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Citibank's $900M Blunder

• ferros 6y ago
  How does a hedge fund decide they want to keep money that’s not theirs and fight it in court? And they manage people’s money as a business. Who would entrust these people with their money after learning of this case? edit: typo.
  • mobilefriendly 6y ago
    But the hedge fund is owed that exact amount of money from Revlon. It is an accidental pre-payment by Citibank, it isn't just a clerical error where the recipient has no claim on the funds. And it is likely that Revlon is going to default on their loan in the future, which probably factored into the the hedge fund's decision-making.
    • grumple 6y ago
      But the money they were paid with wasn’t Revlons... it was Citibank’s. This is theft from Citibank shareholders.
      • mobilefriendly 6y ago
        There's no theft, it is ineptitude at Citibank. The economic loss for ineptitude should rightly fall on Citibank's shareholders.
        • matsemann 6y ago
          Should the economic loss of a fat finger be a billion dollars? Is that a just amount?
          • rwbhn 6y ago
            Perhaps one should have proper controls in place?
          • j0ba 6y ago
            Lol, it's not an economic loss, it's money paid back. Its not that hard to understand. If the money doesn't get paid back, THEN it would be an economic loss. For the hedge fund.
            • grumple 6y ago
              It’s not money paid back. Revlon literally didn’t have the money, it came out of Citibank’s account. Citibank doesn’t owe the hedge fund anything.
        • Angostura 6y ago
          You suggest that ineptitude magically cancels out theft somehow. It's not clear that this is so. If I leave my wallet at your house by accident, its not your wallet.
          • CPLX 6y ago
            Sure but if I lend you $1000 and then you leave your wallet at my house by accident with $1000 in it while going out drinking and overdrawing your checking account it’s not quite so clear cut is it.
            • fphhotchips 6y ago
              I feel like this is more like if I lend you $1000, and you give your friend $100 to give to me. Your friend typos the bank transfer and pays me $1000. I don't think it's unreasonable for me to assume you're paying back the whole loan at that point. Maybe you've come to an arrangement with your friend, maybe you've paid them in cash, whatever, that's between you and your friend. As far as I'm concerned we've concluded our business. I am not certain that this logic scales to 9 figures.
            • salawat 6y ago
              It is clear cut. You do not get to dictate the payment schedule beyond what is mutually agreed upon, or ends up being negotiated in a legal proceeding. Being a creditor does not magically entitle you to the entire value of the loan from someone at your whim. Due process must be followed. That's risk. Initiating or benefiting off of what amounts to a mistaken transaction by a proxy agency, which ultimately proves to be unauthorized is quite literally theft. My goodness, I'm so glad I don't do business with most people given the responses I'm seeing in this thread. It seriously leads me to think that people need to spend some time internalizing what it means to be a responsible financial facilitator. Hint: Exploiting clerical errors to perform margin calls isn't it. That's how you spook people out of doing good business, which makes the market that much riskier for everyone else. I hate finance, and even I grok that.
          • jychang 6y ago
            So when Experian negligently exposes their customer's data which gets stolen, it's not their fault? Punishing a company for ineptitude should be expected.
      • joncrane 6y ago
        Yes but the "theft" in this case is Citibank's incompetence resulting in a decline of shareholder value. Brigade isn't stealing anything. Imagine three friends. One owes money to another one, and a third acts as some kind of financially responsible intermediary. A owes money to B, and C is the intermediary. A says to C "Hey pay back B" and even though A means "pay back the portion I owe this month" C "accidentally" pays the loan back to B in full. Does B have to give the money back? If B refuses to give the money back to C, is B "stealing" fron C? If anything, the matter has been simplified. Instead of a three-party contract, it becomes a two-party contract between A and C and B can merrily go on her way.
    • zipwitch 6y ago
      I find it interesting that everyone is presuming this is an accident. If something like this were to happen in cyberpunk RPG the players would assume that with a billion dollars on the line the hedge fund had either hired a hacker or suborned a Citibank employee in order to make certain they got paid. (As a hedge fund, lawyering up to hang onto the money once you have it is comparatively cheap.
      • YetAnotherMatt 6y ago
        Games do tend to have more interesting storylines than "oh its just people being stupid again." IRL, Hanlon's razor often works.
  • boffinism 6y ago
    To be fair to them, the hedge fund decided they wanted to keep money that they think _is_ theirs, which they had loaned to Revlon. Imagine a world where debtors can choose to repay lenders, and then change their minds and take the loan back again. It would make being a lender impossible. So it's sort of understandable if Brigade genuinely believe that, at one point, there was a conscious decision on the part of someone to repay the loan. Given that the sum they received was equal to the exact amount of the loan, it's not completely unreasonable.
    • ferros 6y ago
      Understand your point, but if I was a customer there is zero chance I am investing a cent with them. My thinking is if they do this with Citibank and a hundred million, I have no confidence in being able to recover my own money in case of a dispute.
      • sudhirj 6y ago
        If you were a customer of Brigade capital you’d be buying them champagne right now. They they just saved $170 million of your money that you would have had to accept as a loss should Revlon go bankrupt (which it probably will).
        • satisfaction 6y ago
          That's right, hedge funds have a fiduciary duty to their investors.
          • lann 6y ago
            Fiduciary duty does not mean "must make money at the expense of all other considerations".
          • onetimemanytime 6y ago
            fiduciary duty means sometimes not to burn all your bridges. Politics aside, Trump Inc. is blackballed by all but one or two banks due to such tactics. Edit: And this is not $500 BILLION so you can say, F it, boom or bust, let's try it. The upside isn't that much, relatively speaking, considering the blacklisting downside. Even if Revlon doesn't pay, a large % is already banked or will be in bankruptcy proceedings so it's not a 100% loss.
