After a wire transfer error which had put its name on the list of biggest blunders in the history of banking, a United States District Court judge ruled that Citibank will not be allowed to recover the nearly half a billion dollars it accidentally wired to Revlon's lenders.
Judge Denies Citibank's Appeal Get Back $500 Million
As the acting loan agent for Revlon, Citibank meant to transfer around $8 million in interest payments to the lenders of the cosmetic company. However, Citibank accidentally wired nearly 100 times the expected amount, which includes the $175 million to a hedge fund. Overall, Citibank accidentally wire transferred $900 million to the lenders of Revlon.
According to CNN, numerous lenders of the cosmetic company did return the money, but others did not. In August, after the accidental transfer, Citibank has filed a lawsuit seeking the return of its funds; however, it still has not received $500 million from 10 investment advisory firms.
An Exception to the rule
The law usually punishes those individuals who spend money that is accidentally deposited in their accounts. Such accidental transfer is common in the digital age, and a mistake in the transfer can also be paid back immediately.
In the state of Pennsylvania, a couple has faced felony charges after spending the money that was accidentally deposited in their account. However, in the state of New York, the law has exceptions to the rule, which is known as the 'discharge-for-value-defense.' In addition, if the beneficiary is entitled to the money and if unaware of the accidental wire transfer, they can keep the money.
Based on some Revlon lenders, they believed that Citibank was wiring prepayments for a loan. After all, the fund accidentally wired was the exact amount to the amount that Citibank owed them, although the loan was not set to mature for quite some time. The representative of two lenders, Brigade and HPS Investment Partners shared they are extremely pleased with Judge Jesse Furman's thorough and detailed decision, Bloomberg reported.
Based on the ruling of the court, the lenders were justified in believing that the payment was intentional. Even Citibank itself did not realize the weight of its error in the wire transfer until nearly a day later.
The court document stated that to believe that Citibank, one of the most sophisticated financial institutions in the world, had made an error that had never happened before, to the tune of nearly $1 billion, would have been borderline irrational. The ruling of the District Court judge used internal chats between the employees of HPS as further proof the creditors had no idea that the wire transfer was a mistake until they have received the notices from Citibank.
In the statement of Citigroup, they have emphasized their strong disagreement with the decision and they intend to appeal, The New York Times reported. They also added that they believed that they were entitled to the funds and will continue to pursue a complete recovery of it.
On the other hand, the pandemic has also deeply affected makeup brands such as Revlon. The company's shares are trading more than 40% lower if compared to a year ago.