Citibank had accidentally transferred $500mn; It’s not getting it back!

By Sayujya S, Desk Reporter
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America’s Citibank won’t be allowed to recover almost $500 million it accidentally paid to cosmetic company Revlon’s lenders, a US Court has ruled. The judgment called the incident “one of the biggest blunders in banking history.”

Citibank, which was acting as Revlon’s loan agent, meant to send about $8 million in interest payments to the US-based cosmetic company’s lenders. Instead, Citibank accidentally wired almost 100 times that amount, including $175 million to a hedge fund in August 2020. In total, Citibank accidentally sent $900 million to Revlon’s lenders.

Citibank filed a lawsuit that month seeking the return of its funds, but it still has not received $500 million from 10 investment advisory firms after the accidental transfer.

The judgement

Recipients of money wired in error are typically required to return it. But in this case, the creditors had reasonable grounds to believe the payment was intentional, Judge Jesse M. Furman of the US District Court in the US wrote in his ruling.

Because defendants in the case believed “in good faith and with ample justification” that the payments were for the full Revlon loan, “defendants’ clients are entitled to keep the money,” Mr. Furman said in the 105-page ruling.

Accidental money 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. A Pennsylvania (city in the US) 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-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 Citibank owed them, although the loan wasn’t set to mature for quite some time.

Mr. Furman also said lenders’ assumption about repayment made sense given that Revlon was known to be under financial duress due to COVID-19.

“Given a choice between assuming that Revlon had paid off the 2016 Term Loan early, as borrowers sometimes do, and assuming that Citibank or Revlon had mistakenly transferred over $900 million something no bank may have ever done before and may never do again it would have borderline irrational to choose the latter,” Mr. Furman said.

Citigroup said it “strongly disagrees” with the court’s decision and intends to appeal the ruling.