just couldn't prove, at the end of the day, that Citi's misrepresentations were pivotal to Terra Firma's coming forward with an offer. Citi managed to counter any such notion by suggesting Terra Firma wouldn't have put in a bid at a price unsupported by its financial models."

From that perspective, the outcome of Terra Firma versus Citi made the plaintiff an undeniable loser. But did it make the defendant a winner? Not in the view of the same corporate law specialist, who believes Citi came off looking "a bit worse" than Terra Firma. To the degree that lying was the case's key issue, he says, Terra Firma did more than put Citi on notice. It also put Citi's clients on notice. "A company concerned about corporate governance may have difficulty justifying the hiring of Citi," he says. Yet when it comes to Wormsley, the human embodiment of Citi throughout the trial, the corporate law specialist beats a partial retreat: "He's too good a banker to have his career collapse from the weight of a single case."

It's a sentiment the court record corroborates, especially as Wormsley insinuates himself into Terra Firma's graces. Consider, for example, this typical Wormsley-to-Hands communiqué in October 2006, when the two were still allies: "Within Citi, Terra Firma is one of the examples we hold up of how, as a group, we have consistently put the client before our own interests and made the whole organization work for the client." Then, in a frothy follow-up a month later, Wormsley called himself "incapable of not trying to get you to the best possible outcome." Best of all, though, was his almost simultaneous directive to one of his Citi colleagues "to show big love to Terra Firma."

Yet the court record also reveals the banker's dark side. This is most apparent, perhaps, in what Terra Firma charged was a cover-up of "the phantom Cerberus bid." A Citi colleague of Wormsley's set one scene in this alleged scheme in motion with an e-mail to Hands -- some four months after Terra Firma's bid for EMI spared the company from the ignominy and financial fallout of a hung auction -- that erroneously, if not purposely, called the hedge fund "a bidder for EMI in May." The message was also forwarded to Wormsley and to another Citi colleague, who replied: "The reference to Cerberus at the end is particularly masterful."

David Boies of Boies, Schiller & Flexner LLP, the lead lawyer for Hands and Terra Firma, found the completion of this scene so compelling that he used it to close out his closing argument. "And what does Mr. Wormsley reply?" Boies asked in court about the "particularly masterful" reference to Cerberus' having participated in the auction. " 'Lovely, isn't it?' " the attorney said, quoting the banker's response. "Laughing about what is happening. Laughing about the fact that their trusted client still believes that there was another bidder out there."

Boies then left it to the jury to connect the dots, hoping his closing argument could withstand the lack of a paper trail that tied the private equity firm not only to Wormsley but to its last-minute bid of £2.65. Terra Firma tried to pin this lack of documentation on Hand's dyslexia, a learning disorder, and dyspraxia, a motor disorder. According to testimony, the combined afflictions kept the private equity chief from taking notes of any kind, even about being duped by a banker he once considered his friend. As arguments go, though, this one soon proved more convenient to the defendant than to the plaintiff.

Theodore V. Wells Jr. of Paul, Weiss, Rifkind, Wharton & Garrison LLP, who with an assist from partner John F. Baughman advocated for Wormsley and Citi, immediately followed by putting as much space as he could between the dots that Boies wanted jurors to connect.

"There's not a text, there's not a file memo, there's not a minute, there's not one single piece of paper that records that David Wormsley said Cerberus was going to bid £2.62," Wells all but bellowed. "Use your common sense. ... If this company was investing £4 billion on the basis of that conversation, it would be written down someplace." It was the sort of declaration capable, obviously, of raising reasonable doubt.

"There are no winners in this," says an investment banker close to plaintiff and defendant. "The equity is wiped out; the debt is impaired." Ever the pragmatist, the banker goes on to liken jurors in this instance to auditors who, according to an old joke, visit a battlefield long after the fighting is over to shoot the wounded. Yet it's no surprise to him that the bank technically won, despite the fact that Hands and Wormsley were once high-flying friends who used to hunt together on Hands' Italian estate. "If you're thinking friendship in a deal like this is going to save you," he says, "then you deserve to lose your money."

The banker also dismisses the end-of-auction scenario for EMI, as depicted by Terra Firma, as too static to be credible. After all, it's at an auction's end when deal mania runs high, when smoke and mirrors are sometimes deployed to save the day. "Who knows when a bidder is really out?" he asks. "And who's to say Cerberus wasn't game playing? There's a rumor out there it even told Terra Firma it was out."

If there's a silver lining to the case, it may be in precisely this area. It may be in the ability of Terra Firma versus Citi, as a precedent, to shine a light on areas previously gray. A lawyer conversant with this type of litigation says such cases historically turned on delineations between what he calls the securities model and the M&A model.

The securities model, an outgrowth of the Securities Act of 1933 and the Securities Exchange Act of 1934, essentially protects investors from themselves by having businesses address risks that potential security buyers otherwise might not even consider. The M&A model, in contrast, assumes that those involved in such endeavors bring a degree of sophistication to negotiations that renders securities-like disclosures irrelevant.

While Terra Firma's purchase of EMI falls squarely in the latter category -- where anything goes, where rules don't apply -- the lawyer believes we may be entering a new era. "This case draws a line for investment bankers -- actually, for all advisers to a deal," he says. "Sure, there'll still be puffery. There'll still be room for strategically selecting what information you give out. But making up facts is now crossing the line. And this is the case that makes that point."

If so, it's very, very early for a precedent still so tenuous it has yet to be applied on a winning side. It needs to be forged, tested and fleshed out in cases not only beholden to the letter of the law but also true to its spirit. It needs to be subjected, in other words, to trials like the one Rakoff thought Terra Firma versus Citi might have been.