Ambac Financial Group Inc., the bond insurer that lost its triple-A credit rating this year, said it reached a settlement with Citigroup Inc. and will pay the New York company $850 million to extricate itself from a guarantee of $1.4 billion for collateralized debt obligations.

Citi confirmed the settlement in an e-mail Friday.

New York-based Ambac insured about $7.5 billion of Citigroup CDOs that were backed by subprime mortgages, according to Tavakoli Structured Finance Inc. in Chicago.

The Ambac settlement was announced the same day Citi confirmed that the Securities and Exchange Commission is formally investigating its sale of auction-rate securities.

Regulators are looking at how Wall Street firms acted after the market froze in February, leaving investors with bonds they could not sell.

Citi and others that sold the securities have received subpoenas and information requests from state, federal, and industry regulators, the company said in the SEC filing.

The investigating states include Massachusetts, New York, and Texas, Citi said.

New York Attorney General Andrew Cuomo's office confirmed Friday that it plans to accuse Citi of selling auction-rate securities fraudulently as safe, money market-like investments.

In a letter sent to the company, Mr. Cuomo accused Citi of destroying "documents under subpoena."

Also Friday, according to Dow Jones, Citi said it has received requests for information from various governmental and self-regulatory agencies relating to the Falcon, ASTA, and MAT hedge funds it managed.

The company said it is cooperating fully with such requests.

In another development Friday, Citi said in an internal memo that Robert Morse will step down as chief executive officer of its institutional client group in the Asia-Pacific region.

Ajay Banga, the CEO of Citi's Asian operations, will succeed Mr. Morse at the client group, the company said.

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