  • luckylion 6y ago
    They have a good point for it being theirs: they're owed that exact amount by Revlon. From their point of view, somebody at Revlon figured "let's just pay them in full" and a few days later somebody else thought "that wasn't a good idea, let's get the money back". If it was e.g. the expected amount with one or two additional zeros, that might point to a typo. But the exact amount of $176.2mn instead of $1.5mn? That may still be a mistake, but it's not that obvious.
  • londons_explore 6y ago
    If by knowing intricacies of law and being lucky they're making their clients richer, I want to be one of their clients...
    • user5994461 6y ago
      Exactly, it's a hedge fund, the customer base is extremely wealthy investors or pension funds. These customers won't think that the fund is in the wrong for holding money it is owed, from a company that might go bankrupt any minute and default on the debt.
      • salawat 6y ago
        That's the issue though. There is an obligation inherent to all actors in the system. A "Rule Zero", and "Rule 1/2" if you will. Zero: Thou shalt do good business to service they debts within the period negotiated, under the terms set forth prior. Thou shalt eschew business that knowingly unduly harms thy counterparty, or results in large chunks of value getting converted into lawyer's fees. Rule 1/2: Thou shalt be burned by bad business, because no one seems to grok and internalize the second tenet of Rule Zero.
  • csomar 6y ago
    > How does a hedge fund decide they want to keep money that’s not theirs and fight it in court? $175m > And they manage people’s money as a business. Seems like they are protective about any money that lands on their accounts. > Who would entrust these people with their money after learning of this case? If they are giving this money to the fund (that is their customers), whom of them is going to complain?
  • koolba 6y ago
    If you accidentally pay back your full credit card balance, but only meant to pay the min monthly payment, you wouldn’t expect them to give it back to you would you?
    • dubbel 6y ago
      But it was not Revlon making the mistake. It was Citibanks mistake. They are not indebted to Brigade Capital. Revlon is. If your bank would pay back your full credit card balance by accident, you would expect it to be able to get the money back, wouldn't you? If it had been Revlon making the mistake this would be a different story.
      • oarsinsync 6y ago
        > If your bank would pay back your full credit card balance by accident, you would expect it to be able to get the money back, wouldn't you? If the bank paid off my entire credit card balance instead of the < 1% payment I had scheduled, without an instruction from me, and without debiting my account because I don't have the funds to do that entire amount, I don't think I would care all that much. My CC issuer probably wouldn't be interested in returning the money if they had reason to believe I'd never pay them back in full as well. That just leaves the bank that cares. The bank that made the expensive mistake.
      • koolba 6y ago
        I’d expect the bank to eat the cost if they could not recover the funds. Just because the receiver of the funds is not at fault does not mean the customer should take the hit.
        • deleted 6y ago
          [deleted]
    • nrmitchi 6y ago
      I don't particularly like the credit-card analogies I'm seeing around here. There is a big difference; a credit card is an open line of credit, which is not the case for these loans. After a credit card is paid off "in full" (for example's sake let's assume a 10k card), you can then use that to spend 10k. You still have access to 10k worth of "buying power". A loan like this is different. Once it's paid, Revlon (even though this isn't Revlon's fault) can't just turn around and draw down the line again. That's the difference between a loan and a line of credit. The fact that it is widely believed that Revlon will be bankrupt before actually paying off this loan just makes it more likely that Brigade is taking advantage of the situation with no true belief that this was nothing more than a mistake.
  • Kneecaps07 6y ago
    The pessimistic side of me says that they know they're going to lose. However they're investing the $175m in the meantime and will make more money from it than they're losing by paying the lawyers.
    • dmurray 6y ago
      TFA says the court has ordered the money to be frozen until it can make a decision about who gets it.
  • 1024core 6y ago
    > How does a hedge fund decide they want to keep money that’s not theirs and fight it in court? Imagine an alternative scenario: Interest rates are down. Revlon is looking to refinance the loan, and finds a lender (LENDER_B) who will let them refinance their loan from Brigade, but at a lower interest rate. Revlon then tells their bank, Citibank, to pay off Brigade's loan as they'll be getting a loan from LENDER_B instead. Citi goes ahead and sends the payoff amount to Brigade. Meanwhile, LENDER_B discovers something at the last moment and pulls out. Now Revlon claims they never meant to pay off Brigade. Remember: people lie all the time.
• jasonlfunk 6y ago
  I think the last point made by Brigade proves it was a mistake. If Revlon is in such financial trouble they Brigade believes they won't be able to pay back the loan, why would they have paid back the entry thing, with interest, early? And if it wasn't a mistake, why would they be asking for it back now? It seems perfectly straightforward to me.
  • DangitBobby 6y ago
    C sent B money that B wasn't expecting and immediately asked for it back... Nothing more clear-cut. Thankfully the tax payers will get to fund the next riveting installment of "was this obvious mistake actually legally a mistake?"
    • sukilot 6y ago
      The fictions created by of law collapsed when faced with the reality that negative things do not exist.
    • TuringNYC 6y ago
      C, acting on behalf of A, which owed money to B: C returned money owed to B in full, which B was not expecting. C asked for the money back from B.
      • DangitBobby 6y ago
        We just told the same story
  • mobilefriendly 6y ago
    Brigade's opinion of the situation does not make it a mistake. The question is more the process at Citibank and Revlon. And prepayment isn't really a mistake in the sense that Brigade received an unjustified windfall. I think Brigade will win, and Citibank will have to take the loss.
  • londons_explore 6y ago
    > why would they have paid back the entry thing, with interest, early? This isn't all that rare - it just means they were able to convince someone else to invest in the business, and pay off the whole loan for them. Kinda like when you're in loads of debt and you transfer the debt from one credit card to another because it has slightly better terms.
