The showdown between U.K. private equity firm Terra Firma Capital Partners Ltd. and U.S. bank Citigroup Inc. (NYSE:C) took two steps toward the courtroom this week. Yet, regardless of whether mediation between the two parties resumes, claims and counterclaims have already left dealmaking practices highlighted by the case looking as savory as sausage-making.

This week's initial step was Citi's motion to dismiss Terra Firma's claims that the bank committed fraud by playing several roles in the 2007 sale of EMI Group Ltd. The second step was the memorandum of law filed by Terra Firma, which wound up paying £4.2 billion ($6.6 billion) for the ailing British music company, in opposition to Citi's dismissal request.

The opposition memo, prepared by Terra Firma counsel Boies, Schiller & Flexner LLP, is what interests us here. As in the original complaint, filed last year in New York federal court, the memo focuses on Citi investment banker David Wormsley (pictured). Or, more to the point, it focuses on efforts Wormsley allegedly made to keep Terra Firma believing that Cerberus Capital Management LP would also bid for EMI.

The original complaint charged that these efforts continued even after others involved in the auction were informed of Cerberus' exit. Now, however, facts obtained through discovery appear certain to make that charge stick.

In fact, the day before Terra Firma made its binding offer of £2.65 per share, EMI's chief executive learned in a morning conference call that Cerberus was no longer an auction participant. Moreover, within a half-hour of completing the conference call, the same CEO spoke to Wormsley for a few minutes. He spoke to the banker again in the afternoon.

Then, in a so-called midnight call to Terra Firma chairman Guy Hands at the end of the day, Wormsley allegedly averred that Cerberus planned to bid £2.62 per share for EMI the following morning. And though he claims to have no recollection of the midnight call, the banker followed it up with an e-mail to EMI's chief executive:

"Just had a call from GH. He is going to credit at 6am 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.' "

The innocence of Wormsley hinges on his being kept in the dark about Cerberus' decision not to pursue EMI. But this makes no sense for parties as interested in the auction's outcome as Wormsley and EMI's chief executive, especially in light of their conversations after the contest had been reduced to a field of one. It could just as easily be argued that Wormsley was indifferent to the £6 million in advisory fees and the £80 million in loan underwriting fees that the deal's consummation ultimately sent Citi's way.

Even before the EMI transaction, having generated more than $170 million in revenue for Citi since 2004, Terra Firma ranked as a "platinum account." But not even this was enough, apparently, for the bank to steer the private equity client clear -- not when a senior Citi banker could, and did, boast in a message celebrating EMI's sale: "[W]e got paid on both sides of the deal!" ... "[W]e got paid on buyside as well as sellside!"

Yet another reason, one could argue, to rethink the loss of Glass-Steagall.