ADIA bought shares in 2007 for eight times the current price.
The beleaguered bank had turned to the world’s biggest sovereign wealth fund to replenish capital after seeing $118bn written down in the sub-prime crisis.
The deal was reached in November 2007, giving ADIA equity units that can be swapped into common stock at $31.83 to $37.24 a share from 2010. But the share price plummeted 89 per cent after the ADIA got involved.
Now ADIA wants to abort the investment or seek $4bn in damages.
A Citigroup spokesman said: “An arbitration claim was filed against Citi in New York by the Abu Dhabi
Investment Authority. The units obligate ADIA to purchase a total of $7.5bn of common equity on specified dates in 2010 and 2011.
“The arbitration claim alleges fraudulent misrepresentations in connection with the sale and seeks rescission of the investment agreement or damages in excess of $4bn.”
The spokesman added: “Citi believes the allegations are entirely without merit and intends to defend against them vigorously.”
Neither Citigroup or ADIA would expand on details of the alleged misrepresentation but some brokers have speculated the Gulf company may be using the action as leverage for a new deal.
Citigroup announced on Monday it would sell stock to repay $20bn in bailout funds to the US government, after borrowing a total of $45bn during the financial crisis last year.
SIR WIN BISCHOFF
CHAIRMAN LLOYDS BANKING GROUP
Sir Win Bischoff was acting chief executive of Citigroup when the share deal with ADIA was reached and he brokered the deal with the famously secretive Sheikh Ahmed Bin Zayed Al Nahayan, the Investment Authority’s managing director.
He worked alongside chief financial officer Gary Crittenden and at the time said: “This investment provides further capital to allow Citi to pursue attractive opportunities to grow its business.”
Bischoff was appointed chairman of Lloyds Banking Group on 27 July after going through 14 interviews. He was Lloyds’ “preferred candidate” after a recruitment process led by non-executive director Sir Julian Horn Smith.
He beat Ron Sandler, chairman of Northern Rock, and Chris Gibson-Smith, chairman of the London Stock Exchange, to the £700,000 a year post, which he officially started on 15 September.
He receives no bonuses or share payments but the appointment attracted some criticism after mammoth losses at Citigroup rocked the bank giant.