• onetimemanytime 6y ago
  IIRC, if a bank moves $3 million to my account, and I spend it, it's fraud.
  • draw_down 6y ago
    Have you tried becoming a hedge fund?
  • mobilefriendly 6y ago
    Maybe not, if the bank owed you $3 million, but wasn't due until next year.
  • bostonpete 6y ago
    What if the bank owed you $3 million to begin with?
  • skinkestek 6y ago
    An American friend of mine living here had a decent chunk of money transferred to his account by an American company. Next three (or so) days he try to give it back and they wouldn't listen. Next day after that they contact him to say he needs to give the money back immediately "or else".
    • jagged-chisel 6y ago
      "Why wasn't this important to you three days ago when I tried to give the money back?"
      • OldHand2018 6y ago
        Always, always, always keep correspondence like this in a form that can be shown in court. The judge will NOT be friendly to the other side.
  • docdeek 6y ago
    If I understand the article correctly, the equivalent here would be that the bank owed you $3 million to be paid over the next 10 years but paid it all to you today in one lump sum. Now if they had paid you $5 million, that might leave you open to a fraud charge if you spent it because you were never expecting that much. But if they paid you the $3 million they were going to pay you but just 10 years early…is it different? That said, I reckon it’s clearly an error. ;)
• saimiam 6y ago
  These clerical errors must be more common than I thought. A few years ago, when I had taken a mortgage to buy a house, I had the exact amount of the mortgage transferred into my account instead of going to the seller or wherever it was supposed to go - maybe to the seller mortgage provider? I returned the money but I'm no hedge fund.
  • Chilinot 6y ago
    Well if you hadnt payed it back, then the house wouldnt have been payed. And the purchase would be invalid. Also your bank would probably have taken legal action against you.
  • mschuster91 6y ago
    > These clerical errors must be more common than I thought. They are, but I'm surprised that there seems to be no 4-eyes principle on such high transfers. Having two (or three) employees sign off on any transfer above ten million dollars seems like a cheap precaution against blunders of this scale.
    • wil421 6y ago
      How do you know it wasn’t the IT system that caused the problem?
      • DaiPlusPlus 6y ago
        That presumes that the "IT system" is capable of making huge actions by itself (or by itself via a bug or operator error): that immediately makes alarm-bells ring in my head because it says the IT system's security/authorization system isn't operating on the basis of least-privilege. There are ways to engineer automated processes to prevent things like this from ever happening, for example, all transactions over, say, $10m, could be required to be signed using PKI keys held only on smartcards physically held by those involved - and the big-fat-table that holds transactions in their IBM Z-series would be automatically audited to undo any transactions lacking the necessary signatures. And all of this should be evident in the printed hardcopy that the gov-level auditors would love to see. ...and that's just an idea off the top of my head right now at 5am (and a bottle of IPA) and I've never worked in fintech or banking. Given that shady stuff happens at the highest-levels inside legacy banking institutions (e.g. HSBC and the South American drugs trade - or Deutsche Bank and sanctioned Russian entities... and the current White House occupant) - and because I know that these banks do hire great engineers for their internal systems - that "clerical errors" don't happen like this - something fishy is afoot and I guarantee that we'll never know the truth.
• djohnston 6y ago
  i dont understand how Brigade can so brazenly make off with the money here. why would people want to work with them given this behavior?
  • boffinism 6y ago
    It's because (according to them) it's their money. It's not some random sum coming from some stranger, it's the exact amount they were owed.
  • sukilot 6y ago
    Simple math --- will this action cost them $175m in future profit?
  • sukilot 6y ago
    Brigade accepted money from Citibank on behalf of a bankrupt debtor corporation (an economic zombie). No humam voluntarily working with Brigade was harmed.
  • tehwebguy 6y ago
    Because people take loans from whoever will give them one.
• helsinkiandrew 6y ago
  I’m not sure that $900M can be called a ‘few million’ as stated in the article. 200 or 300 million is probably the upper limit for a few?
  • chki 6y ago
    I think you misread something. The "few million" do not refer to the 900M but instead to the interest on the loan which is actually "a few" (less than 10) million.
  • deleted 6y ago
    [deleted]
  • celticninja 6y ago
    That's pretty close to how much it is. $172 million and change. The $900m figure was the total amount sent, all but the $172m has been returned, at least according to the article.
  • twic 6y ago
    There's a 1.8 billion loan outstanding, split between several lenders. Citi accidentally paid half of that loan back to some of the lenders, transferring 900 million. All the lenders but one returned the payment, leaving 176 million in dispute. So, Citi did make a 900 million dollar blunder, as the headline says, but the subject of the story is that remaining 176 million. It's a misleading headline, not because it's not true, but because it doesn't describe the subject of the article.
• Hermel 6y ago
  IANAL, but all of this probably depends on a tiny detail: did Revlon instruct Citibank to pay the $176.2 million to Brigade Capital? (1) If the answer is yes, then this qualifies as a payment instruction. In a payment instruction, a bank sends someone money on behalf of the payer and in return claims that amount from the payer. In that case, citibank would have to recover the 176.2 million from Revlon. (2) If the answer is no and citibank sent out the money by mistake without having been instructed to do so, it should be able to reclaim it from Brigade Capital. The article mentions that citibank never deducted the paid amount from Revlon's account. This would hint at option (2) being the case.
  • JumpCrisscross 6y ago
    > this probably depends on a tiny detail: did Revlon instruct Citibank to pay the $176.2 million to Brigade Capital? This is not the lender’s problem. If the borrower’s bank pays the lender bank, the lender has some claim to the money. If the lender inappropriately deducted the funds from the borrower’s account, that’s a problem for them to sort out. In any case, good to get modern case law to this question.
