Citigroup’s $708m blunder ends in victory for the bank

NEW YORK – A US appeals court saved Citigroup from an epic blunder that became the talk of Wall Street, rejecting a ruling that Revlon creditors could keep more than half a billion US dollars the bank accidentally sent them.

After a decision process one expert compared to “The Twilight Zone,” a trio of judges on Thursday overturned the trial court’s surprise decision early last year that the lenders – which include Brigade Capital Management, HPS Investment Partners and Symphony Asset Management – didn’t have to return US$504 million (S$708 million) the bank mistakenly wired them in 2020.

The appellate decision is a major victory for Citigroup’s main banking unit in its efforts to redeem the embarrassing lapse, which forced the bank to explain to regulators how such a failure was possible. Chief executive officer Jane Fraser called it a “massive unforced error” and showed examples of manual processes that needed to be automated.

“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,” a spokesman for Citigroup said in a statement. “While Citi has taken steps to reduce the likelihood of such an error in the future, today’s decision provides welcome stability and upholds the concept of cooperation needed for a well-functioning syndicated lending market.”

Columbia Law School professor Eric Talley, an expert in corporate law and finance, said the judges “got to the right outcome” but added that “the delay was considerable and costly.”

“It has caused Revlon’s bankruptcy to be stuck in limbo,” Mr Talley said. “This will clarify things going forward, but it really seemed like a ‘Twilight Zone’ episode, without a peep coming from the court and the parties trying to figure out how to reorganise Revlon’s debts in the interim.”

The creditors had been locked in a bitter battle with Revlon and Ronald Perelman, the billionaire whose holding company controls the cosmetics maker, over its May 2020 restructuring.

The August 2020 bungle took place as Citigroup was trying to send an interest payment to some Revlon lenders. Instead, the bank accidentally paid all the creditors on the loan – more than US$900 million. It managed to recover almost half the funds, but other lenders refused to give their sums back, saying Revlon had already defaulted and should have repaid them.

In a painful piece of bad timing, the bank was preparing to resign its role as administrative agent on the loan when it wired the huge sum to the lenders.

Thursday’s decision may mean lenders who got paid by Citigroup before the bankruptcy filing will need to return the funds to the bank, resolving the question of who is or isn’t a Revlon creditor.

“In my view, this is a straightforward case that many smart people have grossly overcomplicated and that we should have decided many months ago,” Circuit Judge Michael Park said in a separate opinion agreeing with the result. “Put simply, you don’t get to keep money sent to you by mistake unless you’re entitled to it anyway.”

BLOOMBERG