The office of New York City Comptroller Scott Stringer announced the settlement with David Ranta on Thursday.
In a statement on the office's website, Stringer said the claim had been settled before any litigation and it was "in the best interest of all parties."
Ranta was released last March. He had been convicted in the death of Rabbi Chaskel Werzberger during a botched robbery in February 1990.
Brooklyn prosecutors had recently concluded Ranta's prosecution in the death was fatally flawed.
One witness said a police lineup that helped convict Ranta had been rigged.
Ranta's attorney did not reply to an email seeking comment.