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NY judge says Citibank can’t get back $500 MILLION it accidentally sent out to 10 companies

A judge has ruled Citibank cannot recoup half a billion dollars of its own money that it accidentally wired to lenders in one of the ‘biggest blunders in banking history’.

Citigroup intended to wire a $7.8million interest payment on August 11 to lenders for cosmetic company Revlon. It was sending the money on behalf of Revlon in its capacity as the company’s loan agent.

But the bank accidentally transferred $893million, enough to pay off the entire loan which was not due until 2023, and did not notice the gaffe until the following day, which they blamed on human error.

Some lenders returned the money after noticing the mistake but others refused to pay it back insisting the money was owed, leaving Citibank $501million out of pocket.

US District Judge Jesse Furman in Manhattan ruled the transfers were ‘final and complete transactions, not subject to revocation’. 

A judge has ruled Citibank cannot recoup half a billion dollars of its own money that it accidentally wired to lenders in one of the ‘biggest blunders in banking history’

Citigroup sued to recoup the half a billion dollars which had not been returned to them from 10 asset managers, including Brigade Capital Management, HPS Investment Partners and Symphony Asset Management.

The bank said the lenders knew or should have known the transfers were a mistake, and that Revlon, controlled by billionaire Ron Perelman, could not afford such a big payment.

But in a 101-page decision, following a six-day trial in December, Furman said the transfers were a ‘discharge for value,’ matching ‘to the penny’ what the lenders were owed. 

Revlon lenders said they believed Citibank was wiring prepayments for the loan that was not due for some time. 

It can be illegal to spend money accidentally wired into your account but under the ‘discharge for value’ defense, the beneficiary can keep and spend money if they were entitled to it, even if it was accidentally transferred. 

‘The non-returning lenders believed, and were justified in believing, that the payments were intentional,’ Furman wrote. 

The New York-based bank blamed human error for the gaffe which it took them a day to notice, and some lenders returned money they were sent

The New York-based bank blamed human error for the gaffe which it took them a day to notice, and some lenders returned money they were sent

‘To believe otherwise – 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 $1billion – would have been borderline irrational.’

Citigroup plans to appeal. ‘We believe we are entitled to the funds and will continue to pursue a complete recovery of them,’ a spokeswoman said.

Furman left in place a temporary ban on the lenders’ using the transferred funds, reflecting Citigroup’s expected appeal.

In a joint statement, the lenders’ lawyers Adam Abensohn and Robert Loigman said they were ‘extremely pleased’ with the decision.

The judge also looked at internal messages from one of Revlon’s lenders, HPS Investment Partners, who joked about the payment.

One employee said: ‘I feel really bad for the person that fat fingered a $900mm erroneous payment. Not a great career move.’

They also joked: ‘How was work today honey? It was ok, except I accidentally sent $900mm out to people who weren’t supposed to have it.’ 

Administrative agents typically distribute interest payments and perform back-office services for clients.

Industry groups have said a ruling against Citigroup could expose banks to excessive liability risks.

The Loan Syndications and Trading Association, whose roughly 530 members include Citigroup and some Revlon creditors, said such a ruling could destabilize the $1.2 trillion U.S. syndicated loan market.

Shortfalls in Citigroup’s internal controls were a factor in Chief Executive Mike Corbat’s planned early retirement this month.

The blunder was the latest misstep involving internal controls at Citigroup, which federal regulators fined $400 million in October over longstanding deficiencies.  


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