  • basseq 6y ago
    Revlon did not instruct Citibank to pay the $176.2M: > Their first line of defence is Revlon’s own statement — “Revlon did not pay down the loan or any part of the loan”. IANAL, but this seems pretty cut and dried in favor of Citibank. Citibank does not have any liability to Brigade, and they paid the money "from its own account". Combined with Citibank's role as an intermediary between Revlon (who, again, did not instruct or actually pay the money) and Brigade, I don't see how Brigade has any claim on Citibank's money.
• AndyMcConachie 6y ago
  I have absolutely no sympathy for Citibank in this instance. They're a bank. Their job is to do stuff like facilitate transfers and keep records. That's their primary mission. If they're too incompetent to do that properly then maybe they shouldn't be in business.
  • Invictus0 6y ago
    I suppose you write perfect bug free code all the time?
    • zadkey 6y ago
      The strength of an organization is it's ability to overcome the weaknesses of any one individual. Developers don't have to have a business sense, product owners don't have to be technical, etc. In the Dev world, there are QA engineers, code reviews, multiple environments, user acceptance testing, etc, to protect the codebase. In the corporate world, a CEO doesn't have to know how to do everything. He knows how to make good decisions and to defer to people who are more knowledgeable than him on specific issues. Good processes stop problems before they make it to production. And while an individual can make a mistake within an organization, the organization's processes will serve as safeguards that prevent that mistake from being propagated throughout the org's codebase. In the case of Citibank, they should have good processes in place to prevent this kind of colossal mistake. So again the mistake of an individual should not be propagated but reviewed and fixed before affecting anything. As the other guy said, they should have had measures in place to prevent this kind of thing, especially considering it is a significant aspect of their overall business strategy.
• j0ba 6y ago
  The business banking division of citi is absolute garbage, and this is just more proof.
• kehphin 6y ago
  Why doesn’t Revlon just pay Citibank over time the remaining balance that Citibank “paid” for them to Brigade Capital?
  • JoeAltmaier 6y ago
    Because they are likely to be bankrupt before that happens. Everybody involved knows this, and is acting on that certainty.
• social_quotient 6y ago
  I’m struggling a little on the details. Citi paid 900mm to lenders of which only 175mm went to Brigade. Things I’d like to know: -Who got the other amount and Did they return it? -The 900mm mistake is actually several mistakes not just 1 simple typo? How is that possible. As for wrapping my head around this. It’s a total debt of 1.5bn. Let’s drop some zeros and see how we think of it. Let’s say 15k credit card with AMEX. I owe 150 in interest but instead I send 1,500. Would they refund the mistake? Let’s go ahead and follow the headline and say I paid 9k of my 15k balance. Would they refund the mistake? (Honest question) This scenario is at the consumer level and zeros matter but I see sloppiness somewhere in Citi and their dealing with money when it’s specifically what they are trusted to do. As for the “loss”... Let’s consider how this should likely play. The loss here of Citi isn’t materially that they lose the money. It would get rolled into a loan to Revlon at the same rates. Revlon still has to pay it, just Citi has to float the time. The material loss to Citi should be near zero - they could even sell the loan at a slight loss to get it off their plate. Oops we sent 900mm to you... Now we are the loan holder. They end up with money tied up and should Revlon go to bankruptcy then they will realize this loss. Stats -Citi has a 100bn market cap. -They have currently 685bn in loans outstanding to borrowers. -currently holding 26.4bn for credit losses for pandemic. https://www.citigroup.com/citi/news/2020/second-quarter-2020-earnings.htm https://www.citigroup.com/citi/news/2020/second-quarter-2020... The only news I really see here is how Citi ops let an unexpected amount get sent without proper authorizations.
  • tinco 6y ago
    Maybe it's like that Hawaii mistake, the "pay installments" button was right next to the "repay full loan" button. Also, that it now happened to 900M means it has probably happened before to smaller loans before, I bet there's some sort of law about that.
  • curryst 6y ago
    Some of the earlier articles about this mentioned that Revlon is struggling and that the creditors were worried about getting paid back for the loan. This seems like a really bad loan to service.
  • polack 6y ago
• scott31 6y ago
  This was probably priced in when the hedge fund decided to lend the money
• JoeAltmaier 6y ago
  I just wonder, if I as a private person had a brain fart and wrote a check in full for my car loan, instead of just an installment, what are my chances of retrieving that money? Very small I should think. So, are corporations classed as fictional persons? Then let Citibank live with the mistake. As I would have to.
  • mehrdadn 6y ago
    > I just wonder, if I as a private person had a brain fart and wrote a check in full for my car loan, instead of just an installment, what are my chances of retrieving that money? Very small I should think. I would've assumed that if you contacted them immediately and gave them adequate notice of the mistake, you'd be able to get it sorted. Very curious what the actual answer is in the real world.
    • chasd00 6y ago
      unless you were able to request a stop payment on the check prior to it clearing I don't see how you would be able to get the money returned. Or, at least, whatever entity you owed the money to would not be required to return it. Maybe they would if they so chose but I don't see any way you could force them.
  • xadhominemx 6y ago
    No the chances are very good you would get your money back. And it would be very bad if Citi did not get their money back - there is no advantage to a payment system that cannot undue obvious errors of this magnitude.
    • ianhawes 6y ago
      As someone that has inadvertently paid a BOA credit card bill in full when I meant to transfer money to a different account.... You ain’t getting shit back.
      • relbeek2 6y ago
• dwighttk 6y ago
  That’s the Chance card I want to draw in Monopoly
• julienfr112 6y ago
  If during discovery, they found an internal email of Brigade Capital saying "these dumbass of City send us the money !! IN FULL !! Never though we were going to see again that Revlon money", Brigade Capital is screwed.
