Citibank has committed the “biggest blunders in banking history” after it wired half a billion dollars by mistake to Revlon’s lenders. US District Court judge has ruled the bank cannot get the money back.
Acting as Revlon’s loan agent, Citibank wanted to transfer about $8 million in interest payments to the cosmetic company’s lenders. Unfortunately, it accidentally wired $500 million instead, including $175 million to a hedge fund. In all, the bank transferred $900 million to Revlon’s lenders by mistake.
Citibank asked for a refund but Revlon’s lenders didn’t return the money. Hence the bank filed a lawsuit in August against Revon’s lenders, but court ruled the Citibank can’t ask for the money back.
New York law has exceptions to this rule, known as the “discharge-for-value-defense”, according to CNN.
If the beneficiary is entitled to the money and did not know it was transferred by mistake, they can keep it. Revlon lenders said they thought Citibank was wiring prepayments for a loan.
“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.
The court ruled the lenders were right in believing the payment was intentional. Citibank itself did not realize the enormous 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.
According to CNN, the judge’s 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.