Citibank's $900M Blunder | Hacker News Reader

Citibank's $900M Blunder

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348 pointssuperasn292 comments

I fail to see all of the defense of Brigade that is happening here. Arguments that "Well Revlon owned them the money, they just through it was a prepayment" seems like a gross simplification of the situation. A prepayment of this magnitude would never happen without some sort of other communication.

Further, as far as I know, Brigade was not owed $175M. There was a debt for that amount, but at the time the payment was made, they were only owed what was specified in the payment plan/agreement, which would have been the $1.5M. Just because they were also owed more money in the future, does not mean that it was owed now.

As a "down to earth" example, my employer will owe me more money in the future, according to the terms of my employment. But on September 1st, they will only owe me my bi-monthly paycheck.

If they over-pay me, and deposit a full years worth of my salary into my account, it is not reasonable for me to say "Oh, I guess they chose to prepay me for a year! Awesome." Your employer will take that over-payment back, and if you fight it, you will lose.

Except you haven't provided the work for the next year yet. Brigade did provide the "work" in the form of the money they had already lent out.

As far as the debtor, to whom Brigade "provided work", is concerned no payment was intended to have been made. It was a mistake committed by the bank. From a news article cited in the post:

> “Revlon did not pay down the loan or any part of the loan,” a representative for [Revlon] said in an emailed statement.

https://theprint.in/economy/citigroup-accidentally-wired-900...

Maybe Revlon was planning on getting a lower interest rate loan. And that loan fell through at the last moment, and now they're claiming it was a mistake?

1) If you're refinancing a loan, you do not pay off the old one until you have the new one. This is not only common sense, but typically before you get the new loan, you don't have funds to pay off the old one even if you wanted to.

2) Revlon did not make this payment. The payment was made in error by Citibank, and Revlon was not part of it.

The conjecture of "Revlon made a bad decision and is now trying to back-track", while technically _possible_ sounds like a conspiracy theory.

Your employer analogy doesn't hold up because you have not yet tendered the services to your employer for which they would be indebted to you in the future.

A better a analogy would be your mortgage, which is in fact a debt you owe in full, a payment schedule notwithstanding.

Brigade did not provide their service either. A lender provides the service of lending money over a certain amount of time. This money is like a contractor paid by the hour, working at the borrower's service. Brigade should not be entitled to having that money back until that time has either elapsed or the borrower decides to alter the payments.

Another comparison would be me giving my wallet to a friend to buy something, then the wallet falls from his pocket into my landlord's hands, who declares this must be my next payment for rent. This does not sound fair.

this second example seems like a better analogy for the situation

> Brigade did not provide their service either. A lender provides the service of lending money over a certain amount of time. This money is like a contractor paid by the hour, working at the borrower's service. Brigade should not be entitled to having that money back until that time has either elapsed or the borrower decides to alter the payments.

That's not true. For comparison, many times a mortgage lender can call the loan at any time. The service of Brigade loaning the money had already happened.

> Another comparison would be me giving my wallet to a friend to buy something, then the wallet falls from his pocket into my landlord's hands, who declares this must be my next payment for rent. This does not sound fair.

A better comparison would be if your bank mailed a check every month to your mortgage lender, then suddenly sent a check for the exact remaining balance plus interest accrued.

Except the loan was paid including all interest for the lifetime of the loan. If you prepaid your mortgage that way, even on purpose, your bank would owe you a good portion of your money back.

I don't understand. You're saying if I decided to pay off my mortgage all at once, my bank would "owe" me my payoff check?

I think op is implying the difference in non-accrued interest. IE your payment at that point would be all principle, thus negating the loan and incurring over payment.

If you calculate all the money you will put into your mortgage loan over time, add it all up, and write a check for that amount, it will be more that your principal balance because of interest.

Interest accrues on a monthly basis, so if you pay it off now you won't accrue the interest on an ongoing basis.

In other words - over the life of the loan/mortgage you will pay $X in principal and $Y in interest. If you suddenly pay the whole thing back, then $Y becomes much smaller. So if you paid $X + $Y in a lump sum then you would receive some money back, is what they are saying. Because you have overpaid on the interest, because that interest never accrued.

(not sure whether in this case Citibank paid the full sum of the principal or expected interest or not, but yes, if you did that on your mortgage then you would be entitled to receive some money back)

That is incorrect - I would actually owe my bank an additional prepayment penalty, according to my mortgage structure.

I think gp meant prepayment including all future interest, which would more than cover prepayment fees.

High-lvl: prepayment fees is roughly equal to interest owed minus alternative interest options the bank has (eg someone else’s mortgage). Disclaimer: Dutch perspective.

What? Every time I try to learn what a mortgage is it seems more like a scam. The only thing a bank should say to paying more is "thank you".

Still cheaper than renting.

As I understand it, the logic is the bank is expecting to make a good deal of money over the life of the loan in interest. Prepaying reduces that profit, so they penalize you to discourage that behavior. Note that not all mortgages have that penalty (mine doesn't).

As with most financial things it depends on location and time and specific conditions.

Generally, its been illegal since 2014 nationwide to have a prepay penalty. In my state its been illegal as long as I've had a mortgage. In some weird but possible conditions its possible post-2014 to have a prepayment fee at the national level for a normal residential mortgage.

You'll see all kinds of random dates at the national level. From what I understand the 2010 Dodd-Frank act was the enabling legislation, the new rules came out in 2013, and went into effect in early 2014, but its all the same issue.

It depends on the conditions of the loan as well. I don’t believe any VA-backed loan can be assessed pre-payment penalties

While it may not be an explicit penalty at time of prepayment, the risk of losing revenue due to prepayment/refinancing if interest rates drop is definitely modeled priced into the terms of the loan, just as the risk of you going bankrupt and not being able to pay is.

A mortgage is a scam because the richer person (the bank) can scam the poorer person (you) simply because they have the money to scam you.

And you will take it because where else are you going to get the money?

And renting is a scam because the richer person (landlord) can scam the poorer person (you) simply because they have the money to scam you.

And you will take it because where else are you going to live?

If you look at things this way, everything is a scam.

It's a bit complicated financially and the details vary based on fixed vs variable terms but I'll try to offer a simplified example of why pre-payment penalties exist.

Imagine I go to a bank today and take out a $100,000 mortgage on my house at a fixed rate of 2% (yeah - that's 2020) on a 5-year term[0] with a 25-year amortization.

The bank gives me that $100,000 cash today on the expectation that they will get it back with 5 years of interest (calculation is a bit complex but should work out to just over $9k over the 5 years).

We could keep it simple and say that once you've agreed to pay a bank $9k in profit, they are in the business of making sure they get that profit. Repaying any amount of the debt ahead of schedule does not exempt you from paying that anticipated profit.

In the banks' defence, the details are a little more complicated in practice. Banks rarely lend out their own money. When I take out this mortgage, the bank just issues a $100,000 bond to an investor. The bank presumably guarantees the bond so the risk to the investor is less than the mortgage itself and, so, the bond has a lower interest rate - say 0.5%. The difference in interest rates is the actual profit to the bank.

Bonds have a couple characteristics: a) they are fixed-term (in this case, 5 years); and b) payout of both interest and principal is guaranteed (by the bank)

So if you decide to pay back your mortgage (or some amount) ahead of schedule, the bank still has to pay out their bond commitments and that money needs to come from somewhere. And the bank isn't gonna front it. Depending on markets and current interest rates, the bank may be able to re-use that bond on someone else's mortgage so your penalty may be reduced in some cases.

[0] These shorter-than-amortization terms are a thing here in Canada. Not sure if it works the same in other countries.

In the UK we commonly have 2 to 5 year fixed interest rates on a 25 year mortgage, with the remaining years at a variable base rate + X%.

I think this achieves a similar result, as anyone who leaves their mortgage unchanged beyond the fixed rate period almost always ends up on a punitive rate.

I don’t think you understand how banks earn money. People deposit funds which they then loan to others. The interest they get from the debtors is more then the interest they pay depositors. If everyone repaid their mortgage early they have no profit, so they need to cover themselves for that. They aren’t charities.

If you have GOOD mortgage terms, (1) any prepayment should go to PRINCIPAL and (2)there should be NO prepayment penalty.

(1)is sacred. If you don’t have (1), you are a noob.

(2)is sometimes bargained away to get a lower interest rate, often, in the form of lower points. Once again, if you have a prepayment penalty without a demonstratable financial consideration, you are a noob.

Don’t be offended, we are all noobs at one time or another. Banks are not educational institutions. Indeed, universities themselves are quite unforthcoming about the opportunity costs and ROI of their own products.

And the bank does get the interest, for the duration for which the money is not in their hands. A "pre-payment penalty" sounds to me like the bank asking you for money while they themselves can then also turn around and loan that (now repaid, with penalty!) money out to another person desiring a loan, and get even more profit.

> The interest they get from the debtors is more then the interest they pay depositors.

The interest paid to most accounts these days is a pittance, adding less back than is lost to inflation, and many accounts have additional fees.

