Citi official says creditors blew the bank over $ 900 million mistake


Vincent Farrell, Citibank’s lending operations manager in North America, said in a court statement that the bank – which has now recovered around $ 390 million from the accidental $ 900 million transfer – “has met the resistance ”from the outset of some of the defendants when she attempted to recover the funds.

A representative from Brigade Capital Management, when told it was an “urgent matter” and asked if the company would return the money, told Farrell that “the matter was still in progress. under review ”and that he should respond to her, Farrell said in the statement. An HPS Investment Partners employee said he would check with others and report, but never did, Farrell said.

And, “out of the blue,” Symphony Asset Management sent an email asking the bank to stop “harassing” it, he said.

“It was confusing because we had never had the chance to speak to anyone at Symphony and hadn’t received a response to any of our emails,” said Farrell.

‘Processing error’

Asked by a lawyer for the defendants on Wednesday, Farrell called the blunder “a processing error that occurred when the steps required to pay interest solely on this transaction were not carried out.”

The lawsuit is expected to shed light on one of the biggest and most embarrassing banking mistakes in recent memory – a mistake that has already forced Citi to explain its mistake to federal regulators and tighten internal controls. The case is being followed closely on Wall Street, particularly in the syndicated loan sector. A trade group argued that a victory for creditors could expose banks that facilitate wire transfers and serve as administrative agents to unnecessary risk.

Citibank, which acted as the administrative agent for the loan, said it accidentally sent $ 900 million of its own money to the struggling cosmetics company’s creditors on Aug. 11 while trying to pay periodic interest – including to some creditors who had been locked in a battle with Revlon over restructuring its debt.

The bank has sued 10 companies that manage the assets of Revlon’s creditors, including Brigade, HPS and Symphony, who have refused to return funds received by their customers. The companies say the transfers were the exact amount owed to their customers on a 2016 loan to Revlon and that they should be allowed to hold the money.

Defense of “discharge”

They argue that the funds are now theirs as a “value discharge” under a 1991 New York court ruling that a creditor may retain money transferred in error under certain circumstances. Citibank said creditors knew the payment was a mistake, ridiculed the bank for making it, and ordered trustees and custodians to ignore repayment requests.

The wire transfer was sent to 315 Revlon lenders, Farrell said on Wednesday. At the time of the transfer, he said, Citi notified the interest payment on the Revlon term loan. He called the incident a processing error rather than a “big finger error,” the term for a bank or business mess made by pressing the wrong key.

When asked in cross-examination if he could recall a case in his two-decade career in which a payment to Citibank for the full principal amount of a loan was sent by error, Farrell replied that he could not. If that happened, he said, he would wonder what was going on, inquire and expect additional notice explaining such a payment.

And he said he would “return the funds if that’s what I was told to do.”

‘Oh my’

Another Citi official, Vincent Fratta, who served as an “approver” of the transfer, said in a statement filed in court that he was “shocked” to discover the error.

“My first reaction was reflected in a conversation at 9:51 am with Mr Raj,” he said, referring to a contractor in India who had been the “auditor” of the payments.

“Oh my God,” Fratta told Raj, asking, “Did we have proof that the transfers went to the specific lender identified in his email? Did it go to all the lenders? What was the amount of the overpayment? “

Fratta said his intention had been to shift interest payments of around $ 8 million to Revlon lenders and reflect a “non-cash transfer” of nearly $ 900 million to an internal account managed by Citi.

The trial is taking place by videoconference, without a jury, before US District Judge Jesse Furman in Manhattan, who will determine the outcome. It is expected to last around four days and feature testimonials from Citi employees involved in the transfers and representatives of asset managers who have refused to reimburse the payments.

The case is Citibank NA v. Brigade Capital Management, 20-cv-6539, US District Court, Southern District of New York (Manhattan).

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