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Citibank’s $500 Million Mistake

Imagine waking up one morning and you have $500 million in your bank account because someone sent it to you by mistake. Would you keep the money or send the money back? Well, before you start adding all the things you want to the shopping cart, hear the story first: Citibank was Revlon’s loan agent, and Citibank meant to send about $8 million in interest payments to the cosmetic company’s lenders. However, Citibank mistakenly wired around $800 million including $175 million to a hedge fund– over $900 million in total and orders of magnitude larger than the intended $8 million payment.

Although some lenders returned the money to Citi, others did not. Citibank could not get $500 million from other investment companies after the erroneous transfer. But don’t get any ideas just yet, this doesn’t mean that you can keep any accidentally wired funds. There is a common law doctrine called “unjust enrichment” which generally obligates that a recipient of money wired by mistake is required to return the money to the sender, and if the receiver failed to send the money back, they would face criminal charges. What makes Citi’s case unique is that even when Citi sued all the companies that kept the money, Citi did not win. This was because of an exception called the “discharge-for-value” rule, which allows “the recipient to keep funds accidentally wired to them if the mistakenly transferred money was unprompted, relieves a valid debt, and the recipient wasn’t aware the payment was made in error”(Goodwin, 2021). To put it concisely, if a third party sends money to a creditor mistakenly, the creditor can keep the funds if there is a debt owed. Revlon lenders claimed that they believed the transfers from Citibank were prepayments for an outstanding loan, and they don’t have to pay off the loan until 2023. Hence, the judge ruled that the lenders don’t have to send the money back to Citi. Citi, of course, is not satisfied with the adjudication, and it intends to appeal the decision.

Now I think the lenders should send the money back because it is likely there is no guarantee that something similar would not happen in the future, so banks would want to work with the lenders that are more cooperative. Therefore, the lenders should give the money back even just to maintain their reputations. 

Yuhong Li- Feb 21, 2021

Sources:

Goodwin, J. (2021, February 19). Citi made a $500 million Mistake. Here’s how that would play out for regular people. Retrieved February 21, 2021, from https://www.cnn.com/2021/02/18/business/citigroup-revlon-lawsuit/index.html#:~:text=That%20exception%2C%20called%20the%20discharge,payment%20was%20made%20in%20error.

Maruf, R. (2021, February 17). Citibank can’t get back $500 million it wired by mistake, judge rules. Retrieved February 21, 2021, from https://www.cnn.com/2021/02/16/business/citibank-revlon-lawsuit-ruling/index.html

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