By Jonathan Stempel and Nate Raymond
(Reuters) - A Manhattan federal judge on Monday rejected a bid by the Abu Dhabi Investment Authority to overturn an arbitration panel's ruling favoring Citigroup Inc
U.S. District Judge George Daniels rejected arguments that the October 2011 ruling by an American Arbitration Association panel, which reviews international disputes, ignored applicable law and was "fundamentally unfair" by depriving the Abu Dhabi fund of a chance to properly present its case.
The sovereign wealth fund had sought to rescind the November 2007 investment, or recover $4 billion in damages over what it called Citigroup's fraudulent representations to induce it to invest.
David Elsberg, a partner at Quinn Emanuel Urquhart and Sullivan representing the Abu Dhabi fund, did not immediately respond to a request for comment.
Citigroup spokeswoman Shannon Bell said the bank is pleased with the decision
The $7.5 billion investment had given the Abu Dhabi fund a 4.9 percent stake in Citigroup, enabling it to surpass Saudi Prince Alwaleed bin Talal as the largest individual shareholder.
Citigroup also accepted other investments around that time to shore up its capital base, in the wake of billions of dollars of writedowns linked to subprime mortgages.
It nonetheless ultimately required a series of federal bailouts, which it has since repaid.
Daniels said the three-person arbitration panel neither was "guilty of misconduct" nor acted in "manifest disregard" of the law, citing standards of proof he said could justify throwing out an award under the Federal Arbitration Act.
He noted that the panel had listened to 24 witnesses over 16 days and accepted 5,988 exhibits in reviewing the case against the third-largest U.S. bank.
Citigroup shares trade at a little over one-tenth of their level when the Abu Dhabi fund made its investment, after accounting for a reverse stock split.
The shares closed on Monday up 83 cents at $42.94 on the New York Stock Exchange.
The case is Abu Dhabi Investment Authority v. Citigroup Inc, U.S. District Court, Southern District of New York, 12-00283.
(Reporting by Jonathan Stempel and Nate Raymond in New York; Editing by Carol Bishopric and Bob Burgdorfer)