In what is now being called one of the worst Wall Street mishaps in years, Citigroup accidentally wired $900 million last to a group of lenders locked in a bitter dispute with the beauty company Revlon.
This Tuesday, a federal judge ruled that the recipients are not obligated to return the cash. According to reports, Citi had intended to remit a small interest on Revlon’s behalf but instead fully repaid the loan. And come of the lenders refused to refund about $500 million. These set of lenders who refused to pay back are those who had apparently already sued Revlon and Citi in a bid to secure reimbursement.
Typically, persons who receive cash wired in error are required to return it. But in this unique case, the creditors had legible reasons to believe the payment was made deliberately.
In his ruling, Judge Jesse M. Furman of the U.S. District Court in Manhattan wrote:
“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”.
The payment was viewed by some of the recipients as a happy surprise. A portfolio manager at Allstate, one of Revlon’s creditors, wrote in an internal message, “Not sure if this is in error, seems very unlikely.”
Citi noticed the error within 24hours and immediately sent out notices to reclaim the cash — which had mostly come from Citi’s own funds, not Revlon’s — but some recipients, including Allstate, balked.
Judge Furman said he might have ruled differently if he was“writing on a blank slate” but was compelled by precedent to find in the creditors’ favor.
“Although the mistake that gave rise to this case may be the proverbial Black Swan event, and the risk of a reoccurrence may therefore be small, the banking industry could — and would be wise to — eliminate the risk,” he wrote.
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