• gigatexal 6y ago
  Man. Banks never make errors in my favor. Pass Go do not collect 200.
• flerchin 6y ago
  If my bank accidentally paid off my entire credit card balance when I instructed them to pay the minimum payment, I'd be glad that it's between the bank and the credit card company. Not sure if I have an agreement with my bank to repay them, and under what terms.
  • VBprogrammer 6y ago
    This reminds me of a story. A friend of mine once had a significant amount of money (several thousand euro) deposited into his account accidentally. Being a bit of a shyster he left it alone for several months but eventually started spending it. Some years later he got several phone calls from his bank all in a very short period of time. His luck ran out. Apparently what had happened is that he'd been in the bank having something changed on his account, the next person came in to deposit money but the teller failed to change the account. In the end they arranged a very low interest loan for him to pay back the money over time, so in the end he probably came out ahead.
• LatteLazy 6y ago
  >At this point, you’re probably thinking — Finders Keepers. No, because that's not how any of this works, even when you're a child. It's well established that obvious mistakes are obvious mistakes and you don't get to profit from them. Brigade either had a very dumb lawyer or they were having a really bad cash-flow problem and wanted this money to cover their issues...
  • ace32229 6y ago
    I think the article does quite a good job of explaining why this isn't necessarily an obvious mistake. Sounds like quite a canny lawyer to me!
    • LatteLazy 6y ago
      It's interesting to me that the article missed a lot of the reasons though: * no discussion of scibeners errors * no mention of the effect on citi of being forced to buy 900m in bonds/debt they never consented to buy * no discussion of the chilling effect on the wider credit system * no discussion of why all the other creditors returned their payment without issue "Should this money be returned" is a fair and interesting question. The answer is Yes and for a long list of reasons. But the article picks a single one, a technical one and the example used is a bit weak. Theres still a lot of meat left on these bones imho :)
• tmsh 6y ago
  Whether this is a good strategy for Brigade Capital (cons: risking reputation with banks and the public, low chance of truly being able to keep the money, pros: increasing reputation in some circles with investors, and giving off an error of cut-throated-ness, 176.2 million dollars today) comes down to churn rate. I used to trade equities (high frequency, etc.) and I'll never forget the one trading / programming infinite loop I had while doing some pairs trading (this was like maybe 2005). It was with Goldman. Accidentally, went long something like 10,000 shares of AMGN at the time. I remember it was an Amgen / Biogen pairs trade. Clearly it was an 'out trade' or mistake. I called Goldman's desk immediately (the trading was of course all automated). Anyway, I talk to a Goldman trader. He looks up the order. Again, I'm long a lot more AMGN than I should've been and it's very unusual. Back then you could call trading desks - not sure how automated it is now... If there was an accident involved, the fair thing to do is to "bust the trades" (originally based on trading floors, trading pits, etc.). And lots of trading firms had these relationships with brokers like Goldman back in the day. AMGN is trading up a bit from when these orders came in - so I'm actually making a little money off this mistake, but I just want to unwind / exit this mistake. He agrees. I breath a sigh of relief. I go back to trying to figure out what stupid infinite loop triggered this issue and make sure I'm completely out of everything (note, this was a huge learning lesson in my programming career in terms of always building in safety checks). 30 minutes go by and the trades aren't busted. I call Goldman back and now am worried, as by this time Amgen stock has started to go down, so now these trades are really hurting more and more (20k, 30k, etc. in 2005 dollars for a young programmer/trader). Now it's in Goldman's favor and I speak to another guy and they refuse to bust the trades. Why do I mention this? Because again it's all a matter of churn. They made implicitly the calculation of - is this going to jeopardize the trading activity our firm is giving Goldman and cause us to split up? If not, if the expected cost of churn is less than they can make via a short-term reward, they don't care. I now work for Amazon, and I recall Bezos saying he'd always be happy to make up a loss for a customer instead of losing them as a customer. While I think this is a good thing in the world, in a way it all comes down to churn (and LTV). And the true price of your reputation for future customers based on your reputation for treating customers. Brigade Capital has to make that call. For me, Goldman as a company is doing fine (despite my never trusting them again after that) - so perhaps it was the right call for them to make (re: their culture -- certainly, an argument can be made that they're not liable; however the other argument that they agreed verbally to the bust and then went back on their word...). I've since left the trading industry, and strongly believe in long-term value / valuing the relationship with the customer above all and, economically, the LTV of a customer. But I'm savvy enough to know that indeed an Amazon LTV is way way more than a single cost of an item. Now Amazon can't refund every single order that is lapsed or it will really start to eat up LTV, but it makes a lot of economic sense to protect the customer relationship (it's not just being nice). But there's always a tradeoff. Is 176.2 million worth it v. the reputation hit and increase in churn rate for existing customers + the lowered expectation of new customers? Perhaps for them it is. (Are they a 1B under management company? a 100B under management company? According to wikipedia it says 35B, so 176.2 is small relatively to them v. their reputation) In the long run, given the difficulty in overcoming the legal aspects around this issue (i.e., given their chances of not winning the lawsuit) and having their public perception be reduced for future business relationships (reputation once lost is very difficult to regain), I doubt it. Richard Posner was/is a big fan of the economic theory of law. In a way, there is a market value to kindness, which is an odd thing. But the good/moral thing is usually the more valuable thing in the long run (since we all vote with our wallets for what we think is sustainable and good/moral/honest things are usually more sustainable for business).
