Citibank's "biggest blunder in banking industry"; can't recover $500 million paid by mistake to Revlon lenders

Citibank won’t be allowed to recover almost $500 million it mistakenly paid to cosmetic company Revlon’s lenders, a US Court ruled. The judgment called the debacle “one of the biggest blunders in banking history.”

Citi, the loan’s administrative agent, mistakenly paid back the $900 million principal to the members of the lending consortium, rather than interest payments.

Citi realized the error but was rebuffed by the lenders, including Allstate Investment and Greywolf Loan Management.

Recipients of money wired in error are typically required to return it. But in this case, the creditors had reasonable grounds to believe the payment was intentional, Judge Jesse M. Furman of the U.S. District Court in Manhattan wrote in his ruling.

Because defendants in the case believed in good faith and with ample justification that the payments were for the full Revlon loan, defendants’ clients are entitled to keep the money, Furman said in a 105-page ruling.

Citi plans to appeal the decision.

Furman pointed in his ruling to a 1991 case, which unambiguously settled that New York law holds that “banks making wire transfer payments to bona fide creditors bear a risk of loss should a mistake occur,” he said.

Citibank’s “biggest blunder in banking industry”; can’t recover $500 million paid by mistake to Revlon lenders

Dakshita Bhatia

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