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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

• 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.