• whatok 6y ago
  There's a lot of comments in here saying that it was the amount Brigade was owed so they probably just thought it was prepayment. There is no chance on earth prepayment of a loan was made without any sort of communication beforehand. Brigade very well knows that they weren't supposed to receive the $ (at this point in time) but it's a cheaper option to take this to court and potentially keep the money (low probability event) than give it back and see a potentially much smaller sum in restructuring (high probability event). Anyone familiar with distressed situations knows that these things are knife fights so this kind of behavior is not surprising. Brigade is big enough that banks aren't going to refuse to do business with them because of something like this.
  • koboll 6y ago
    Right, but under the definition of Unjust Enrichment as laid out in the article, it requires both a mistake + not being liable to pay. So there's a difference between "whoops I paid money to the wrong person" and "whoops I prepaid my loan back in full", which is that the latter fails to satisfy one of the two criteria of unjust-ness. Perhaps there's more nuance in the legal definition that this article missed, though.
    • asdfasgasdgasdg 6y ago
      Citibank is not liable to pay Brigade. The fact that someone is liable to pay Brigade does not entitle them to Citibank's money.
      • oarsinsync 6y ago
        Bank error in your favour. Collect $175mm. And hold onto it for dear life while the bank attempts to reclaim it when they realise their error.
      • donor20 6y ago
        Citibank has agreed to be the paying agent for the borrower. Literally every other payment received from the borrower came from citibank. Those checks can and should be cashed. Similarly, the company servicing your mortgage may not own it. Doesn't matter, if you pay to them they need to reduce the mortgage balance (even though you didn't owe them specifically the money) and then carry out their responsibilities with lender.
• noisy_boy 6y ago
  If I owe you money and my wife forgot my bag with money in your house, you don't get to keep it just because the amount matches or I'm in bad shape. Either I pay up as per terms and conditions and we are fair and square. If I default, you can sue me and if the court orders to impound my assets, you get to take/sell my stuff. Not before that.
• hn_throwaway_99 6y ago
  Can someone tell me how these large financial transfers work, and why there isn't a time period when the money can be returned? I think an error of this magnitude would have been recognized almost immediately, no? I mean, if someone does an ACH transfer into my bank account, it can 'clear', but it can still be revoked days later if there was something wrong with the transaction. Indeed, this was the basis for a bunch of "Nigerian Prince" scams where scammers would send money to someone's account, that person would see it 'cleared', then they'd send some larger amount of money to the Nigerian Prince, after which the original deposit was revoked, and the bank account holder was on the hook for the now (usually large) negative balance.
  • A4ET8a8uTh0 6y ago
    It depends. Given the amounts involved, it is unlikely that ACH was used. With wire transfers, the basic rule is 'once it is out, it is out'. You may be able to get money back by communicating with recipient and by sending a request for the funds back, but they do not have to honor it. Recipient's back will basically ask the recipient if they agree to the return, and if they don't, that is the end of the story. That is basically why CITI was forced to sue. Other recipients played nice. That one recipient did not. edit: There may be some leeway if there is fraud involved, but even then it is more along the lines of bank freezing the funds than about sending them back.
  • avianlyric 6y ago
    There are many different payment scheme out there, which all have different parameters. ACH is someone unique in that money can just be pulled back, and even in transactions that take a long time to clear, doesn’t mean that you can cancel them. Clearing time is usually caused by multiple sequential systems at multiple institutions taking their time do something. But once Citi started the transaction, and their system send the payment messages they probably couldn’t retract the payment. Once the first payment message was sent it immediately created a liability on Citi for the money (either to the payment scheme or the receiving bank), at that point actually moving the money becomes a bit academic, an unbreakable promise has already been made.
• dmix 6y ago
  I'm curious since they also paid a bunch of other people, totally 900M that it will be a helpful argument in court to return the 177M.
• WarOnPrivacy 6y ago
  This story hints that huge entities aren't just predatory scumbags with consumers but also with each other. I believe this shows how corp execs are surrounded by unethical, profit-driven behavior. That helps shape & reinforce their eat/be eaten world-view, that they then impose on masses of individuals who neither live in their world nor live by their principles. My above view is formed by a couple of things. One is years of providing IT support for a car dealership conglomerate. Every vendor relationship existed to extract cash from the auto-group; that goal shaped and drove the relationship. The services provided were tokens to facilitate that goal. Based on the car dealership world, the lifting-all-boats, capitalist ideals, where profit drives us to better each other is a facade. The reality is that everyone is meat. That non-predators walk into this grinder to buy their transportation feels like cruel, dark humor. The other thing that shapes my view is time I spent integrating new energy tech into mansions. The projects could take months and that led to sometimes candid conversations with the owners. One guy made his billion by baiting VC capital into his company then shuttering his biz after funneling the capital into his family's pockets. The VC firm also went under, with all jobs lost at both businesses. He was especially proud of how he framed one guy on federal charges who thought to bring attention to this. That seemed to be enough to keep regulators at a distance. I don't think capitalism is evil. However, experience is teaching me that insufficiently regulated capitalism is driven by actions that are indistinguishable from evil. Those actions typically leave enormous damage in their wake.
• adrr 6y ago
  I'm confused why Brigade isn't being charged criminally. Any time a individual receives a transfer in error and doesn't return it, they are hauled off to jail for theft of funds. Example: https://www.bbc.com/news/world-us-canada-49643015 https://www.bbc.com/news/world-us-canada-49643015
  • vlovich123 6y ago
    They’re arguing that Revlon prepaid the amount they owed to Brigade for financing a deal. Moreover, Citibank was the bank that was supposed to be making payment installments to Brigade on Revlon’s behalf. This is very different from the case you’re referring to.
  • manquer 6y ago
    They are owed the exact same amount they got from revlon. They didn’t get free money. If you mistakenly pay back extra on a loan/mortgage bank is not going easily give it back to you, especially if you were about to go bankrupt.