I don't believe it's all that common. Most mortgages can't even have prepayment penalties, or can only have them during the first few years of the contract.

That depends on the bank and loan. My mortgage, for example, doesn’t include a prepayment penalty.

The prepayment penalty is instead of the interest they were expecting, not on top of it.

That is highly specific to your own agreement, and such penalties are usually only for the first 3-5 years. For myself, I have always negotiated 0 prepayment penalties.

You must have a very old loan or not be in the US, because prepayment penalties aren't legal anymore on US residential loans. Also, what I mean was paying all the interest for the lifetime of the loan. That would be significantly more than the principal balance and prepayment penalty.

Your "employer" argument is specious.

A more apt example is mortgage. I just prepaid my mortgage recently (as a part of refi), but it is the exact same situation: instead of making interest payments, I chose to just pay everything that was owed at once.

Maybe Revlon was thinking of getting a much cheaper (low interest) loan than what it had obtained from Brigade?

You must contact the bank first to do that, or use an automated system of theirs, but you can’t just drop the money in their account.

Yes they are being disingenuous with their comment (and commenting on every thread here with their comparison).

They sent a check with their account number to an address specifically set up to receive mortgage payments.

https://www.wellsfargo.com/mortgage/manage-account/payments

I’m failing to see how that is a disingenuous argument?

I don't know about the case details, but Brigate might argue that Citibank paid Revlon's debt. There is nothing stopping you from clearing someone else's debt. It is as easy as doing a bank transfer.

Unjust enrichment argument would be much stronger if Citibank did not have any involvement with the parties. For example if I send my money to an account numbered 100001 but I intended to send it to 1000011, I could argue that I don't know the account holder 100001 and I sent the money by mistake.

Classical contract law is a byzantine beast, and it does not take mistakes lightly. Brigade might have thought that they secured an interest-free loan and want to use it. This would undermine Brigade's credibility and completely mess with their relationship with Citibank. But they might have thought what the hell, we get free financing.

They also might be holding this as leverage against Citibank, if Citibank needs those funds urgently, they'll have to settle.

> There is nothing stopping you from clearing someone else's debt.

But Citibank was not "someone else". Citibank was Revlon's banker.

Imagine if you used BankOfAmerica to pay off your credit card bills monthly. Now imagine that you owe your CC a large amount, but are paying it off month-by-month (using BoA, as always). One month, BoA takes all of the owed money out of your account and sends it to you CC company, thereby paying off your CC debt. How is the CC to know whether you meant it or not?

But they didn’t take the money out of Revlon’s account. They just paid it from their own funds.

That's irrelevant here. "Money" is just bits in some DB. The point is, BoA sent money to the CC company, like they always do. How is the CC company to know where the money originated from?

Because they were told by BoA?

The same way you'd know your employer overpayed if your monthly deposit somehow skyrocketed by 10 times. No you didn't get a 10x raise, there was a mistake somewhere down the line.

Also, they know simply because BoA told them immediately. I can't believe people advocating what is clearly stealing.

"Revlon was expected to transfer a few million dollars to some of its lenders." - Brigade was owed money, and while Brigade must return funds in excess of the loan, it can't be forced to reloan the money - Citgroup would have to cure by pulling out their own checkbook to loan Revlon.

Let me walk you through how this plays out.

Lawyers from Brigade and Citibank calculate Brigade's odds of winning. Let's say both sides agree it's 5%. That means the expect returns on litigating this are $8.75 million to Brigade. The cost of litigation is $2 million. The two sides discuss. They settle for anywhere between $6.75 and $10.75 million, depending on who negotiates better. That's where neither side wants to litigate.

For being a little bit douchey, Brigade walks out a few million ahead.

If sides can't agree (e.g. Citibank lawyers estimates 1% odds of winning and Brigade 10% odds), they go to court. But 9 times out of 10, it's a settlement like that.

What complicates things, and makes it more interesting, is the precarious state of Revlon.

If they declare bankruptcy and restructure the obligations while the case is pending, Brigade would have been forced to take a loss on the loan. If they try to argue for the money as repayment for the debt, a bankruptcy court could claw back the money and redistribute according to the capital structure (akin to what happened during the Madoff resolution)

So while this dispute is ongoing, Revlon has an extra 175M of someone else's money that could be brought into play during their bankruptcy- so they actually have an incentive to declare early?

What’s the upside for Revlon in this case? I don’t think the upside outweighs the downside unless the bankruptcy is inevitable

It seems like that perhaps makes it more likely everyone will want to settle quickly. Settlement money shouldn't be subject to a clawback, so Revlon comes out ahead. And a clawback doesn't help Citi either -- they're out the full sum. At that point, Citi's money flows to help Revlon's creditors.

What's even more interesting is that you're right that a clawback like that might actually happen. In theory, justice is blind. In practice, lots of courts exercise deep justice jurisprudence, and it's hard to argue Citi should get its money before Revlon's employees or similarly worthy parties.

That actually plays to Brigade's benefit slightly, I think. If this risk is there, Citi will definitely want to settle quickly.

As I understand the situation from the article, Revlon is not a party to the case. It is therefore irrelevant if Revlon becomes bankrupt. Clawback provisions would not extend to a transaction between Brigade and CitiBank. IANAL

Finders keepers is actually a pretty strong argument in a case such as this.

For instance, years ago, I had a business account of mine attached because an employee with signatory privileges had a garnishment against him.

The judge ruled that since the lender that seized the money already had it, and I couldn't prove that the money wasn't absolutely, definitely not the property of the signatory (who was not an owner), we could split the money.

That's not at all appliable to this situation. If Brigade had a Due For No Reason clause, they could have called the loan in at any time, just like a bank calling a mortgage due at any time.

Even without such a clause, Brigade is owed the entire pricipal and all accrued interest, which is exactly what was paid. There was a payment plan, but that doesn't affect the actual amount owed.

This literally was a prepayment. The question is whether this was accidental or not.

I do know that if I write a bigger-than-monthly-payment check to my bank they reduce the principal by that amount -- mortgage lenders are required by law to offer this prepayment option. I don't know if I called them up and said that I did it by mistake whether they would refund me and mark the principal back up.

There's a lot of comments in here saying that it was the amount Brigade was owed so they probably just thought it was prepayment. There is no chance on earth prepayment of a loan was made without any sort of communication beforehand. Brigade very well knows that they weren't supposed to receive the $ (at this point in time) but it's a cheaper option to take this to court and potentially keep the money (low probability event) than give it back and see a potentially much smaller sum in restructuring (high probability event).

Anyone familiar with distressed situations knows that these things are knife fights so this kind of behavior is not surprising. Brigade is big enough that banks aren't going to refuse to do business with them because of something like this.

Not only that, but it’s citi’s money, not revlons. It’s revlons debt, not citi’s. In my mind, it’s as simple as that.

And I better hope the court thinks like this as well, otherwise the whole legal safety net of the banking world just became more like Bitcoin (and even they can just fork the whole blockchain in case of an error, like they did with Ethereum).

Right, but under the definition of Unjust Enrichment as laid out in the article, it requires both a mistake + not being liable to pay.

So there's a difference between "whoops I paid money to the wrong person" and "whoops I prepaid my loan back in full", which is that the latter fails to satisfy one of the two criteria of unjust-ness.

Perhaps there's more nuance in the legal definition that this article missed, though.

Citibank is not liable to pay Brigade. The fact that someone is liable to pay Brigade does not entitle them to Citibank's money.

Bank error in your favour. Collect $175mm.

And hold onto it for dear life while the bank attempts to reclaim it when they realise their error.

Citibank has agreed to be the paying agent for the borrower. Literally every other payment received from the borrower came from citibank. Those checks can and should be cashed.

Similarly, the company servicing your mortgage may not own it. Doesn't matter, if you pay to them they need to reduce the mortgage balance (even though you didn't owe them specifically the money) and then carry out their responsibilities with lender.

That’s a technicality. In the case of a loan payment, it isn’t Citibank’s money they are wiring, so you cannot just say “this was a loan payment, it’s just they keep it”.

Of course it’s acceptable that this caused confusion with the receiving party, but it does not mean they can keep it. It’s not the money from the party that was supposed to pay back the loan.

Citibank literally did make a loan payment - of the exact amount due in principal plus interest. That means that Citibank calculated the amount due, and sent the payment.

It can mean a computer calculated that (like some dashboard with multiple buttons and one that says “pay everything” which was accidentally pressed) and it did not take any conscious action for that to happen, so that doesn’t say anything about intent.

This isn't going to be decided on some theoretical dashboard with a "pay everything" button but on something more concrete.

Please cite a law here. The money was owed, it may have been distressed and in default (so due immediately) the balance was paid.

Seriously, no lender is responsible for investigating at the level you are talking about - seriously, they do not need to figure out if you used your own money, the paying agent used their money, a title company paid out a title claim and used their money, an insurance company settled the debt as a result of a loss event etc.

Paying agents in other areas (securities / bonds) pay trillions a year - the system would not work if everyone was always having to worry that the "good funds" being used to pay debts were not good funds.

