Updated from 12:33 a.m. EST

NEW YORK (

TheStreet

) --

Citigroup

(C) - Get Report

said a claim filed by the Abu Dhabi Investment Authority against the bank that seeks to either terminate an agreement to buy $7.5 billion worth of Citigroup stock or receive damages of more than $4 billion, is "entirely without merit."

Citigroup said Tuesday it expects to "vigorously" defend itself against the allegations.

Abu Dhabi invested $7.5 billion in Citigroup in November 2007 and the fund received equity units that paid a high annual dividend. The units were to be converted into Citigroup common stock at up to $37.24 a share between March 15, 2010, and Sept. 15, 2011, giving the fund a 4.9% stake in Citigroup.

But Citigroup stock has declined 89% since the end of November 2007. At $37.24 a share, the conversion price would amount to more than 10 times Citigroup's closing stock price Tuesday of $3.56.

The Abu Dhabi fund alleges "fraudulent misrepresentations" in connection with the stock sale.

Earlier this week, Citigroup reached an agreement with the U.S. government and its regulators to pay back $20 billion it received in

bailout aid

. The government also agreed to sell its 34% stake in Citigroup.

Citigroup received $45 billion in aid from the U.S. government's Troubled Asset Relief Program after taking big losses on mortgages and other investments.

>>See our new stock quote page.

-- Reported by Joseph Woelfel in New York.

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