Allied Irish, Citigroup settle litigation over rogue trader

(Adds Citigroup, Allied Irish comments)

By Jonathan Stempel

NEW YORK, Jan 14 (Reuters) - Citigroup Inc (NYSE: C - news) has settled long-running litigation in which Allied Irish Banks Plc accused it of helping rogue currency trader John Rusnak rack up a $691 million loss.

U.S (Other OTC: UBGXF - news) . District Judge Deborah Batts in Manhattan (Hamburg: 32U.HM - news) 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.

Settlement terms were not disclosed. The accord averted a trial scheduled to begin on Jan. 25, over a fraud that was at the time among the largest to involve unauthorized trades.

Citigroup also resolved related claims against Buffalo, New (KOSDAQ: 160550.KQ - news) York's M&T Bank Corp, which in 2003 bought a majority of AIB's Allfirst Bank in Baltimore, where Rusnak worked.

Rusnak hid 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 (Other OTC: ITGL - news) said this let Rusnak 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.

But 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.

A Citigroup spokeswoman and a lawyer for AIB said the banks are pleased to have settled. An M&T spokesman had no immediate comment.

Rusnak eventually pleaded guilty to one count of bank fraud, and spent nearly six years in prison.

AIB also sued Bank of America Corp 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. (Reporting by Jonathan Stempel in New York; Editing by Chris Reese)