I would think facilitating payment would only leave you liable for the amount given to you to transfer, not the amount of your assets that total the amount of debt between the parties you are facilitating for.

If Alice owes Bob $500, and I've agreed to take Alice's $5 bill to Bob, and I accidentally give Bob my own $500 bill, Bob doesn't get to keep it. The liability I took on in that transaction is for the amount of money I accepted from Alice for the purpose of delivering to Bob, not Alice's total debt.

That doesn’t seem relevant to me. If you and I both have accounts at a particular bank and they draw from yours instead of mine, generally I’d expect the bank to take the money from me and give it to you to right the situation. However, are you just SOL if I don’t have the cash to make you whole again? Just because we both use the same bank?

but, Citibank IS liable to pay Brigade, on behalf of Revlon.

that is how loan servicing works.

No, I don't believe it is. The loan servicer for my mortgage is not liable to pay it on my behalf. If they accidentally transferred money to the bond holders for the loan, they would of course be able to retrieve it. I would be shocked if this is not reversed in court, unless there are some significant missing details from the story.

It's not as specious as you believe. Your bank can almost certainly call your mortgage loan at any time. From the other side, prepayment of a loan, even without communication, happens all the time.

In the US at least mortgage loans are not callable.

Most mortgages in the US contain a provision that allows the lender to call the loan under certain conditions.

It's been a while since I read my mortgage note, but I believe the only condition under which it is callable is a default. Unless I've misunderstood what callable means in this context.

You've got the right of what callable means. After researching more about this, I have learned that some mortgages also have additional callable acceleration provisions to lower the bank's risk - such as when a borrower's credit score falls.

Everything you say is correct if it was Revlon's money, but it wasn't. So even if Brigade delay long enough for a restructuring, Brigade still won't be able to keep the money. They are independent events: 1) unjust enrichment is Citibank vs. Brigade. 2) restructuring is Brigade vs. Revlon's other creditors/investors.

Per the article you're over-simplifying what is going on, to the point of making it seem clearer cut than it actually is.

Citibank actually has a business relationship with Brigade Capital, they're Brigade's contractor essentially, and they essentially COULD owe Brigade money themselves via this arrangement:

> As the administrator of the gargantuan arrangement, it was incumbent on Citibank to collect payments from Revlon and transfer it to the lenders, including Brigade Capital. The company was expected to transfer $1.5 million in interest payments to the hedge fund a few days back.

Brigade are claiming that his is Citibank paying money they owe, and has nothing to do with Revlon.

PS - I think Brigade will ultimately lose the court case. I think their arguments are easily unwound, but I suspect the court case will take a while because the argument isn't as black/white as it may first appear, there's actually a three-way relationship here.

> Brigade still won't be able to keep the money.

What about the interest accrued from keeping the money for a time?

That's probably why the courts agreed to freeze the funds completely.

I missed that very obvious point, thanks.

Yes, they are independent events involving different parties but that does not matter for Brigade's purpose. By making the incorrect payment, there is a non-zero chance that Brigade will have 175mm that previously did not exist. If they are able to keep that money, all else equal, their position as a creditor is unaffected but they've effectively cashed out a portion of their position ahead of other creditors. I don't think it's likely that they will be able to keep the money but their returns change quite a bit if they're able to.

> There is no chance on earth prepayment of a loan was made without any sort of communication beforehand.

I just paid off my mortgage recently. The lender (Wells Fargo) had absolutely no clue I was doing that. I never told them, and I never took permissions from them. They just got a check for the outstanding amount. Mortgage closed.

What's your point? This isn't a mortgage. Mortgages are much more standardized and don't involve as many parties. Everyone involved with a corporate loan is going to want to have a discussion if there are unscheduled prepayments made. Even more so given that this is a distressed situation.

So you just placed a check in an envelope and mailed it to the bank with no other documents? What did you write in the "memo" field on the check?

Edit: looking into WF's website below, you sent a check with your account number to an address specifically set up to receive mortgage payments—you are being disingenuous with your "comparison".

https://www.wellsfargo.com/mortgage/manage-account/payments

They didn't claim to send an anonymous check - they were responding to the idea that you need pre-clearance to overpay.

I imagine there is somewhat more formality around payments of 175MM than there is for 175K.

> There is no chance on earth prepayment of a loan was made without any sort of communication beforehand

Surely this is a contract detail? I had a variable mortgage, if I wanted to make an over-payment I just paid the money into the account, no communication needed.

I’m struggling a little on the details. Citi paid 900mm to lenders of which only 175mm went to Brigade.

Things I’d like to know:

-Who got the other amount and Did they return it?

-The 900mm mistake is actually several mistakes not just 1 simple typo? How is that possible.

As for wrapping my head around this. It’s a total debt of 1.5bn. Let’s drop some zeros and see how we think of it. Let’s say 15k credit card with AMEX. I owe 150 in interest but instead I send 1,500. Would they refund the mistake? Let’s go ahead and follow the headline and say I paid 9k of my 15k balance. Would they refund the mistake? (Honest question) This scenario is at the consumer level and zeros matter but I see sloppiness somewhere in Citi and their dealing with money when it’s specifically what they are trusted to do. As for the “loss”...

Let’s consider how this should likely play. The loss here of Citi isn’t materially that they lose the money. It would get rolled into a loan to Revlon at the same rates. Revlon still has to pay it, just Citi has to float the time. The material loss to Citi should be near zero - they could even sell the loan at a slight loss to get it off their plate. Oops we sent 900mm to you... Now we are the loan holder. They end up with money tied up and should Revlon go to bankruptcy then they will realize this loss.

Stats -Citi has a 100bn market cap.

-They have currently 685bn in loans outstanding to borrowers.

-currently holding 26.4bn for credit losses for pandemic.

https://www.citigroup.com/citi/news/2020/second-quarter-2020...

The only news I really see here is how Citi ops let an unexpected amount get sent without proper authorizations.

Maybe it's like that Hawaii mistake, the "pay installments" button was right next to the "repay full loan" button.

Also, that it now happened to 900M means it has probably happened before to smaller loans before, I bet there's some sort of law about that.

Some of the earlier articles about this mentioned that Revlon is struggling and that the creditors were worried about getting paid back for the loan.

This seems like a really bad loan to service.

> The 900mm mistake is actually several mistakes not just 1 simple typo? How is that possible.

They probably repaid all lenders that are customers of Citibank and that took part in the $1.8 billion loan to Revlon. Maybe one button to "close" the loan? :)

Let's take your example and just call it a $150k small business loan instead, since most small businesses will just be making the minimum interest payment, not really trying to pay it off quickly, where I could see a regular person throwing money at half their credit card debt after selling their car or something.

People need to get out of the idea that just because something or someone has extra 0s in their account, that they should be more liable for things. Mistakes can happen at all levels, if society intends to build fair and equitable environments, it needs to stop looking at group A or group B differently. Don't forget that if there is an undue burden to be 100% all of the time, it will be priced into the offering at some point, leading the end user to foot the bill.

> People need to get out of the idea that just because something or someone has extra 0s in their account, that they should be more liable for things.

Perhaps. The thing to note is that if someone loses a lot of money, they are treated far better in terms of societal resouces (courts, judges, police time etc.) than those who lose small amounts, even though if the system was fair all losses would be treated equally.

For example: if you tell the police you’ve had $500 in damage done to your car, they may get as far as filing a report but nothing else will usually happen. If a company has $500 million in property damage done, there will be an enormous investigation and the DA will be actively involved etc.

In other words, group A and group B are already looked at differently.

If you're employer sent you 10x your monthly salary, you would be expected to return 9 of those x's. Not just "great, don't pay me again for 9 more months, let's hope I don't quit before then lol".

Right, but that's because I'm not owed 10x my monthly salary.

Yes, you are, just not yet, exactly like revlon/brigade.

No, you aren't. Unless he was on contract for the year, the salary for the rest of the year won't be paid in full if the employee leaves or is fired, for example.

A loan is the opposite.

You may not be required to pay the full loan if your company goes bankrupt. A loan is a series of scheduled payments which are likely but not guaranteed to happen.

Sorry to be blunt but... you're sort of wrong twice:

* EVEN IF he has a contract for the year, there would still be 1001 things that might happen between then and now that mean he isn't actually due payment (company bankruptcy, his death etc). That's why he cannot keep the money.

* And that is exactly the same position that Revlon\Brigade are in: Brigade are no more SURE they will get paid or that Revlon will even be legally required to pay them...

There’s a difference between obligation and payment terms.

I undoubtedly owe my mortgage lender for the full amount of the loan on my house. I can choose whether to just pay the monthly payment, or I can pay more at any time, up to the full outstanding principal. If I send my lender a bigger check, they’ll gladly cash it and apply it to the principal, and I don’t think I’d have any luck in asking for the money back. It’s implicit with most loans that the borrower can pre-pay ahead of the payment schedule at any time.

For my salary, my employer’s obligation is only for the past two weeks of work. Any overpayment on their part would be due back to them immediately.

I'm pretty sure if you could show that your bank made a mistake and transferred them 10x your mortgage payment, that they would give it back.

