Enron went bankrupt in December 2001, costing investors billions of dollars. Enron executives later conceded it had overstated its profits by nearly 16 percent, or $600 million, since 1997.
The settlement covers investors who bought publicly traded Enron equity and debt securities between Sept. 9, 1997, and Dec. 2, 2001.
The suit, which also names more than two dozen top Enron executives, accused Citigroup and other banks of hiding loans to the energy trader, setting up false investments and facilitating phantom sales, receiving multi-million dollar fees in return.
Citigroup denied any wrongdoing, and says it settled "solely to eliminate the uncertainties, burden and expense of further protracted litigation."
Citigroup has also settled class action suits relating to the 2002 collapse of WorldCom, for $2.58 billion, and the bankruptcy of Global Crossing securities, for just over $700 million.
The company said the pre-tax payment was fully covered by its existing litigation reserves, which were boosted to $6.7 billion after the WorldCom settlement, according to Reuters News Agency.
Citigroup Chief Executive Charles Prince, who took over in 2003, said it was a key priority for the bank to resolve major cases like this one and "to put a difficult chapter in our history behind us."
"By doing so, we will be better positioned to realize our goals," Prince said in a statement.
In March, the U.S. Federal Reserve told Citigroup to tighten internal controls and address an array of regulatory problems, according to Reuters.
Citigroup's payment is the largest settlement so far. Lehman Brothers, Bank of America, Andersen Worldwide, Enron's outside directors and Ken Harrison, Enron's former vice chairman, have also settled.
The lawyer representing the University of California pension fund, the lead plaintiff in the case, said he was pleased with the settlement.
"It's particularly significant in that several large, similarly situated banks remain as defendants in the case, so this is a step down the road, not the last step on the road," William Lerach told Reuters.
The settlement needs approval from the bank's board of directors, the board of regents of the University of California and a federal court in Houston.