The dispute between Terra Firma and Citigroup over the buyout house's £4bn acquisition of EMI Group can proceed to trial, a US judge has ruled.

The private equity giant has alleged that Citi inflated the value of EMI by not revealing that rival bidder Cerberus had withdrawn from the auction. Terra Firma claims that this was a key factor in its bid of 265p a share for the music publishing company.

Paul Weiss Rifkind Wharton & Garrison litigation partner Jay Cohen is advising Citi on the dispute, with Boies Schiller & Flexner litigation partner Jonathan Sherman acting for Terra Firma.

US district judge Jed Rakoff on Tuesday (14 September) allowed Terra Firma's claims for fraudulent misrepresentation and fraudulent concealment to proceed to a jury. However, the judge also granted judgment in favour of Citi on two of Terra Firma's other claims.

Terra Firma welcomed the decision, while Citi, which denies the allegations, said yesterday (15 September) that it was confident its case will succeed. However, the ruling will come as a blow for the banking giant, which had attempted persuade the judge that the allegations should not go to trial.

One private equity partner commented: "It seems intuitively unlikely that an investment banker would fabricate the existence of a rival bidder. This is one of the ground rules of private equity and I doubt that the banker in question would have taken this risk."

The trial is scheduled to start on 18 October.