By Jonathan Stempel
NEW YORK (Reuters) - Citigroup Inc (N:C) has settled long-running litigation in which Allied Irish Banks Plc (I:ALBK) accused it of helping rogue currency trader John Rusnak rack up a $691 million loss.
U.S. District Judge Deborah Batts in Manhattan on Thursday ordered the dismissal of the 12-1/2-year-old case, in which government-controlled AIB sought $500 million of compensatory damages plus punitive damages.
Terms of the settelement were not disclosed. The dismissal averts a trial scheduled to begin on Jan. 25, over a fraud that was at the time one of the largest on record to involve unauthorized trades.
Citigroup also resolved related claims against Buffalo, New York's M&T Bank Corp (N:MTB), which in 2003 bought a majority of AIB's Allfirst Bank in Baltimore, where Rusnak worked.
Allied Irish, Citigroup and M&T were not immediately available or had no immediate comment.
The case arose from Rusnak's having hidden trading losses for at least five years before they were revealed in February 2002.
AIB accused Citigroup's Citibank unit, which was Allfirst's prime broker, of furthering the fraud by enabling Rusnak's sham transactions, including disguised cash advances and fake trades.
It said this allowed Rusnak to trade more than Allfirst allowed, while pretending his currency bets were legitimate.
Citigroup countered that the evidence did not come close to suggesting it contributed to Rusnak's losses.
In a June 30 decision allowing the case to continue, Batts found "credible" evidence the New York-based bank misled AIB, perhaps hoping to keep Rusnak happy and collect more fees.
Rusnak eventually pleaded guilty to one count of bank fraud, and spent nearly six years in prison.
AIB also sued Bank of America Corp (N:BAC) over its dealings with Rusnak, but dropped the lawsuit in January 2012.
The case is Allied Irish Banks Plc v Citibank NA, U.S. District Court, Southern District of New York, No. 03-03748.