By Jeph Ajobaju, Chief Copy Editor
A judge in the United States has ruled that Citibank, a multinational investment bank, has lost about $500 million it transferred in error to a group of companies that loaned money to cosmetics firm Revlon.
Being Revlon’s loan agent, Citibank meant to transfer a $7.8 million interest payment to Revlon’s lenders but mistakenly transferred $893 million to them in 2020.
Some of the lenders returned about $400 million, but 10 asset managers kept the sum they got, per reporting by Forbes.
CNN added that Citibank accidentally wired almost 100 times the amount Revlon owed, including $175 million to a hedge fund. In all, the bank accidentally sent $900 million to Revlon’s lenders.
Citibank filed a lawsuit in August 2020 seeking the return of its funds, but it still has not received $500 million from 10 investment advisory firms.
An exception to the rule
The law usually punishes those who spend money accidentally deposited in their accounts. Accidental transfers are common in the digital age, and wires can be paid back instantly. A Pennsylvania couple faced felony charges after spending money accidentally deposited in their account.
But New York law has exceptions to this rule, known as the “discharge-for-value-defence.”
If the beneficiary is entitled to the money and did not know it was accidentally wired, they can keep it. Revlon lenders said they believed Citibank was wiring prepayments for a loan.
After all, the money accidentally wired was the exact amount “to the penny” Citibank owed them, although the loan wasn’t set to mature for quite some time.
“We are extremely pleased with Judge [Jesse] Furman’s thoughtful, thorough and detailed decision,” said Benjamin Finestone, who represented two lenders, Brigade and HPS Investment Partners.
Borderline irrational
Per CNN, the court ruled the lenders were justified in believing the payment was intentional. Citibank itself did not realize the magnitude of its mistake until nearly 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 nearly $1 billion – would have been borderline irrational,” the court document said.
The court ruling used internal chats between HPS employees as further proof the creditors had no idea the wiring was a mistake until after Citibank sent notices. In the chat, which was dated a day after the mistaken wiring, HPS employees joked about the error:
DFREY5: I feel really bad for the person that fat fingered a $900mm erroneous payment. Not a great career move . . . .
JRABINOWIT12: certainly looks like they’ll be looking for new people for their Ops group
DFREY5: How was work today honey? It was ok, except I accidentally sent $900mm out to people who weren’t supposed to have it
DFREY5: Downside of work from home. Maybe the dog hit the keyboard
The lenders cannot take the money and run. Since an appeal is a possibility, a temporary restraining order is still in effect.
“We strongly disagree with this decision and intend to appeal. We believe we are entitled to the funds and will continue to pursue a complete recovery of them,” Citigroup said in a statement.
The pandemic has hurt makeup brands like Revlon, shares of which are trading more than 40 per cent lower from a year ago.
