After making one of the biggest mistakes in its banking history, Citigroup has unexpectedly lost a lawsuit to get back $500 million it wrongly wired to Revlon lenders.
U.S. District Court Judge Jesse Furman ruled on 16 June that 10 asset managers representing the lenders – including Brigade Capital Management, HPS Investment Partners and Symphony Asset Management – were not required to return the money to Citigroup. the $504 million it wrongly remitted in interest payments on the loans last August. The judge said they shouldn’t have been expected to take cognizance that the transfer was in error. Citi mistakenly remitted more than $900 million before some of the lenders returned the overpayment.
Citi, which was acting as a lender to Revlon, should have remitted about $8 million in interest to the lender who lent the cosmetics company the money, but accidentally remitted nearly 100 times that amount.
Furman said, “It makes little sense to trust Citigroup, one of the world’s most experienced financial institutions, to make mistakes that have never happened before, totaling nearly $1 billion.”
U.S. law typically penalizes account holders who spend their money on erroneous deposits that accidentally appear in bank accounts. In the digital age, mistakes in deposits are common, and money transfers can be returned immediately to correct the error. A couple in Pennsylvania once spent money mistakenly deposited into their account and faced criminal felony charges as a result.
But New York state law has an exception to this rule, if the beneficiary was supposed to get the money and did not know it was wrongly wired, they can keep the money. The lenders said they believed Citi remitted the prepaid interest on the loan, after all, the money that Citi owed them in error was “exactly the same,” except that it took a long Time for the money to mature.
The judge’s ruling is the latest blow to Citi, which is struggling to update its internal controls and technology after regulators fined it $400 million last year for deficiencies in both areas. New York-based Citi is also undergoing a leadership change, with a new chief executive, Jane Fraser, due to take office March 1.
But the dust has not yet settled. We strongly object to this ruling and want to appeal,” said Citi spokeswoman Danielle Romero-Apsilos in a statement. We believe we have the right to get the money back and will continue to work until it is all recovered.”
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