Judge Rules Recipients Keep $500M Citigroup Transfered in Error

A United States judge has ruled against Citigroup’s bid to recover $500 million mistakenly credited to the account of a group of asset managers. By the ruling, the recipients are allowed to keep the funds transferred to them in error. 

In August 2020, banking giant Citi intended to send less than $8 million as interest payment on a loan taken in 2016 by its client Revlon, to finance acquisition of rival, Elizabeth Arden. Instead, the bank ended up paying the asset managers $900 million in what it described as an “operational error”.

Some lenders returned the money they were sent, but 10 asset managers including Brigade Capital Management, HPS Investment Partners, and Symphony Asset Management refused, prompting Citigroup’s lawsuit to recoup the estimated $501m they received.

According to a report by the Financial Times, Jesse Furman, a U.S. district judge in Manhattan, wrote that he was bound by precedent to rule in favour of the lenders keeping the funds. 

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The August 11 wire transfers to lenders of Revlon Inc at issue are “final and complete transactions, not subject to revocation”, the judge wrote, calling the mistake “a banking error of perhaps unprecedented nature and magnitude”.

“Were the court writing on a blank slate,” he added, he might have ruled in favour of Citi, given that the bank “realised its error and notified the lenders within one day”.

Citi immediately initiated the move to recover the money when the error was discovered but the bank was only able to recover $400 million. It had to sue in an attempt to recover the funds in full.

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The judge ruled that New York law allows a recipient to keep funds transferred by mistake if the funds are intended to pay off a debt, the recipient did not know of the mistake and the recipient did not trick the sender into making the payment.

U.S. bank regulators had fined Citigroup $400 million in October 2020  over the mistaken payment, citing longstanding deficiencies in its risk and control system. Citigroup subsequently committed $1 billion to systems upgrades. 

Citigroup strongly disagrees with the decision and in a statement, said it will appeal the judgment. “We believe we are entitled to the funds and will continue to pursue a complete recovery of them,” the bank said via a spokeswoman.

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