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A federal judge has sued Citigroup Inc. ‘s request to recover about $ 500 million, which he wrongly paid out of his own pocket, to investment firms offering loans to beauty giant Revlon Inc. gave, rejected.
Brigade Capital Management MP and other Revlon lenders could keep the money they raised at Citi when the bank paid them the full amount instead of the small interest payment owed, according to a written ruling Tuesday by Judge Jesse Furman of the U.S. District Court in New York.
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The mistake in August by Citi, Revlon’s lending agent, satisfied a nearly $ 900 million debt that Revlon would only pay off in 2023, and delivered an unexpected windfall to lenders over what became an increasingly risky investment.
While some wrongly paid credit providers returned about $ 385 million to Citi, others refused the bank’s request for repayment and touched on a legal dispute that hampered relationships with major investors such as Brigade, a longtime Citi customer. .
| Ticker | Safety | Last | Alter | Alter% |
|---|---|---|---|---|
| COMMENT | REVLON | 13.15 | +2.10 | + 18.96% |
| C | CITIGROUP INC. | 64.28 | +0.74 | + 1.16% |
Judge Furman issued the ruling after holding a hearing in December, which focused on the core question of what Brigade and other recipients know or suspect shortly after they are paid.
Citi, who accused the snafu of human error, argued that recipients immediately knew they were being paid incorrectly. They said they did not think the transactions were wrong before Citi demanded so much and demanded repayment.
Judge Furman agrees with the creditors that they “believed and were fair in believing that the payments were intentional.” Citi’s mistake was “one of the biggest mistakes in banking history”, the judge said.
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“We do not fully agree with this decision and intend to appeal. We believe we are entitled to the funds and will continue to bring about a full recovery,” a Citi spokesman said.
Robert Loigman, an attorney representing the borrowers, said: “We are very pleased with Judge Furman’s detailed and thorough decision.”
A Citibank branch in Buenos Aires, Argentina on February 19, 2016. (Reuters / Marcos Brindicci)
Internal chat messages dug up by Citi showed that employees of some borrowers were surprised when the Revlon loan they had was suddenly repaid ahead of schedule, with words like ‘incredible’, ‘wrong’, ‘accidental’ and ‘ overpayment ‘.
As soon as Citi realized his mistake, drivers tried to withdraw the money. Some credit providers, such as Carlyle Group Inc., KKR & Co. Inc. and Octagon Credit Investors LLC, granted the bank’s request, said people familiar with the matter. Citi sued those who refused, including Brigade, Symphony Asset Management MP and HPS Investment Partners LLC.
Revlon, owned by billionaire Ron Perelman, was not directly involved in the lawsuit. With masked, trapped consumers buying less makeup and nail polish, Revlon struggled to stay afloat and in November did not avoid filing for bankruptcy.
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Judge Furman supported the borrowers’ argument during the trial that it would have been irrational to believe that one of the largest financial institutions in the world would have accidentally overpaid the full amount owed by Revlon.
Lenders also pointed out during the trial that Mr. Perelman has saved Revlon several times already and given them reason to believe that the company has received the necessary funds to cancel its loan debt. And indeed, Mr. Perelman came to Revlon’s rescue in November when his private equity firm MacAndrews & Forbes took out some of its own capital to get a restructuring of the mortgage across the finish line.
The judge said it was reasonable for the credit providers to believe that Revlon and Citi, perhaps with the help of Mr. Perelman, ‘came up with a creative way to pay off debt.
According to Judge Furman, who, according to Judge Furman, a restraining order he instituted to freeze the money when the lawsuit began should remain in force for the time being, pending further arguments.
Citi blamed the payment in August for a human processing error that made the alleged interest rate of $ 8 million more than 100 times as large in a payout, using the bank’s own funds instead of Revlon.
But mistrust between the credit providers and Citi has built up before. They believed that Citi Revlon would help restructure its debt and resist the Covid-19 pandemic in a way that would weaken its claims on important trading assets and harm the value of their investments.
They started preparing a case against Citi and Revlon through another loan agent they chose to replace Citi. Shortly before the lawsuit was filed, Citi made the $ 900 million payment.