    • adrr 6y ago
      Money came from Citi bank which is just facilitating the transfer and an employee made a mistake a used bank money instead of the entities money. It's like you payback the loan but the bank accidentally uses its own money and not your money. You'd get hauled off to jail if you didn't return the money.
      • manquer 6y ago
        I am not sure it is so simple mistake as a typo by a single employee , brigade was paid the exact amount they were owed principal + interest . It wasn’t some one’s transaction they got, they were instead paid early by mistake . It is more like you dad who guaranteed your loan paid it off fully instead of paying only the monthly amount and now saying it was a mistake. Administrator in this context is more a guarantor than facilitator . Sure courts may say that your dad does get the money back, but it is not straightforward as you say, if you were that lender getting the money back from a likely defaulter , you surely won’t give it back unless the court says so.
• Ballu 6y ago
  How this is different from this scenerio: Think you send the money for mortgage payment from your brother account who doesnt has any financial relationship wrt that mortgage (by mistake).. Plus you pay for whole year in one transaction incl interest. Can you go back to bank (lets take Citi for simplicity) and ask for money back and telling that you will send for one month only with right account. How will Citi react?
• nrmitchi 6y ago
  I fail to see all of the defense of Brigade that is happening here. Arguments that "Well Revlon owned them the money, they just through it was a prepayment" seems like a gross simplification of the situation. A prepayment of this magnitude would never happen without some sort of other communication. Further, as far as I know, Brigade was not owed $175M. There was a debt for that amount, but at the time the payment was made, they were only owed what was specified in the payment plan/agreement, which would have been the $1.5M. Just because they were also owed more money in the future, does not mean that it was owed now. As a "down to earth" example, my employer will owe me more money in the future, according to the terms of my employment. But on September 1st, they will only owe me my bi-monthly paycheck. If they over-pay me, and deposit a full years worth of my salary into my account, it is not reasonable for me to say "Oh, I guess they chose to prepay me for a year! Awesome." Your employer will take that over-payment back, and if you fight it, you will lose.
  • paulcole 6y ago
    Except you haven't provided the work for the next year yet. Brigade did provide the "work" in the form of the money they had already lent out.
    • TAForObvReasons 6y ago
      As far as the debtor, to whom Brigade "provided work", is concerned no payment was intended to have been made. It was a mistake committed by the bank. From a news article cited in the post: > “Revlon did not pay down the loan or any part of the loan,” a representative for [Revlon] said in an emailed statement. https://theprint.in/economy/citigroup-accidentally-wired-900-million-to-revlon-lenders-now-its-fighting-to-get-it-back/482438/ https://theprint.in/economy/citigroup-accidentally-wired-900...
      • 1024core 6y ago
        Maybe Revlon was planning on getting a lower interest rate loan. And that loan fell through at the last moment, and now they're claiming it was a mistake?
• RobRivera 6y ago
  This is fascinating, in so far as the surface details materialize. However I feel as details of the loan are read in detail in can be reasonably argued that one side is in fact more right than the other, but the devil's in the details. Early loan payment is a feature of credit. The cashflow is a feature of a fixed income. If the cashflow can be cut short and money returned at the debtors option, the creditor is once again found in a situation of having to seek a superior investment opportunity and thats a risk in some portfolio managers' eyes. I think the argument that the spot economic signals are stacked against revlon isn't a factor in citis favor, and a hedge fund is exercising fiduciary responsibility by closing the debt, ESPECIALLY if the debt has an early payment clause. If citi is told to go "pound sand" then they've effectively acquired a bond position on Revlon tho, so the argument that the hedgefund must return the money sounds valud from the sense that currently, revlon doesn't have a formal bond agreement with citi. I'm very curious as to the court's position in this case, bc if citi has to bite the bullet, IB world is going to laugh at citi
• deeteecee 6y ago
  I'm a bit confused by the article. It ended with a question about whether Brigade should keep that money but has only answered on the side of "Brigade is wrong. They should return the money back."
• rurp 6y ago
  This reminds me of a similar story from a very different domain: The World Series of Poker. Some years back a high limit player went to the bathroom and hung his money belt on the inside of the stall door, did his business, then walked out forgetting the belt was in the stall. As soon as he realized his mistake he ran back in a panic because the belt contained over $700,000 in high denomination chips. By the time he got back the money was gone. The tournament director announced what had happened (leaving out most of the details) and asked for the person who found the money belt to return it. This sparked a lot of conversation at the event that year. Aside from the ethics of keeping the money there would be some big practical hurdles. High value casino chips are carefully tracked individually, so the issuing casino would almost certainly recognize any large chips from that haul as having been paid out to the original owner. I later heard second or third hand that the money belt was returned with all of the chips to the person who lost them, who in turn gave that person a sizable reward.
• rossjudson 6y ago
  It's probable that Brigade is not the only credit/investor involved. If Revlon doesn't pay (or defaults), other creditors have rights too, and there are processes to fairly distribute assets. "Oops, we're keeping it" is an invitation to bypass those processes.
• Yizahi 6y ago
  This is exactly the same situation as in IT with "colored bits". Bits don't have color of course, they are just 1 and 0. So when you have a sequence of bits on your storage and it happens to be a sequence legally owned by someone (DRM), what happens? Could you have randomly clicked on a keyboard all day and generate exact same sequence as some corporation is selling for money? Maybe. It is possible. But would court agree with this? No. To the court bits have color, even if they are the same it does matter how they have appeared on your storage and why. And the same exact sequence of bits acquired by different means would be treated differently by the court. So most likely court will force Brigade to return the money, at least I think it is logical to do so.
