Judge rules Citigroup not entitled to return of mistaken Revlon transfer

U.S. District Judge Jesse Furman ruled that Citigroup Inc. is not entitled to the return of money the bank erroneously wired to lenders of Revlon Inc. under the "discharge-for-value defense," according to a filing with the U.S. District Court for the Southern District of New York.

Citigroup wired over $900 million to the retailer's lenders, an amount that totaled Revlon's principal and interest owed on the loan. Citibank NA was meant to wire only $7.8 million in interest payments to the lenders.

Under the discharge-for-value defense, the recipient of the funds is allowed to keep them if they discharge a valid debt, the recipient made no misrepresentations to induce the payment and the recipient did not have notice of the mistake. The court found that the 10 investment advisory firms managing entities that received more than $500 million of the mistaken Aug. 11, 2020, wire transfers from Citibank are entitled to keep the money.

"Taken together, the evidence shows that the entities believed — in good faith and with ample justification — that the payments they received were prepayments in full of the Revlon loan," Furman wrote. "The real explanation for the payments — a banking error of perhaps unprecedented nature and magnitude — understandably did not occur to them until, nearly a day later, Citibank itself realized the error and sent notices demanding the money back."

Regulators fined Citigroup $400 million in October 2020 over "longstanding deficiencies" in its risk management and internal controls. CFO Mark Mason said in September 2020 the company planned to spend more than $1 billion to improve its controls and operational infrastructure.

Citigroup did not respond to a request for comment on the ruling. In its Form 10-Q filed Nov. 4, 2020, Citigroup said it had not recognized any impairment related to the contested $500 million "because it does not believe a loss is probable."