Citibank cannot recover $ 500 million it transferred in error, decides the judge

Citibank cannot recover $ 500 million it transferred in error, decides the judge

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Citibank, which served as a loan agent for Revlon, intended to send about $ 8 million in interest payments to the cosmetics company’s creditors. Instead, Citibank accidentally transferred almost 100 times that amount, including $ 175 million to a hedge fund. In all, Citi (Ç) accidentally sent $ 900 million to Revlon’s creditors.

Citibank filed a lawsuit in August seeking a return on its funds, but has not yet received $ 500 million from 10 investment advisory companies after the accidental transfer.

The law usually punishes those who spend money accidentally deposited in their account. Accidental transfers are common in the digital age and transfers can be refunded instantly. A Pennsylvania couple faced criminal charges after spending money accidentally deposited in their account.

But New York law has exceptions to this rule, known as “defense by discharge for value”.

Citibank struggles to get money transferred by mistake back

If the beneficiary is entitled to the money and does not know that he was accidentally connected, he can keep it. Revlon’s creditors said they believed Citibank was making prepayments for a loan. After all, the money accidentally transferred was the exact amount “to the penny” that Citibank owed them, even though the loan was not due for a long time.

“We are extremely pleased with Judge Furman’s careful, thorough and detailed decision,” said Benjamin Finestone, who represented two creditors, Brigade and HPS Investment Partners.

‘Irrational limit’

The court ruled that creditors were justified in believing that the payment was intentional. Citibank himself did not realize the magnitude of his mistake until almost a day later.

“To believe that Citibank, one of the most sophisticated financial institutions in the world, made a mistake that had never happened before, on the order of almost $ 1 billion – it would have been irrational,” said the court document.

The judge’s decision used internal chats between HPS officials as further evidence that creditors had no idea that the wiring was a mistake until after Citibank sent notifications. In the chat, which dated a day after the wrong cabling, HPS employees joked about the error:

DFREY5: I feel really bad for the fat person who pointed out an incorrect payment of $ 900mm. It is not a big career change. . . .

JRABINOWIT12: it certainly looks like they’ll be looking for new people for their operations group

DFREY5: How was work today, dear? Everything was fine, except that I accidentally sent $ 900mm to people who shouldn’t have

DFREY5: Negative side of working at home. maybe the dog hit the keyboard

Creditors cannot take the money and run. Since an appeal is a possibility, a temporary restraining order is still in effect.

“We strongly disagree with that decision and intend to appeal. We believe we are entitled to the funds and will continue to seek a full recovery from them,” Citigroup said in a statement.

The pandemic hit makeup brands like Revlon (REV), whose shares are being traded more than 40% below the previous year.

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