Probably. However if you pay off your mortgage by accident, they won't just give you back the money. They might also be uninterested in giving you a new mortgage if you are already declaring bankruptcy.

This actually happened to me, albeit more like 2.5x instead of 10x. I was told it was easier to take it out of my future salary, so that is what was done. The most annoying thing was trying to work out what I'd be paid the third month after taxes as we're taxed at source in the UK

I've always had it the other way with New jobs: "whoops, we screwed up and didn't pay you, maybe we'll get to it next month lols."

Yeah. I remember having the same issue, especially at places where they only pay people monthly l, in arrears, so sometimes it can take more than eight weeks after starting work to get a first paycheck.

Why do people keep confusing this with employment? This is like a mortgage! It was a loan that Brigade gave to Revlon. It's not like Brigade was doing work for Revlon.

It's all the same really: If your bank screwed up and 10x paid your mortgage, would you be happy to just stump up that cash or would you expect the error to be reversed? Is it reasonable for you to have 10 mortgage payments just sat around or would that payment cause you massive problems as you would have no money at all for food or fuel or taxes for quite a while?

I think this is a bit of a jump

> Let’s consider how this should likely play. The loss here of Citi isn’t materially that they lose the money. It would get rolled into a loan to Revlon at the same rates. Revlon still has to pay it, just Citi has to float the time.

Neither Citi or Revlon have agreed to lend/borrow money from each other. Citi isn’t party to any of the loans Revlon has taken out (other than as a financial administrator). So why would Citi suddenly just taken on this loan to Revlon?

It would like if your bank accidentally paid off your credit card (we’ll ignore how that might actually happen). You wouldn’t suddenly have a loan agreement with your bank.

How would that work? Neither party agreed any terms. What would the interest rate be, repayment period etc?

Your bank won’t even know what agreement you had with your credit card provider, so they would need to rely on you being honest about what you owed and the interest to pay. And no they couldn’t just ask your credit card provider, that would be a massive breach of privacy.

That’s ignoring the fact there’s no guarantee that your bank can support such a loan. Even if they have the cash, they might not be able to continue meeting their regulatory capital and liquidity requirements. Especially as it would be a high risk loan (both in your hypothetical scenario and in Citi’s real scenario).

In short there are many reasons why you can’t just go “oh it’s your loan and your problem now, good luck with the hot potato”.

> I owe 150 in interest but instead I send 1,500. Would they refund the mistake? Let’s go ahead and follow the headline and say I paid 9k of my 15k balance. Would they refund the mistake? (Honest question) This scenario is at the consumer level and zeros matter but I see sloppiness somewhere in Citi and their dealing with money when it’s specifically what they are trusted to do. As for the “loss”...

It's different for a very important reason.

Revlon didn't authorize the money to be sent. This is like you telling your bank to send a check to AMEX for $150 and they put down $1500 on the check, it comes out of their funds, not yours, and then when AMEX cashes the check that's when the mistake is discovered.

The important point is that Citi made the mistake not Revlon.

My guess is that if Citi loses the suit they'll end up being the lender for the part that Brigade loaned.

The problem is citi is the guarantor of the revlon loan .

It is more like your dad paying your credit bill in full instead of the minimum and now saying he wants the money back

I'm not finding anything that says Citibank is a guarantor, only administrator, whatever that means. If Citibank did guarantee the loan, then Brigade has no need to fear Revlon's bankruptcy right, since they'd be able to collect from Citi. Unless they're worried that Citi is going to go under, which is another kettle of fish.

It is cash flow . Everyone is in a crunch , if revlon default on this loan, and then go under , getting money of anyone will take a long while .

Brigade gave the loan pre pandemic , under very different conditions , today they are probably happy with the money back.

It could also be that They may other liabilities of their own, where this liquidity could be useful.

Under normal market you want as little of money with you, money in the bank does not earn much , it is doubly important if you are in the business of making investments .

However in poor confidence conditions you want as much liquidity as you can have which is why everyone starts buying treasuries when markets go south .

> Let’s say 15k credit card with AMEX. I owe 150 in interest but instead I send 1,500. Would they refund the mistake?

Yes if you had exceeded your minimum payment: https://www.fool.com/the-ascent/credit-cards/articles/overpa...

Overpayment in credit card terms is typically when you pay more than the full balance, not more than the minimum payment. Getting a refund under the given circumstances (1500 on a 15k bill with a 150 min pay) might be possible from some lenders, but would almost certainly involve a lot of time on the phone with customer service reps.

IANAL, but all of this probably depends on a tiny detail: did Revlon instruct Citibank to pay the $176.2 million to Brigade Capital?

(1) If the answer is yes, then this qualifies as a payment instruction. In a payment instruction, a bank sends someone money on behalf of the payer and in return claims that amount from the payer. In that case, citibank would have to recover the 176.2 million from Revlon.

(2) If the answer is no and citibank sent out the money by mistake without having been instructed to do so, it should be able to reclaim it from Brigade Capital.

The article mentions that citibank never deducted the paid amount from Revlon's account. This would hint at option (2) being the case.

> this probably depends on a tiny detail: did Revlon instruct Citibank to pay the $176.2 million to Brigade Capital?

This is not the lender’s problem. If the borrower’s bank pays the lender bank, the lender has some claim to the money.

If the lender inappropriately deducted the funds from the borrower’s account, that’s a problem for them to sort out.

In any case, good to get modern case law to this question.

Revlon did not instruct Citibank to pay the $176.2M:

> Their first line of defence is Revlon’s own statement — “Revlon did not pay down the loan or any part of the loan”.

IANAL, but this seems pretty cut and dried in favor of Citibank.

Citibank does not have any liability to Brigade, and they paid the money "from its own account". Combined with Citibank's role as an intermediary between Revlon (who, again, did not instruct or actually pay the money) and Brigade, I don't see how Brigade has any claim on Citibank's money.

How does a hedge fund decide they want to keep money that’s not theirs and fight it in court?

And they manage people’s money as a business.

Who would entrust these people with their money after learning of this case?

edit: typo.

But the hedge fund is owed that exact amount of money from Revlon. It is an accidental pre-payment by Citibank, it isn't just a clerical error where the recipient has no claim on the funds. And it is likely that Revlon is going to default on their loan in the future, which probably factored into the the hedge fund's decision-making.

But the money they were paid with wasn’t Revlons... it was Citibank’s. This is theft from Citibank shareholders.

There's no theft, it is ineptitude at Citibank. The economic loss for ineptitude should rightly fall on Citibank's shareholders.

Should the economic loss of a fat finger be a billion dollars? Is that a just amount?

Perhaps one should have proper controls in place?

Lol, it's not an economic loss, it's money paid back. Its not that hard to understand.

If the money doesn't get paid back, THEN it would be an economic loss. For the hedge fund.

It’s not money paid back. Revlon literally didn’t have the money, it came out of Citibank’s account. Citibank doesn’t owe the hedge fund anything.

You suggest that ineptitude magically cancels out theft somehow. It's not clear that this is so. If I leave my wallet at your house by accident, its not your wallet.

Sure but if I lend you $1000 and then you leave your wallet at my house by accident with $1000 in it while going out drinking and overdrawing your checking account it’s not quite so clear cut is it.

I feel like this is more like if I lend you $1000, and you give your friend $100 to give to me.

Your friend typos the bank transfer and pays me $1000.

I don't think it's unreasonable for me to assume you're paying back the whole loan at that point. Maybe you've come to an arrangement with your friend, maybe you've paid them in cash, whatever, that's between you and your friend. As far as I'm concerned we've concluded our business.

I am not certain that this logic scales to 9 figures.

It is clear cut. You do not get to dictate the payment schedule beyond what is mutually agreed upon, or ends up being negotiated in a legal proceeding.

Being a creditor does not magically entitle you to the entire value of the loan from someone at your whim. Due process must be followed. That's risk.

Initiating or benefiting off of what amounts to a mistaken transaction by a proxy agency, which ultimately proves to be unauthorized is quite literally theft.

My goodness, I'm so glad I don't do business with most people given the responses I'm seeing in this thread. It seriously leads me to think that people need to spend some time internalizing what it means to be a responsible financial facilitator.

Hint: Exploiting clerical errors to perform margin calls isn't it. That's how you spook people out of doing good business, which makes the market that much riskier for everyone else. I hate finance, and even I grok that.

So when Experian negligently exposes their customer's data which gets stolen, it's not their fault? Punishing a company for ineptitude should be expected.

It is their fault, but that doesn't mean you shouldn't also prosecute the folks who use that data to open a bunch of fraudulent credit lines.

Yes but the "theft" in this case is Citibank's incompetence resulting in a decline of shareholder value. Brigade isn't stealing anything.

Imagine three friends. One owes money to another one, and a third acts as some kind of financially responsible intermediary. A owes money to B, and C is the intermediary.

A says to C "Hey pay back B" and even though A means "pay back the portion I owe this month" C "accidentally" pays the loan back to B in full.

Does B have to give the money back? If B refuses to give the money back to C, is B "stealing" fron C?

