Court Refuses Citibank’s Request for a $900 Million Mulligan

Matt Levine provides on Bloomberg the tl;dr version of Judge Furman’s 105 page ruling in In re Citibank August 2020 Wire Transfers. I will simplify even further.  

Citibank mistakenly sent $900 million in wire transfers to a bunch of entities that were lenders on a Revlon loan that Citibank was administering.  That loan was about to be aggressively restructured, and the lenders that Citibank paid were going to end up with subordinated debt.  They were just about to file suit to challenge the restructuring when the payments came.  Some lenders returned the money.  Others were happy, and they were only happier when Citibank told them that the payments were erroneous and asked that they be returned.  “Go pound sand” or words to that effect. 

Matt Levine’s article delights in the hilarious details of the nightmarishly counter-intuitive software system that caused Citibank’s mistake:

Citi’s software will only let you pay principal to some lenders if you pretend to pay it to every lender, and it will only let you pretend to pay principal to every lender if you check the “just pretend” box next to “PRINCIPAL” (fine!) and “FUND” (what?) and “FRONT” (what even?). What a terrifying thing. 

It should surprise nobody that, as a general matter, if you send money to the wrong person, you can get it back.  However, under the discharge-for-value rule, typically illustrated in the Banque Worms case, the recipient can keep money it was actually owed, even if the sender did not intend to pay or did not intend to pay yet.  If the recipient knew of the mistake, the discharge-for-value rule will not apply, but the lenders here had no reason to suspect a mistake.

When Citibank asked for its money back, the lenders clearly were put on notice of the mistake, and they chortled and sent each other witticisms about how somebody at Citibank was going to have to update their resume.  The timing of that response was telling, however, and fatal for Citibank.  We know exactly when the lenders learned of the mistake, and it was too late for Citibank to avail itself of the exception to the discharge for value rule.

It seems that Citibank accidentally loaned Revlon $500 million, and Matt Levine’s research suggests that the debt is currently valued at 42 cents on the dollar.  It’s not a great day for Citibank, but it’s also not the end of the world.  It’s had worse days.  And perhaps it got off easy.  Now it knows that it has an impossible problem with its software system.  Perhaps it can address that, but before it does so, I’ve got to figure out a way to lend some money to a company whose loan is administered by Citibank.