Citibank will not be able to rectify one of the biggest blunders in banking history, a US District judge has ruled. The error was an accidental transfer of $900 million by Citibank to lenders of Revlon, a cosmetics company. In the transaction, Citibank was acting as an agent of Revlon. It was supposed to send $8 million in interest payments to lenders of Revlon. But accidentally, it sent an amount that was more than 100 times the original amount.
In August 2020, Citibank filed a lawsuit seeking a return of its money. However, around 10 investment advisory firms have still not returned $500 million of the accidental transfer. The law around the spending of funds received from accidental transfers is usually strict. A Pennsylvania couple has been hit with felony charges for spending money that they had received by mistake. However, New York has an exception to this law and allows for a “discharge-for-value-defense.” The defense allows a beneficiary to keep the money received from an accidental transfer if they are entitled to the money, and they were not aware that it was an unintentional transfer. Revlon’s lenders used this defense as they thought that Citibank was sending the amount as prepayments for a loan that the bank owed them. The judge agreed with the lender’s argument and ruled that Citibank, “a highly sophisticated financial institution,” could not have made this transfer by mistake, and to believe that it was a mistake would be “borderline irrational.”