If anything, the matter has been simplified. Instead of a three-party contract, it becomes a two-party contract between A and C and B can merrily go on her way.

I find it interesting that everyone is presuming this is an accident.

If something like this were to happen in cyberpunk RPG the players would assume that with a billion dollars on the line the hedge fund had either hired a hacker or suborned a Citibank employee in order to make certain they got paid. (As a hedge fund, lawyering up to hang onto the money once you have it is comparatively cheap.

Games do tend to have more interesting storylines than "oh its just people being stupid again."

IRL, Hanlon's razor often works.

To be fair to them, the hedge fund decided they wanted to keep money that they think _is_ theirs, which they had loaned to Revlon.

Imagine a world where debtors can choose to repay lenders, and then change their minds and take the loan back again. It would make being a lender impossible. So it's sort of understandable if Brigade genuinely believe that, at one point, there was a conscious decision on the part of someone to repay the loan. Given that the sum they received was equal to the exact amount of the loan, it's not completely unreasonable.

Understand your point, but if I was a customer there is zero chance I am investing a cent with them.

My thinking is if they do this with Citibank and a hundred million, I have no confidence in being able to recover my own money in case of a dispute.

If you were a customer of Brigade capital you’d be buying them champagne right now. They they just saved $170 million of your money that you would have had to accept as a loss should Revlon go bankrupt (which it probably will).

That's right, hedge funds have a fiduciary duty to their investors.

Fiduciary duty does not mean "must make money at the expense of all other considerations".

fiduciary duty means sometimes not to burn all your bridges. Politics aside, Trump Inc. is blackballed by all but one or two banks due to such tactics.

Edit: And this is not $500 BILLION so you can say, F it, boom or bust, let's try it. The upside isn't that much, relatively speaking, considering the blacklisting downside. Even if Revlon doesn't pay, a large % is already banked or will be in bankruptcy proceedings so it's not a 100% loss.

They just tatooed "Dear Banks please don't do business with us ever again" on their foreheads though.

Edit: That is if it is a legitimate error-error not citibank try to pull a takesy-backsy.

No, this is just business. Brigade has a duty to its investors to fight tooth and nail to keep this money, just like a defense lawyer has a duty to use every advantage for the client allowed under the law, acquired intentionally or otherwise.

> Brigade has a duty to its investors to fight tooth and nail to keep this money

What kind of duty? Not a legal one, I think.

Arguably they decided to let that be determined by the courts instead of their own good will. Sounds like something a lawyer would recommend doing...

It's like a natural process to these companies. Most likely CITI is getting it back. But it's probably a worthy gamble on the lawyering fees.

No fiduciary duty justifies profit taking off of a mistake or mis-transaction. This is like saying that a hedge fund is justified keeping the proceeds of a check written to the wrong routing/account number. Nothing, and I mean nothing, fiduciary duty be damned, justifies undermining the implicit trust that underpins the banking and financial system. It's why there is such a thing as white collar crime in the first place.

Frankly, the entire chunk of money should be considered legally tainted until legal action is resolved; which means escrow it somewhere and unleash the lawyers.

It’s already under litigation, so Brigade can’t withdraw and spend it. The case is interesting because they might have a chance at keeping the money. In other circumstances (if the money had randomly landed on their account from an unrelated party) they’d have to give it back and there wouldn’t be a story.

The interesting side effect if they actually prevailed over Citi would be general improvement in wire transfer rooms across US. Right now they are mostly sweat shops with focus on speed ( and pleasing big customers ).

All of a sudden, we may see some consideration given to proper verification ( not just quick rubber stamp ).

I think that may happen either way;

Even if Revlon goes under because the courts pull what I'd call a derp, it should create the illustrative case that creates a business niche for higher reliability/risk financial transactions.

You heard of this guy called something like "Don Trump" who had no issue continuing to get bank finance when you think they would have treated his business deals like toxic waste in a radiation dump that somone threw biohazrds all over?

I used to think that this kind of repuational thing meant something. I pick Don as one of many examples just because he's literally gone on from that situation to become the president. Banks need to make big loans. If they make you a big loan, they owe you - go go broke it matters to them. You and me, nah. They'll burn us in a heartbeat when we're financially responsible without much reputation damage to the banks either. Reputation, it's not worth anything. And that is a sad, sad realisation and do not relish sharing it.

That's not totally true. Don Trump had a lot of trouble borrowing money, eventually only Deutsche Bank would deal with him, because they were probably the least ethical bank on Wall Street at the time, and even for them there was a lot of internal controversy about working with him. Yes, ultimately he got the loans and was able to stay in business, but there are other shady operators who didn't and failed, you don't hear as much about them.

Conversely, Warren Buffet famously has a "halo" which means he gets favorable terms because people know that doing business with him will reflect well on them.

Different pockets of finance have different norms about who it's OK to screw and how, and even as an investment professional I don't understand the conventions in areas outside of my specialty. So it's very hard to judge as an outsider what is considered unethical and reputation-destroying, and what is considered aggressive business practices that happen to come at the expense of other sophisticated professionals.

With an utterly terrible reputation Don didn't have real trouble, Don got finance. Every single time. After how many bankruptcies? How many re-structurings where his creditors lost?

You and me would have a lot of trouble getting that kind of financing without a hideous reputation. Don has one and got it. Now he's even the president. Bad reputations count for not all that much at all. And I hate that, fwiw.

Buffet's reputation, now that's a whole nother discussion. Yes it deserves to be better than Don's. Coke, McDonalds and buying off-market at huge discounts to support management against shareholders. Obesity, diabetes and legal resdistribution of people's retirment savings to berkshire hathaway. Yes, a reputation too good to be true nonetheless. I agree.

> They just tatooed "Dear Banks please don't do business with us ever again" on their foreheads

So have George Soros and Carl Icahn.

I stuck with Wells Fargo after their fraudulent account debacle, and I can attest first-hand that this will happen again, affect more people, and be only relatively as frustrating compared to the last big issue. It's when I look back on before that time that I decided to break with business after changes to Wells Fargo ACH policy in 2018.

In 2018, I was laid off, lost almost everything over five months. I had one bill on autopay that I eventually ran out of funds to pay. IIRC in June 2018, WF stopped denying repeat ACH attempts if, on the first two attempts, the funds were not available and/or WF would not choose to pay it and simply overdraw the account. Every single attempt would now process. On December 3, my account was at $490 when the $600 payment attempted, then again, and again, over and over, for 9 business days. My account was closed with a -$1,800+ balance. I lost count of the number of NSF fees by day four or five. And Wells Fargo decided to pay that payment upon closure of my account. So, I went from $490 on December 3, 2018, to owing almost $2,000 in fees to Wells Fargo two weeks later.

I'll pay it off when I can, as you know, it's still my debt, but while other banks were cutting fees, WF was changing its policies to ramp them up. I ended up in an unfortunate waltz of financial doom with them. And I had a low statistical risk of running into a problem with them because I used so few of their services. Don't leave it up to luck. When you see risky behavior, grab your money and go. They're willing to keep doing crap like this because they know most people think it would never happen to their personal accounts.

A similar thing happened to my wife, from the age of like 12 she had a wells fargo savings account, her mother would deposit $50 each time her father paid child support. It was supposed to be an account that when she graduated highschool and went off to college she would have some money for random things. She and I met during Junior year of high school, and moved in to a shitty apartment near her college at 18, thinking that she had some money to help with the deposit. I paid everything first, then she was going to pay me back.

Turns out her mother had been depositing the $50 each week automatically until she was about 17, but was also randomly over the years withdrawing nearly all of it. And at the time she went in, she was -$240 on the account, and they wouldn't allow her to close it until that was paid off, and they were going to continue feeing her $20 each month for having less than the required amount. By the time we finally had the income available to close the account it had accrued around $1000 in fees.

And yet, for some stupid reason, I am still with Wells Fargo today, 15 years on...

> And yet, for some stupid reason, I am still with Wells Fargo today, 15 years on...

Why?

I hate to rub salt in your wounds, but they have demonstrated that they are unworthy of your business. Acting on this would play a small part in forcing them to either change, or else go out of business.

When I was younger I worked for a wells fargo joint venture that did credit investigations related to mortgages. To this day I'm convinced that the way they set up their QA policy was deliberately designed to enable fraud. I most definitely would not do business with them.

Can we help you get out? I've personally opened accounts with all the popular online banks like Ally, SoFi, Simple, Schwab, Marcus, etc. If you have any questions I'd be very happy to help you leave WF. At the very least you'll have no account fees, way better customer service, and a decent interest rate.

I have bank accounts at almost every major bank in the US, including online banks, but WF is still my primary account. There are just so many services that do a direct debit that make it hard to switch off of. I use privacy for a lot of things now, but the handful of things that need direct debit I just use my wells fargo account.

I'm curious, is this legal on their part? I am very much not an expert, but I almost have to wonder if this is worth consulting a lawyer.

If it were me in your shoes, the amount of raw spite I would feel for Wells Fargo would be difficult to exaggerate.

I am sorry this happened to you, it seems when things get rough crap just all decides to pile on.

