ADIA filed a claim alleging “fraudulent misrepresentations” tied to its agreement to buy $7.5 billion of common stock, Citigroup said.

"The arbitration claim alleges fraudulent misrepresentations in connection with the sale and seeks rescission of the investment agreement or damages in excess of $4 billion. Citi believes the allegations are entirely without merit and intends to defend against them vigorously," the bank said in a statement.

The New York-based bank announced this week that it would sell common shares to help repay $20 billion in bailout funds to the US government. A number of other US banks, such as Wells Fargo, have moved to raise capital in order to repay money under the US Troubled Asset Relief Program.