NEW YORK Feb 19 (Reuters) - A U.S. appeals court on Wednesday rejected the Abu Dhabi Investment Authority's effort to void Citigroup Inc's arbitration win in a dispute over a $7.5 billion investment in the bank less than a year before the 2008 financial crisis.
The 2nd U.S. Circuit Court of Appeals in New York said the sovereign wealth fund did not meet the "high hurdle" of showing that an American Arbitration Association panel demonstrated a "manifest disregard of the law" or exceeded its powers in ruling for Citigroup.
The ADIA's November 2007 investment was designed to shore up Citigroup as it struggled with mounting losses linked to subprime mortgages, and gave the fund a 4.9 percent stake in what was at the time the largest U.S. bank by assets.
But the ADIA later claimed that New York-based Citigroup fraudulently induced its investment, in part by issuing preferred shares to other investors that diluted its stake.
Citigroup ultimately required three federal bailouts, which it has since repaid. It is now the third-largest U.S. bank.
"Awards are vacated for manifest disregard only in those exceedingly rare instances in which some egregious impropriety on the part of the arbitrator is apparent," the 2nd Circuit said in an unsigned order.
"ADIA contends that the panel erred in its analysis of New York's conflict of law rules, but it would not matter if it did," it continued. "The fact that a court is convinced the arbitrator committed serious error does not suffice to overturn his decision."
An ADIA spokesman had no immediate comment. David Elsberg, a partner at Quinn Emanuel Urquhart and Sullivan representing the fund, did not immediately respond to a request for comment.
Citigroup spokeswoman Danielle Romero-Apsilos said the bank was pleased with the decision. It upheld U.S. District Judge George Daniels' March 2013 ruling letting the arbitrators' conclusion stand.
Wednesday's decision is separate from the ADIA's effort to pursue a second arbitration against Citigroup, in which it sought $2 billion of damages or to rescind its investment.
In November, U.S. District Judge Kevin Castel in Manhattan said it was up to arbitrators, not judges, to decide whether Citigroup's success in the first arbitration barred the ADIA from trying again.
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. At midday on Wednesday, the stock was trading at $48.79 a share.
The case is Abu Dhabi Investment Authority v. Citigroup Inc, 2nd U.S. Circuit Court of Appeals, No. 13-1068.