An expensive follow-up to a previous “Doofus Of The Day”


In “Doofus Of The Day 1,072“, back in December, we read how Citibank had mistakenly paid out $885.2 million too much to creditors of one of its clients.  It had persuaded some of them to return the money, but was suing others who’d refused.

Well, the verdict is in . . . and Citibank lost.  Big-time.

Citigroup Inc. unexpectedly lost a legal battle to recover half a billion dollars it sent Revlon Inc. lenders, after the embarrassing blunder forced it to answer to regulators and tighten its internal controls.

U.S. District Judge Jesse Furman on Tuesday ruled that 10 asset managers for the lenders — which include Brigade Capital Management, HPS Investment Partners and Symphony Asset Management — don’t have to return $504 million that Citibank said it mistakenly transferred in August while trying to make an interest payment. He said they shouldn’t have been expected to know that the transfer, which totaled more than $900 million before some lenders returned their share, was an error.

“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,” wrote Furman, who presides in Manhattan.

There’s more at the link.

I’m sure there’ll be appeals galore – after all, even a financial giant like Citibank can’t take a half-billion-dollar loss lying down! – but they’ll face ongoing problems.

A 30-year-old legal precedent that essentially says “finders keepers” in certain financial transactions will make it hard for Citigroup Inc. to get a half-billion-dollar decision against it overturned.

. . .

In a 101-page ruling, U.S. District Judge Jesse Furman in New York said Tuesday that the outcome of the case was surprisingly straightforward, even if it may not seem the fairest result.

“The transfers matched to the penny the amount of principal and interest outstanding on the loan,” Furman wrote. “The accompanying notices referred to interest being ‘due,’ and the only way in which that would have been accurate was if Revlon was making a principal prepayment.”

The key precedent is a 1991 New York state court case called Banque Worms v. BankAmerica International. In that case, New York’s highest court ruled that under a principle called discharge for value, when a third party mistakenly sends money from a debtor to a creditor, the creditor can keep the payment if it didn’t realize it was sent in error and didn’t make any misrepresentations.

. . .

Furman said representatives of each lender “credibly and persuasively testified that they reasonably believed the payments were intentional prepayments” of the 2016 loan. The judge rejected Citibank’s claim that the size of the transfer alone should have alerted the lenders to the blunder.

Given that banks have security procedures to ensure that such mistakes don’t occur, “it would have been virtually inconceivable to a reasonable investor in [the lenders’] position that Citibank had wired nearly $900 million by mistake,” Furman said.

Again, more at the link.

I haven’t heard of any consequences for the officials in Citibank who made the mistake in the first place.  I wonder how many of them are still employed there?  If they’re fired, of course, I daresay the creditors who received the unexpected windfall of full repayment of their loans might be willing to offer them a job . . .



  1. As I understand it, this is money that was actually due. It just got there early. Sort of like paying off a loan early.

  2. I wonder if they will have the ball to try and make a claim for the payment against their errors and omissions insurance?

    They might get dropped as a client, which could cause more issues, but it could stop some of the immediate problems.

  3. When C owned Smith Barney back in the 90s, C management told the Worldcon analyst to get on board for the big win…and the analyst begrudgingly did so…then Worldcon went bk…and C had to pay damages to people who bought Worldcon even though WCOM was doing interesting things like calling salaries "one-time expenses"…

    If you ever read anything bad about wallstreet, it is true…

  4. If it was an overpayment (more than the loan given) then they would be entitled to that portion of the money back. Same as if the bank accidentally deposits money into my account.

    But, as kamas716 said, it sounds simply like they paid their loan off early. Too bad, so sad.

  5. It gets better. The process and UI for the system that makes the transaction is so user unfriendly that three (two admitedly comparatively junior) individuals all looked at the choices made and figured it was correct.

    This is because (for some unknown reason that seems totally batshit crazy) to make an interest payment they had to repay the loan and interest but then divert the loan to an account within Citibank not to the people who were to get the interest.

  6. I know a guy that did that to his vehicles accidently. Thought he was paying off his Escalade but paid off the truck. A few days later he payed off the Escalade.
    I'm not having any sympathy for people who paid that big a bill off.
    I'll tell them "well done" or "getting out of debt is smart" but not "that's terrible, you paid a debt off early in full, by accident…"

  7. I suspect some heads rolled at Citi, but it was probably not those who were the most responsible. Just some saps low enough down on the food-chain to not have any protection.

Leave a comment

Your email address will not be published. Required fields are marked *