Long ago I stopped all auto payments from my checking account. I do the old fashion thing of paying each bill every month on a schedule. I don't really send checks, it is all via bill pay and I can schedule them out in advance so I only really do this twice a month.

The real insight will come when you realize every very large scale financial institution you do business with will retain your money without hesitation or remorse if they feel they have the legal right to do it.

Well yes. So would i, if i felt i had the legal right to do it. So would you.

If there was a mistake in the transfer and the money wouldn't belong to me, even if legal, I would return it. I'm sure many would do the same. Not everything that is legal, is moral.

If there was a mistake in the transfer the money wouldn’t legally belong to you.

A dispute about this is exactly what is described in the article.

No, you and I are different.

We would likely be guided by a sense of personal ethics and our own values, which would make us consider returning money even if through a technicality we had the legal right to keep it.

At the level these companies are interacting at, there's no such thing as ethics of this kind. The legal system is the values system, and if they can make money on a legal technicality they'll do it without further thought.

They're more like great vampire squids wrapped around the face of humanity, relentlessly jamming their blood funnels into anything that smells like money, as someone more eloquent than me once noted.

Worth remembering if you find yourself dealing with large scale financial institutions.

Was Revlon in arrears on their payments? Wasn't Revlon going to pay before Citi fat-fingered the operation?

Because what you're saying goes both ways. The bank doesn't have the right to take money out of my account to pay a loan except for what was arranged as a payment plan.

Just playing devil's advocate here:

That's not Brigade Capital's problem, and that's also not Revlon's problem.

I think it's entirely obvious brigade should return the money. But, playing devil's advocate:

Brigade gets a payment, 'out of nowhere' (it wasn't agreed upon beforehand, nor part of the repayment schedule), from the bank of Revlon, earmarked 'revlon'. Hey, the intent is clear enough, and Brigade sees this as an implicit contract. This transfer can be seen as equivalent to a note from the bank: "I, CitiBank, in my function as the bank of Revlon, hereby prepay some of the debt, and whilst revlon did not personally sign this note, that is okay because I am their bank, you can trust me."

And Revlon, having made no such agreement with citibank, also 'wins' their case and this money isn't scratched out of their accounts.

CitiBank, having made the error, is going to have to eat the 9 digit loss, but is of course allowed to recoup it, according to the normal schedule, and without charging interest (not that this matters much, what with interest being near nil), vs. revlon.

If revlon goes broke before they can, that's a bad day for citibank.

NB: To be clear I think when talking about 9 digits, this is a preposterous interpretation, but it IS one.

>Hey, the intent is clear enough, and Brigade sees this as an implicit contract.

The only way you get anything remotely resembling something such as an implicit contract is by butchering the legal concept into unrecognizability, which admittedly, the tech sector has enabled other sectors to do with wild abandon. A contract requires a meeting of the minds, consideration for all, and to explicitly lay out mutually agreed upon terms. Unless both sides agreed to see it the same way, it isn't a contract. It's a worthy subject to resolve via litigation, and to be frank, out as the Brigade at significant risk of possible criminal charges if a judge is not amused and Citibank heads to the Attorney General.

Isn't the whole point of the UCC to remove all sorts of litigious details in contract situations like making payments?

eg, If I agree to pay my babysitter $50 and write an American-style check (aka bank draft), me and the babysitter don't need to negotiate the finer details of that payment method.

Yes. However, you have the capability to void and recover the sums represented by that cheque. It's built into the system in that sense. This is why most debt servicers implement different flows for early payments. You need an explicit indication from the payer they intended to make that extra payment. It may not seem like as big a thing when you're talking small-claims court amounts of money, but once you hit the bigger tiers of financial transaction, this is exactly why people are dedicated toward ensuring all the i's are dotted and t's crossed in order to ensure payments in the right amount end up in the right places in the right amounts.

The bank doesn't have the right to take money out of my account to pay a loan except for what was arranged as a payment plan.

If you accidentally paid off a loan early do you think you would be able to get your money back from the bank?

But they don’t think it is theirs. They know it was a mistake and decided to “think” it is theirs. This is just basic loan sharking and being shitty.

The allure of investing in hedge funds is the lack of regulation. As courts decide these matters I wouldn’t surprised if that results in some regulation. It will be interesting to see. The banks tend to have deep lobby connections.

They have a good point for it being theirs: they're owed that exact amount by Revlon. From their point of view, somebody at Revlon figured "let's just pay them in full" and a few days later somebody else thought "that wasn't a good idea, let's get the money back".

If it was e.g. the expected amount with one or two additional zeros, that might point to a typo. But the exact amount of $176.2mn instead of $1.5mn? That may still be a mistake, but it's not that obvious.

If by knowing intricacies of law and being lucky they're making their clients richer, I want to be one of their clients...

Exactly, it's a hedge fund, the customer base is extremely wealthy investors or pension funds.

These customers won't think that the fund is in the wrong for holding money it is owed, from a company that might go bankrupt any minute and default on the debt.

That's the issue though. There is an obligation inherent to all actors in the system. A "Rule Zero", and "Rule 1/2" if you will.

Zero: Thou shalt do good business to service they debts within the period negotiated, under the terms set forth prior. Thou shalt eschew business that knowingly unduly harms thy counterparty, or results in large chunks of value getting converted into lawyer's fees.

Rule 1/2: Thou shalt be burned by bad business, because no one seems to grok and internalize the second tenet of Rule Zero.

> How does a hedge fund decide they want to keep money that’s not theirs and fight it in court?

$175m

> And they manage people’s money as a business.

Seems like they are protective about any money that lands on their accounts.

> Who would entrust these people with their money after learning of this case?

If they are giving this money to the fund (that is their customers), whom of them is going to complain?

If you accidentally pay back your full credit card balance, but only meant to pay the min monthly payment, you wouldn’t expect them to give it back to you would you?

But it was not Revlon making the mistake. It was Citibanks mistake. They are not indebted to Brigade Capital. Revlon is.

If your bank would pay back your full credit card balance by accident, you would expect it to be able to get the money back, wouldn't you?

If it had been Revlon making the mistake this would be a different story.

> If your bank would pay back your full credit card balance by accident, you would expect it to be able to get the money back, wouldn't you?

If the bank paid off my entire credit card balance instead of the < 1% payment I had scheduled, without an instruction from me, and without debiting my account because I don't have the funds to do that entire amount, I don't think I would care all that much. My CC issuer probably wouldn't be interested in returning the money if they had reason to believe I'd never pay them back in full as well.

That just leaves the bank that cares. The bank that made the expensive mistake.

I’d expect the bank to eat the cost if they could not recover the funds.

Just because the receiver of the funds is not at fault does not mean the customer should take the hit.

I don't particularly like the credit-card analogies I'm seeing around here. There is a big difference; a credit card is an open line of credit, which is not the case for these loans.

After a credit card is paid off "in full" (for example's sake let's assume a 10k card), you can then use that to spend 10k. You still have access to 10k worth of "buying power".

A loan like this is different. Once it's paid, Revlon (even though this isn't Revlon's fault) can't just turn around and draw down the line again. That's the difference between a loan and a line of credit.

The fact that it is widely believed that Revlon will be bankrupt before actually paying off this loan just makes it more likely that Brigade is taking advantage of the situation with no true belief that this was nothing more than a mistake.

The pessimistic side of me says that they know they're going to lose. However they're investing the $175m in the meantime and will make more money from it than they're losing by paying the lawyers.

TFA says the court has ordered the money to be frozen until it can make a decision about who gets it.

> How does a hedge fund decide they want to keep money that’s not theirs and fight it in court?

Imagine an alternative scenario:

Interest rates are down. Revlon is looking to refinance the loan, and finds a lender (LENDER_B) who will let them refinance their loan from Brigade, but at a lower interest rate. Revlon then tells their bank, Citibank, to pay off Brigade's loan as they'll be getting a loan from LENDER_B instead. Citi goes ahead and sends the payoff amount to Brigade. Meanwhile, LENDER_B discovers something at the last moment and pulls out. Now Revlon claims they never meant to pay off Brigade.

Remember: people lie all the time.

Look at the bigger picture. The loan here was probably made originally by Citibank to Revlon, and then the loan was sold to Brigade. That's implied by the expected payment flow - Revlon to Citibank to Brigade. So Citibank was the loan originator, and when they sold the loan, became just the servicer of the loan. That's all quite common.

Citibank, by paying off Brigade, effectively bought the loan back. Something Citibank might choose to do under some circumstances, and may have the contractual option do to. If Revlon were not going broke, this would be a non-problem. Revlon still has the obligation to pay Citibank. Citibank would just have another loan on the books, and could hold onto it and collect the payments, or sell it off again.

Revlon is in trouble and trying hard to restructure their debt.[1] As a servicer, that wasn't Citibank's problem. Having accidentally bought the loan back, now it is.

This will probably all turn on the contract terms. Did Citibank have the option to buy back the loan from Brigade? Details like that.

