Citigroup, Inc. today agreed to pay $2.65 billion to settle a suit brought by investors who claimed the firm's brokerage unit kept them in the dark about huge losses at WorldCom, which later produced the largest bankruptcy filing in U.S. history.

The plaintiffs, among them the comptroller of the state of New York, charged in a class action suit that Salomon Smith Barney, Citigroup's brokerage house, touted WorldCom while aware of its sinking fortunes. It alleged, as well, that Citigroup and Salomon made large loans to WorldCom's then-chief executive, Bernard Ebbers, in exchange for investment banking business. They sought a total of $54 billion.

Under the terms of the settlement, Citigroup denies any wrongdoing. The payout will go to investors who bought WorldCom stock or WorldCom bonds, as well as to the lawyers in the class action.

Citigroup's chief executive officer, Charles Prince, said the bank did not want to "roll the dice" in a $54 billion lawsuit, particularly in today's scandal-suffused atmosphere.

"The litigation environment has gotten steadily worse," he said in a web-cast news conference, noting that the SEC had filed friend-of-the-court briefs in the suit disputing part of Citigroup's legal theory in the case.

Citigroup, the world's largest bank, is involved in a number of investor-related lawsuits and today announced that it was increasing the amount reserved for settlements to $6.7 billion, the equivalent after taxes of about a quarter's earnings.

The $2.65 billion settlement -- which will cost Citigroup only $1.65 billion because it will get a tax deduction -- is among the largest to emerge from the business scandals of the past five years, although it is not the largest. That distinction, according to studies, goes to the $3.1 billion settlement won by unhappy investors and their lawyers in a 1999 class action against Cendant Corp.

Citigroup's chief executive officer, Charles Prince, said that the settlement will not significantly hurt it. There will be no impact on dividend payouts, he said.

Numerous investor lawsuits remain against a number of other banks and brokerage houses that sold WorldCom securities.

Generally, they charge that the banks knew much more than they let on to investors.

WorldCom's $104 billion bankruptcy in 2002 was the largest in corporate history and epitomized the market scandals of the past few years. MCI, the second-largest U.S. long distance telephone company, emerged from bankruptcy last month.

The WorldCom scandal broke in June 2002 when a company official uncovered an internal accounting scheme. Ebbers was ousted in April 2002 and has pleaded innocent to federal fraud and conspiracy charges for allegedly directing a massive accounting fraud, now estimated at $11 billion.

Former CFO Scott Sullivan has pleaded guilty to conspiracy and securities fraud charges and agreed to testify against Ebbers.

According to some expert estimates, shareholders lost $2.6 billion in the WorldCom collapse. Bondholders got some 36 cents on the $1.

The Securities and Exchange Commission continues to investigate other allegations concerning Citigroup, Merrill Lynch & Co. and eight other Wall Street firms for failure to properly supervise analysts.

Citigroup has also said that the SEC is investigating possible accounting irregularities related to its banking business in Argentina from 2001 to 2003.