After committing one of the “biggest mistakes in banking history,” Citibank will not be able to recover the nearly $500 million it accidentally transferred to Revlon lenders, a US District Court judge ruled.
Citibank, serving as Revlon’s loan officer, intended to send about $ 8 million in interest payments to the cosmetics company’s lenders. Instead, Citibank accidentally transferred nearly 100 times that amount, including $ 175 million to a hedge fund. In all, Citi accidentally sent $ 900 million to Revlon’s lenders.
Citibank filed a lawsuit in August seeking the return of its funds, but has yet to receive $ 500 million from 10 investment advisory firms after the accidental transfer.
Citibank case, an exception to the rule
The law generally punishes those who spend money accidentally deposited into their accounts. Accidental transfers are common in the digital age and cables can be instantly refunded. A Pennsylvania couple faced felony charges after accidentally spending money deposited into their account.
But New York law has exceptions to this rule, known as a “discharge defense by value.”
If the beneficiary is entitled to the money and did not know it was accidentally transferred, they can keep it. Revlon’s lenders said they believed Citibank was rolling over advance payments on a loan. After all, the money accidentally transferred was the exact amount “on the penny” that Citibank owed them, even though the loan wouldn’t be due for some time.
«We are extremely pleased with the judge’s thoughtful, complete and detailed decision [Jesse] Furman, ”said Benjamin Finestone, who represented two lenders, Brigade and HPS Investment Partners.
‘Almost irrational’
The court ruled that the lenders were justified in believing that the payment was intentional. Citibank itself did not realize the extent of its mistake until almost a day later.
“To believe that Citibank, one of the most sophisticated financial institutions in the world, had made a mistake that had never happened before, to the tune of almost a billion dollars, would have been almost irrational,” the court document says.
The ruling used internal conversations between HPS employees as further proof that creditors had no idea the transfer was in error until Citibank sent notifications. In the chat, which was dated one day after the failed transfer, HPS employees joked about the error:
DFREY5: I feel terrible for the person who sent the wrong payment of $ 900mm. Not a great career move
JRABINOWIT12: It certainly looks like they will be looking for new people for their operations group
DFREY5: How was work today, darling? It was fine, except I accidentally sent $ 900mm to people who weren’t supposed to have it
DFREY5: Disadvantages of working from home. Maybe the dog hit the keyboard
Lenders cannot take money and run. Since an appeal is possible, a temporary restraining order is still in effect.
“We totally disagree with this decision and we 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 has hit makeup brands like Revlon, whose shares are trading more than 40% lower than a year ago.