I have a friend at a big law firm who deals with contract law messes like this. She's said that IPOs and startups are fun - everybody is happy and upbeat. In bankruptcies and workouts, everybody hates everybody else. No fun.

[1] https://www.bloomberg.com/news/articles/2020-05-04/revlon-wi...

> effectively bought the loan back

Yes, at full price. Meanwhile Revlon debt is trading at a roughly 70% discount on the open market.

This reminds me of a similar story from a very different domain: The World Series of Poker. Some years back a high limit player went to the bathroom and hung his money belt on the inside of the stall door, did his business, then walked out forgetting the belt was in the stall.

As soon as he realized his mistake he ran back in a panic because the belt contained over $700,000 in high denomination chips. By the time he got back the money was gone.

The tournament director announced what had happened (leaving out most of the details) and asked for the person who found the money belt to return it.

This sparked a lot of conversation at the event that year. Aside from the ethics of keeping the money there would be some big practical hurdles. High value casino chips are carefully tracked individually, so the issuing casino would almost certainly recognize any large chips from that haul as having been paid out to the original owner.

I later heard second or third hand that the money belt was returned with all of the chips to the person who lost them, who in turn gave that person a sizable reward.

I just wonder, if I as a private person had a brain fart and wrote a check in full for my car loan, instead of just an installment, what are my chances of retrieving that money? Very small I should think.

So, are corporations classed as fictional persons? Then let Citibank live with the mistake. As I would have to.

> I just wonder, if I as a private person had a brain fart and wrote a check in full for my car loan, instead of just an installment, what are my chances of retrieving that money? Very small I should think.

I would've assumed that if you contacted them immediately and gave them adequate notice of the mistake, you'd be able to get it sorted. Very curious what the actual answer is in the real world.

unless you were able to request a stop payment on the check prior to it clearing I don't see how you would be able to get the money returned. Or, at least, whatever entity you owed the money to would not be required to return it. Maybe they would if they so chose but I don't see any way you could force them.

No the chances are very good you would get your money back. And it would be very bad if Citi did not get their money back - there is no advantage to a payment system that cannot undue obvious errors of this magnitude.

As someone that has inadvertently paid a BOA credit card bill in full when I meant to transfer money to a different account.... You ain’t getting shit back.

But did the bank follow your direction in making the payment, or did they not follow your direction in making the payment. that makes all of the difference.

I dont know about your jurisdiction but I know of plenty of cases where banks have overturned erroneous transactions when contacted quickly enough.

First world problem. My check would bounce, therefore I would not have to retrieve anything (beyond bad check fee).

Since you used a check, chances are pretty high your could issue a stop-payment order to your bank and the check would be refused. (Assuming you realized in time.)

It would be similar if you paid with ACH, IIRC. Participation in the ACH network requires acceptance of a strict timing schedule whereby txns are reversible under certain circumstances for a limited period of time.

That's not the same situation. It's like you used your bank's online bill pay to mail a check for the current month's payment. Instead the bank sent a check for the full amount, drawn from their own funds.

The analogy doesn't apply because Citibank doesn't owe Brigade anything, they just happen to also be Revlon's banker.

These clerical errors must be more common than I thought.

A few years ago, when I had taken a mortgage to buy a house, I had the exact amount of the mortgage transferred into my account instead of going to the seller or wherever it was supposed to go - maybe to the seller mortgage provider?

I returned the money but I'm no hedge fund.

Well if you hadnt payed it back, then the house wouldnt have been payed. And the purchase would be invalid. Also your bank would probably have taken legal action against you.

> These clerical errors must be more common than I thought.

They are, but I'm surprised that there seems to be no 4-eyes principle on such high transfers. Having two (or three) employees sign off on any transfer above ten million dollars seems like a cheap precaution against blunders of this scale.

How do you know it wasn’t the IT system that caused the problem?

That presumes that the "IT system" is capable of making huge actions by itself (or by itself via a bug or operator error): that immediately makes alarm-bells ring in my head because it says the IT system's security/authorization system isn't operating on the basis of least-privilege.

There are ways to engineer automated processes to prevent things like this from ever happening, for example, all transactions over, say, $10m, could be required to be signed using PKI keys held only on smartcards physically held by those involved - and the big-fat-table that holds transactions in their IBM Z-series would be automatically audited to undo any transactions lacking the necessary signatures. And all of this should be evident in the printed hardcopy that the gov-level auditors would love to see.

...and that's just an idea off the top of my head right now at 5am (and a bottle of IPA) and I've never worked in fintech or banking.

Given that shady stuff happens at the highest-levels inside legacy banking institutions (e.g. HSBC and the South American drugs trade - or Deutsche Bank and sanctioned Russian entities... and the current White House occupant) - and because I know that these banks do hire great engineers for their internal systems - that "clerical errors" don't happen like this - something fishy is afoot and I guarantee that we'll never know the truth.

Is it so hard to imagine that an IT system would have bugs?

I (and for what it's worth also regulators) expect that a bank has procedures in place to catch bugs that lead to such "mistakes".

By analogy: think about how a preemptive multitasking OS with protected virtual memory means that a misbehaving user process cannot bring down the machine: the kinds of bugs in user programs in the time of DOS or Windows 3.0 that would destroy the world (e.g. a user process overwriting kernel memory, or a single-threaded user process failing to yield to the kernel) just can’t happen with a modern kernel.

The same kinds of security and safety guarantees that stem from the overall system architecture can exist in banking systems - that’s my point.

So yes, until everyone switches to Haskell we will always have bugs - but the kinds of bugs can be limited - as can the scale of their impact - with good system design.

The problem, having worked in banking, is that the core system is separate from the loans system, almost certainly. More complexity. Probably some semi-automated batch handling which is far more brittle and janky than anyone suspects.

But regardless, at some point, this system still thinks the transaction has been authorized. I'm sure there's a huge audit log showing who/where/why the mistake was made.

But I've also seen end-of-period processing at a smaller financial institution where humans are involved and a few spreadsheets hairpin their ways through different systems with lots of manual intervention and QA. One step was literally very close to "audit 0.01% of payments before sending the CSV into the lockbox escrow processing system...

I thought the mortgage was given to you and you transferred the money to the seller when the deal is completed?

I'm scared to think what would have happened if it were me, the money sent to the seller, not suspecting any error at all and unable to return anything.

Normally handled by the closing office using escrow accounts, not by the buyer/seller themselves.

"The former MasterChef contestant, Dani Venn, and her husband Chris Burgess were left homeless last week when $250,000 from the settlement of her recently sold Melbourne property was stolen by hackers who set up third party accounts to breach the fledgling electronic property transfer system Property Exchange Australia (PEXA).

Ms Venn’s bank, the Commonwealth Bank, was able to freeze $138,000 of the funds, but the hackers who entered the system via her conveyancer’s account made off with the remainder.

“The $110,000 is missing and it’s not recoverable,” she said."

https://www.smh.com.au/business/companies/masterchef-finalis...

Wow PEXA flat out stole $110K from a random civilian to cover for their own negligence. And face zero consequences for it because they are a state-approved monopoly.

Looks like she got it back

https://www.9news.com.au/national/masterchef-contestant-dani...

I'm confused why Brigade isn't being charged criminally. Any time a individual receives a transfer in error and doesn't return it, they are hauled off to jail for theft of funds.

Example: https://www.bbc.com/news/world-us-canada-49643015

They’re arguing that Revlon prepaid the amount they owed to Brigade for financing a deal. Moreover, Citibank was the bank that was supposed to be making payment installments to Brigade on Revlon’s behalf.

This is very different from the case you’re referring to.

They are owed the exact same amount they got from revlon. They didn’t get free money.

If you mistakenly pay back extra on a loan/mortgage bank is not going easily give it back to you, especially if you were about to go bankrupt.

Money came from Citi bank which is just facilitating the transfer and an employee made a mistake a used bank money instead of the entities money.

It's like you payback the loan but the bank accidentally uses its own money and not your money. You'd get hauled off to jail if you didn't return the money.

I am not sure it is so simple mistake as a typo by a single employee , brigade was paid the exact amount they were owed principal + interest . It wasn’t some one’s transaction they got, they were instead paid early by mistake .

It is more like you dad who guaranteed your loan paid it off fully instead of paying only the monthly amount and now saying it was a mistake.

Administrator in this context is more a guarantor than facilitator .

Sure courts may say that your dad does get the money back, but it is not straightforward as you say, if you were that lender getting the money back from a likely defaulter , you surely won’t give it back unless the court says so.

The argument here, from Brigade Cap, is that they simply got paid the outstanding debt - as the transfer equaled to that same figure.

But, logic from the business side, says that no company would realistically drain all their resources on paying outstanding long-term debt. That's why they took out the debt in the first place.

Can someone tell me how these large financial transfers work, and why there isn't a time period when the money can be returned? I think an error of this magnitude would have been recognized almost immediately, no?

I mean, if someone does an ACH transfer into my bank account, it can 'clear', but it can still be revoked days later if there was something wrong with the transaction. Indeed, this was the basis for a bunch of "Nigerian Prince" scams where scammers would send money to someone's account, that person would see it 'cleared', then they'd send some larger amount of money to the Nigerian Prince, after which the original deposit was revoked, and the bank account holder was on the hook for the now (usually large) negative balance.

