The lawsuit was filed in 2009 in Brooklyn federal court on behalf of the children whom Judith Leekin, 67, adopted over an eight-year period ending in 1996.
The suit charged that Leekin was able to carry out a scam in which she fraudulently collected $1.68 million in adoption subsidies because the city's Administration for Children's Services didn't do its job.
The suit claims that ACS was a "maze of dysfunctional bureaucracy" and could have easily exposed the scheme with some simple legwork such as contacting Leekin's neighbors and employers.
The city did not admit wrongdoing as part of the settlement. Bruce Strikowsky, a lawyer for the city, called Leekin's scheme "unprecedented."
"Though the city had strong legal defenses, the settlement will benefit those most harmed by Leekin - the children she abused," he said. "They have been, and continue to be, the city's primary concern."
Claims against the adoption agency co-defendants have not been settled and are proceeding, according to Kate Ahlers, a spokeswoman for the city's Law Department.
Leekin was sentenced in 2009 in Florida state court to 20 years in prison. She also was sentenced in New York to 11 years in federal prison for fraud.
Leekin, a high school dropout from Trinidad, lived in Florida with the children when the fraud finally was revealed in July 2007. She adopted the children in New York City and moved to Florida in 1998, continuing to outwit ACS officials with seemingly little effort, according to the lawsuit.
The suit also contended that in 1988 a newborn was placed in Leekin's care who died less than a month later from supposed "crib death." The suit said ACS didn't conduct an "appropriated investigation" into the infant's death - one that would have revealed she had four other children, including three of the children named in the lawsuit.
At the time, ACS spokeswoman Sharman Stein defended the agency, saying it had "done everything possible to aid in the criminal investigation" and denied the city hadn't helped the children after Leekin's arrest.
Authorities say Leekin deprived the children of medical care and school. All of Leekin's children are now adults and living in Florida.
The suit said Leekin fostered at least 22 children. One is missing and presumed dead.
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