Citigroup has agreed to pay $590 million to settle a suit by investors who accused the bank of misleading them on its subprime mortgage-based security losses in 2007-2008.

The agreement settled the four-year-old class-action suit that arose from the collapse of the US real estate market, which savaged the bank’s share price in part due to its heavy losses on collateralised debt obligations (CDO).

Investors who bought Citigroup shares between February 2007 and April 2008 accused the company of hiding its exposure to the CDO market, so they took heavy losses when it became public and the bank’s shares plummeted in value.

Citigroup denied the charges, but said it was agreeing to settle the lawsuit to avoid any more legal costs.

“This settlement is a significant step towards resolving our exposure to claims arising from the period of the financial crisis,” Citigroup said in a statement.

“Citi is fundamentally a different company today than at the beginning of the financial crisis. Citi has overhauled risk management, reduced risk exposures and, through our core businesses in Citicorp, we are focused on the basics of banking, leveraging our unique presence throughout the emerging and developed markets to serve our clients and the real economy.”

The suit said Citigroup masked losses on its holdings of CDOs in 2006 and 2007 as the property market was collapsing. That helped keep its share price high, above $47 in October 2007, before it plunged to below $2 in early 2009 after some $50 billion in asset write-downs.

The settlement only covered a subset of the group of investors who originally sued. The suit previously included investors claiming losses between January 2004 and January 2009, but the claims outside those included in today’s settlement were dismissed by the judge.

New York law firm Kirby McInerney LLP, which represented investors in the suit, called the settlement “a significant recovery relating to the subprime/credit crisis’’.

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