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Citibank has lucky escape over $500 million transfer as Judge overturns ruling

Citibank has been told it is entitled to recoup $500 million that it accidentally wired Revlon, a US appeals court has announced.

Citibank has lucky escape over $500 million transfer

Reversing a lower court ruling, the 2nd U.S. Circuit Court of Appeals said it was improper to give the lenders a “huge windfall” by letting them keep Citivbank’s money especially as the mistake had been noted early.

The case highlights risks in a banking industry that wires an estimated $5.4 trillion each day.

Citi, acting as Revlon’s loan agent, had in August 2020 intended to make a $7.8 million interest payment on a loan to the now-bankrupt cosmetics company, but instead paid off the $894 million loan though it was not due until 2023.

Some creditors returned what they received, but 10 asset managers including Brigade Capital Management, HPS Investment Partners and Symphony Asset Management, whose clients included the Revlon lenders, did not.

They said Citi paid exactly what was owed, and they had no reason to believe a sophisticated bank would err so badly.

In February 2021, U.S. District Judge Jesse Furman in Manhattan ruled against Citi after a nonjury trial, saying the prepayment was a “discharge for value.”

But in Thursday’s 3-0 decision, Circuit Judge Pierre Leval rejected that conclusion.

“Here, the debt on which Citibank mistakenly made a payment was not due for another three years,” Leval wrote in a 93-page opinion. “Defendants may not invoke the discharge-for-value rule as a shield against Citibank’s claims for restitution.”

“Today’s ruling reaffirms our long-held belief that these mistakenly transferred funds should be returned as a matter of law, as well as ethics,” Citigroup said in a statement.

Industry groups warned a ruling against Citibank could subject banks to excessive liability risks and destabilise the approximately $1.2 trillion US syndicated loan market.

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