• voices_carry 6y ago
  I think Citibank should be returned all the money they paid minus the owed regular loan payment. I also have no sympathy for them, and this seems like karmic retribution for how they treated funds, retail investors, and mortgage holders during the financial crisis of 2008.
  • dependenttypes 6y ago
    > how they treated funds, retail investors, and mortgage holders during the financial crisis of 2008. What did they do exactly?
• Animats 6y ago
  Look at the bigger picture. The loan here was probably made originally by Citibank to Revlon, and then the loan was sold to Brigade. That's implied by the expected payment flow - Revlon to Citibank to Brigade. So Citibank was the loan originator, and when they sold the loan, became just the servicer of the loan. That's all quite common. Citibank, by paying off Brigade, effectively bought the loan back. Something Citibank might choose to do under some circumstances, and may have the contractual option do to. If Revlon were not going broke, this would be a non-problem. Revlon still has the obligation to pay Citibank. Citibank would just have another loan on the books, and could hold onto it and collect the payments, or sell it off again. Revlon is in trouble and trying hard to restructure their debt.[1] As a servicer, that wasn't Citibank's problem. Having accidentally bought the loan back, now it is. This will probably all turn on the contract terms. Did Citibank have the option to buy back the loan from Brigade? Details like that. I have a friend at a big law firm who deals with contract law messes like this. She's said that IPOs and startups are fun - everybody is happy and upbeat. In bankruptcies and workouts, everybody hates everybody else. No fun. [1] https://www.bloomberg.com/news/articles/2020-05-04/revlon-wins-approval-for-debt-deal-facing-some-investor-pushback https://www.bloomberg.com/news/articles/2020-05-04/revlon-wi...
  • nutjob2 6y ago
    > effectively bought the loan back Yes, at full price. Meanwhile Revlon debt is trading at a roughly 70% discount on the open market.
• vmception 6y ago
  Okay guys, so now that everyone got their silly irrelevant armchair legal analogies out of the way: What would you like to happen and why?
• fsckboy 6y ago
  IANAL but have anecdotally been involved in similar law to this case where I was told: Courts don't issue injunctions routinely "just to freeze things and be fair till the case plays out"; courts issue injunctions when the court considers that the party who seeks the injunction has a good claim and has every expectation of prevailing. so by that measure, the judge freezing the assets means Citi has a good chance of getting its money back. (also, I looked up Kelly v Solari on wikipedia and the case was from 1841. I don't think English Common Law from after US independence would apply)
  • ary 6y ago
    U.S. law is based on English Common Law. https://en.wikipedia.org/wiki/Common_law#United_States https://en.wikipedia.org/wiki/Common_law#United_States
    • fsckboy 6y ago
      English Common Law prior to the American Revolution. Ongoing developments in UK will not affect American law. The date of the citation is well after that.
  • wnoise 6y ago
    There are levels of precedent. None of it is binding precedent, but courts can and occasionally do look at it as "persuasive precedent", much as courts in different US circuits will.
• binbag 6y ago
  The financial understanding of the comments in this thread worry me.
• m3at 6y ago
  > It can happen for instance when someone pays money to another individual under the mistaken belief he is liable to pay the amount. And in the event, such a transaction does transpire, the law imposes an obligation upon the recipient to pay back the money in full. Can you imagine if a company like TurboTax had to pay back the money they charge people that legally should be able to fill for free?
• seshagiric 6y ago
  I can only pity the poor chap who made the mistake. But then I would also assume such large sums would require multiple signatures/ approvals at Citibank which makes it strange why the error happened.
• ineedasername 6y ago
  It seems particularly salient that, near as I can tell, Citi paid the money out of its own funds, not using Revlon funds it was holding in reserve. In which case it was not paying money that Revlon owed, it was accidentally giving Brigade an amount of its own money equal to what Revlon owe, not even immediately but in the future. If my understanding it correct, it would seem to be Citi's mistake, leaving them on the hook rather than Revlon.
• credit_guy 6y ago
  The Institutional Investor has a few more details on this affair [1]. To me it appears Brigade is acting in bad faith here, based on the information available (I am not in any way connected to any of the actors here, Citi, Brigade, Revlon, or anybody else). Maybe in is as u/woofie11 explains it in this thread [2], that Brigade is doing a cynical calculation of sumproducts of payouts and probabilities, and hoping for a settlement. I wonder if a judge can't hold them in contempt? This would be a deterrent for this type of shenanigans by other bad faith guys in the future. Without any downside, why would anyone not engage in this type of behavior? [1] https://www.institutionalinvestor.com/article/b1mzydxt246pl9/Brigade-Capital-Claims-It-s-Not-Believable-That-Citi-s-900-Million-Transfer-Was-a-Mistake https://www.institutionalinvestor.com/article/b1mzydxt246pl9... [2] https://news.ycombinator.com/item?id=24226365 https://news.ycombinator.com/item?id=24226365
• shajznnckfke 6y ago
  I feel a little suspicious of the story that there were two mistakes here. 1) Citi paid the wrong amount (they paid the full outstanding amount, rather than just the one payment) 2) Citi paid out of the wrong account (Citi’s account instead of Revlon’s account) In particular, I’m suspicious of the second claim. If Citi had paid the correct amount out of this “wrong” account, would anyone have noticed? Is it possible that paying out of account on behalf of clients is actually a normal practice? After finding out that they paid the wrong amount, is it possible that the “wrong account” is a convenient legal cover to make it more likely the payment can be reversed?
• rkagerer 6y ago
  What do you think? I think if someone owes me a sh't-ton of money, I should send someone to go work in their bank and make a serendipitous mistake.
• inshadows 6y ago
  If Brigade Capital held account in Citibank, and the transaction credited this account, could Citibank just revert the transaction (with fingers crossed that no-one noticed)?