By Colin Barr
September 24, 2010

Citi’s subprime quicksand keeps getting deeper.

The New York-based financial giant and some of its top officers, past and present, were sued Friday by Norges Bank, the Norwegian central bank that also runs the oil-rich country’s big sovereign wealth fund.

Norges Bank Investment Management says it lost $735 million buying Citi stock between 2007 and 2009, in part because it relied on inaccurate disclosures regarding the bank’s subprime exposure. Citi was slow to tell investors in fall 2007 the true extent of its massive, destabilizing holdings of faltering subprime-related securities.

As it happens, Citi just recently agreed to pay $75 million to settle Securities and Exchange Commission charges on that issue. Citi says the SEC settlement is “fair, adequate, reasonable and appropriate,” and the SEC sees it as “sufficiently substantial to send a clear message that misleading statements by a corporation on issues of importance to investors cannot go unaddressed.”

But a judge has scheduled a hearing for today on whether the settlement is appropriate.

Among other things, there is the question of whether the modest penalties assessed against two Citi execs in the case are substantial enough given the scope of the bank’s disclosure failures, and why higher-ups such as then CEO Chuck Prince and former chairman Robert Rubin weren’t flagged.

The Norges Bank suit names as defendants Prince and Citi’s current CEO, Vikram Pandit, as well as a number of board members including Dick Parsons and Anne Mulcahy. It does not, however, name Rubin.

Citi said, “We believe the suit has no merit and will defend ourselves vigorously.”

A call to Grant & Eisenhofer, the New York law firm representing the Norwegians, wasn’t immediately returned.

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