Oops! Citibank Transferred $500 Million By a Mistake – And They Can’t Get it Back

Ever had a situation where you transferred money to the wrong person through PayPal, your bank, or some other means? Well, Citibank did this and they found out now that they cannot get that $500 million back. Here’s the story.

Citibank Made a $500 Million Transfer Mistake and They Can’t Get It Back

What Happened?

This all started last year when Citi was making a transfer for the interest on a loan on behalf of Revlon (Citi was their agent). The amount was supposed to be for $8 million to the lenders. Somehow or another, a mistake was made, that was not found out until the next day, to the tune of $900 million! Included in that monster sum was the original $8 million in interest and $175 million to a hedge fund.

How Did it Happen?

And how did it happen? Citi had security procedure in place – “six eyes” – that required three individuals to approve such a transaction but this didn’t happen that day because a contractor checked the wrong box on some digital payment form. This according to the NY Times. This all happened and then, in October, the Office of the Comptroller of Currency fined Citibank $400 million for “deficiencies in enterprise-wide risk management, compliance risk management, data governance, and internal controls.”

What is Happening Now and Why Can’t They Get it Back?

While Citi was able to get back $400 million from that error, $500 million is still in the hands of 10 firms who hold the loans for Revlon. In fact, they claim that the amount transferred (the $500 million) was the exact amount that was owed to them. Somehow, they just thought that Citi wanted to pay it all back early (which I find surprising that financial professionals would think that the bank would want to pay it all back that quickly). Based on the amount of interest payments and the total amount paid back, it seems that there was still a lot of time left on this loan.

So, how is it that Citi does not get the money back? According to CNN, there is a defense known as the “discharge-for-value-defense” which means that, when a mistake like this is made, if the receiver is owed the money and they did not know it was an accident, they can keep the money.

It was on the lenders to show that they did not think it was a mistake to be able to keep the money and the judge believed the evidence that they presented, including these internal chats from employees at one of the lending companies, HPS Investment Partners. This chat took place the day after the mistake occurred:

DFREY5: I feel really bad for the person that fat fingered a $900mm erroneous payment. Not a great career move . . . .

JRABINOWIT12: certainly looks like they’ll be looking for new people for their Ops group

DFREY5: How was work today honey? It was ok, except I accidentally sent $900mm out to people who weren’t supposed to have it

DFREY5: Downside of work from home. maybe the dog hit the keyboard

Again, according to Forbes, this is open for an appeal which means that the money is to be kept frozen until the appeal is heard. If the companies win the appeal as well, they made out very well in this instance since they get all their interest from the loan as well as the money ahead of time to reinvest. Citi, on the other hand, would definitely not be feeling that good.

I have to ask, anyone feel bad for Citi making a mistake like this? Or have you been on the other side of a mistake and Citi was not quick to help you? 🙂