Have you ever entered in the wrong amount in your banking app or at the ATM? Maybe you added a zero or subtracted one?You feel pretty dumb and usually have to go inside, find someone and figure it out together. We’ve all been there. But have you ever done it to the tune of almost $1 billion? Citibank has been exactly there.
According to news sources, after committing one of the “biggest blunders in banking history,” Citibank won’t be allowed to recover the almost half a billion dollars it accidentally wired to Revlon’s lenders, a US District Court judge ruled.
Citibank, which was acting as Revlon’s loan agent, meant to send about $8 million in interest payments to the cosmetic company’s lenders. Instead, Citibank accidentally wired almost 100 times that amount, including $175 million to a hedge fund. In all, Citi (C) accidentally sent $900 million to Revlon’s lenders.
Some lenders did return the money, but others did not. Citibank filed a lawsuit in August seeking the return of its funds, but it still has not received $500 million from 10 investment advisory firms after the accidental transfer.
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.
But New York law has exceptions to this rule, known as the “discharge-for-value-defense.” 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.
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.
“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.
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