A Stupid Mistake Caused Citibank To Lose $500 Million And It Can't Take The Money Back

Dhir Acharya - Feb 17, 2021


A Stupid Mistake Caused Citibank To Lose $500 Million And It Can't Take The Money Back

Mistakes do happen in the banking world, but Citibank made an irreversible mistake and it had a really hefty price as the judge didn't rule in its favor.

Mistakes and errors do happen in the banking world, but Citibank made an irreversible mistake and it had a really hefty price. The US District Court judge ruled that Citibank will not be allowed to recover almost $500 million that it accidentally wired to Revlon’s lenders.

The company was Revlon’s loan agent and meant to send roughly $8 million in interest payment to the lenders of the company. However, Citibank accidentally wired nearly 100 times that amount, which included $175 million to a hedge fund. In total, it wired $900 million to Revlon’s lenders.

In August, Citibank filed a lawsuit seeking the return of the money it sent by accident, but it hasn’t received $500 million from ten investment advisory companies after the incident.

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Usually, the law punishes those spending money accidentally wired into their accounts. Nowadays, accidental transfers often happen and wires can be returned instantly. However, in New York law, there are exceptions to this rule, called the discharge-for-value-defense.

If the beneficiary is entitled to the amount and didn’t know it was wired by accident, they can keep the money. Revlon lenders said that they believed Citibank was sending prepayments for a loan. It’s worth noting that the accidental money transfer matched the exact amount that Citibank owed them though the loan was not set to mature soon. Benjamin Finestone, representative of two lenders HPS Investment Partners and Brigade said, “We are extremely pleased with Judge [Jesse] Furman's thoughtful, thorough and detailed decision.”

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The court ruled that the lenders were justified in assuming the payment was intentional. As for Citibank, it didn’t realize the mistake until almost a day later. The court document said:

“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 judge also used internal chats among HPS employees as proof the lenders did not know the wiring was accidental after Citibank sent notices. At the same time, the lenders can’t just take the money and run. Citibank can file an appeal so there’s a temporary restraining order in effect.

Citigroup said: “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.”

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