Citi made a $ 500 million error. See how this would work for normal people

Citi made a $ 500 million error. See how this would work for normal people

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A federal judge ruled that wire transfers made by Citi (Ç), who acted as a loan agent for Revlon, were “final and complete transactions, not subject to revocation”. However, in most cases of receiving wire transfers by mistake, this is not the case. In fact, you would have to return the money – or face criminal charges.
This is due to a common law doctrine known as “unjust enrichment”, which generally forces a recipient of money transferred by mistake to return the money to the sender. A Pennsylvania couple faced criminal charges in 2019 after spending $ 120,000 accidentally deposited in their account.

But there is an exception that applies to Citigroup’s case under a New York law. This law was introduced by precedent in a 1991 case in which the New York Court of Appeals ruled that if a third party sends money to a creditor by mistake, the creditor can keep the funds.

This exception, called the value discharge rule, allows the recipient to keep the funds accidentally transferred to them if the money transferred in error is not requested, releases a valid debt and the recipient did not know that the payment was made in error.

This was considered the case with Revlon’s (REV) creditors.

“The defense of discharge for value ultimately depends on whether the defendants (or, more precisely, their clients) were under constructive notification of the Citibank error at the time they received the August 11 wire transfers,” said the court’s judge. US District, Jesse Furman, in his decision. “Based on the reliable testimony of the Defendants’ employees and the documentary record, the Court concludes that they were not.”

Revlon’s creditors said they believed Citibank’s transfers were prepayments on a pending loan – which was not supposed to be repaid until 2023. “The transfer matched the principal and outstanding interest on the loan to the penny,” said the judge.

Therefore, the court ruled that it was reasonable for Revlon’s creditors to believe that payments were not made in error.

“Citibank is one of the most sophisticated financial institutions in the world. Thus, the Defendants and their clients could assume – and in fact assumed – that the bank had effective internal controls to avoid significant errors, ”says the decision.

Citigroup said it plans to appeal the decision.

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