It depends. Given the amounts involved, it is unlikely that ACH was used. With wire transfers, the basic rule is 'once it is out, it is out'. You may be able to get money back by communicating with recipient and by sending a request for the funds back, but they do not have to honor it. Recipient's back will basically ask the recipient if they agree to the return, and if they don't, that is the end of the story. That is basically why CITI was forced to sue. Other recipients played nice. That one recipient did not.

edit: There may be some leeway if there is fraud involved, but even then it is more along the lines of bank freezing the funds than about sending them back.

There are many different payment scheme out there, which all have different parameters.

ACH is someone unique in that money can just be pulled back, and even in transactions that take a long time to clear, doesn’t mean that you can cancel them.

Clearing time is usually caused by multiple sequential systems at multiple institutions taking their time do something. But once Citi started the transaction, and their system send the payment messages they probably couldn’t retract the payment.

Once the first payment message was sent it immediately created a liability on Citi for the money (either to the payment scheme or the receiving bank), at that point actually moving the money becomes a bit academic, an unbreakable promise has already been made.

I have absolutely no sympathy for Citibank in this instance. They're a bank. Their job is to do stuff like facilitate transfers and keep records. That's their primary mission. If they're too incompetent to do that properly then maybe they shouldn't be in business.

I feel a little suspicious of the story that there were two mistakes here.

1) Citi paid the wrong amount (they paid the full outstanding amount, rather than just the one payment)

2) Citi paid out of the wrong account (Citi’s account instead of Revlon’s account)

In particular, I’m suspicious of the second claim. If Citi had paid the correct amount out of this “wrong” account, would anyone have noticed? Is it possible that paying out of account on behalf of clients is actually a normal practice? After finding out that they paid the wrong amount, is it possible that the “wrong account” is a convenient legal cover to make it more likely the payment can be reversed?

The Institutional Investor has a few more details on this affair [1]. To me it appears Brigade is acting in bad faith here, based on the information available (I am not in any way connected to any of the actors here, Citi, Brigade, Revlon, or anybody else). Maybe in is as u/woofie11 explains it in this thread [2], that Brigade is doing a cynical calculation of sumproducts of payouts and probabilities, and hoping for a settlement. I wonder if a judge can't hold them in contempt? This would be a deterrent for this type of shenanigans by other bad faith guys in the future. Without any downside, why would anyone not engage in this type of behavior?

[1] https://www.institutionalinvestor.com/article/b1mzydxt246pl9...

[2] https://news.ycombinator.com/item?id=24226365

>At this point, you’re probably thinking — Finders Keepers.

No, because that's not how any of this works, even when you're a child.

It's well established that obvious mistakes are obvious mistakes and you don't get to profit from them. Brigade either had a very dumb lawyer or they were having a really bad cash-flow problem and wanted this money to cover their issues...

I think the article does quite a good job of explaining why this isn't necessarily an obvious mistake.

Sounds like quite a canny lawyer to me!

It's interesting to me that the article missed a lot of the reasons though:

* no discussion of scibeners errors

* no mention of the effect on citi of being forced to buy 900m in bonds/debt they never consented to buy

* no discussion of the chilling effect on the wider credit system

* no discussion of why all the other creditors returned their payment without issue

"Should this money be returned" is a fair and interesting question. The answer is Yes and for a long list of reasons. But the article picks a single one, a technical one and the example used is a bit weak. Theres still a lot of meat left on these bones imho :)

It seems particularly salient that, near as I can tell, Citi paid the money out of its own funds, not using Revlon funds it was holding in reserve. In which case it was not paying money that Revlon owed, it was accidentally giving Brigade an amount of its own money equal to what Revlon owe, not even immediately but in the future.

If my understanding it correct, it would seem to be Citi's mistake, leaving them on the hook rather than Revlon.

This is fascinating, in so far as the surface details materialize. However I feel as details of the loan are read in detail in can be reasonably argued that one side is in fact more right than the other, but the devil's in the details.

Early loan payment is a feature of credit. The cashflow is a feature of a fixed income. If the cashflow can be cut short and money returned at the debtors option, the creditor is once again found in a situation of having to seek a superior investment opportunity and thats a risk in some portfolio managers' eyes.

I think the argument that the spot economic signals are stacked against revlon isn't a factor in citis favor, and a hedge fund is exercising fiduciary responsibility by closing the debt, ESPECIALLY if the debt has an early payment clause.

If citi is told to go "pound sand" then they've effectively acquired a bond position on Revlon tho, so the argument that the hedgefund must return the money sounds valud from the sense that currently, revlon doesn't have a formal bond agreement with citi.

I'm very curious as to the court's position in this case, bc if citi has to bite the bullet, IB world is going to laugh at citi

> It can happen for instance when someone pays money to another individual under the mistaken belief he is liable to pay the amount. And in the event, such a transaction does transpire, the law imposes an obligation upon the recipient to pay back the money in full.

Can you imagine if a company like TurboTax had to pay back the money they charge people that legally should be able to fill for free?

I think the last point made by Brigade proves it was a mistake. If Revlon is in such financial trouble they Brigade believes they won't be able to pay back the loan, why would they have paid back the entry thing, with interest, early? And if it wasn't a mistake, why would they be asking for it back now? It seems perfectly straightforward to me.

C sent B money that B wasn't expecting and immediately asked for it back... Nothing more clear-cut. Thankfully the tax payers will get to fund the next riveting installment of "was this obvious mistake actually legally a mistake?"

The fictions created by of law collapsed when faced with the reality that negative things do not exist.

C, acting on behalf of A, which owed money to B:

C returned money owed to B in full, which B was not expecting.

C asked for the money back from B.

We just told the same story

Brigade's opinion of the situation does not make it a mistake. The question is more the process at Citibank and Revlon. And prepayment isn't really a mistake in the sense that Brigade received an unjustified windfall. I think Brigade will win, and Citibank will have to take the loss.

> why would they have paid back the entry thing, with interest, early?

This isn't all that rare - it just means they were able to convince someone else to invest in the business, and pay off the whole loan for them.

Kinda like when you're in loads of debt and you transfer the debt from one credit card to another because it has slightly better terms.

> If Revlon is in such financial trouble they Brigade believes they won't be able to pay back the loan, why would they have paid back the entry thing, with interest, early?

From what I understand, they paid the interest accrued until the moment of the payment, not the amount they would have paid under the terms of the loan. So from the POV of the lender, maybe they were able to refinance the loan under better terms with some other lender (perhaps Citibank).

Man. Banks never make errors in my favor. Pass Go do not collect 200.

This is exactly the same situation as in IT with "colored bits". Bits don't have color of course, they are just 1 and 0. So when you have a sequence of bits on your storage and it happens to be a sequence legally owned by someone (DRM), what happens? Could you have randomly clicked on a keyboard all day and generate exact same sequence as some corporation is selling for money? Maybe. It is possible. But would court agree with this? No. To the court bits have color, even if they are the same it does matter how they have appeared on your storage and why. And the same exact sequence of bits acquired by different means would be treated differently by the court. So most likely court will force Brigade to return the money, at least I think it is logical to do so.

If my bank accidentally paid off my entire credit card balance when I instructed them to pay the minimum payment, I'd be glad that it's between the bank and the credit card company. Not sure if I have an agreement with my bank to repay them, and under what terms.

This reminds me of a story. A friend of mine once had a significant amount of money (several thousand euro) deposited into his account accidentally. Being a bit of a shyster he left it alone for several months but eventually started spending it.

Some years later he got several phone calls from his bank all in a very short period of time. His luck ran out. Apparently what had happened is that he'd been in the bank having something changed on his account, the next person came in to deposit money but the teller failed to change the account.

In the end they arranged a very low interest loan for him to pay back the money over time, so in the end he probably came out ahead.

If during discovery, they found an internal email of Brigade Capital saying "these dumbass of City send us the money !! IN FULL !! Never though we were going to see again that Revlon money", Brigade Capital is screwed.

IANAL but have anecdotally been involved in similar law to this case where I was told:

Courts don't issue injunctions routinely "just to freeze things and be fair till the case plays out"; courts issue injunctions when the court considers that the party who seeks the injunction has a good claim and has every expectation of prevailing.

so by that measure, the judge freezing the assets means Citi has a good chance of getting its money back.

(also, I looked up Kelly v Solari on wikipedia and the case was from 1841. I don't think English Common Law from after US independence would apply)

U.S. law is based on English Common Law.

https://en.wikipedia.org/wiki/Common_law#United_States

English Common Law prior to the American Revolution. Ongoing developments in UK will not affect American law. The date of the citation is well after that.

There are levels of precedent. None of it is binding precedent, but courts can and occasionally do look at it as "persuasive precedent", much as courts in different US circuits will.

How this is different from this scenerio:

Think you send the money for mortgage payment from your brother account who doesnt has any financial relationship wrt that mortgage (by mistake).. Plus you pay for whole year in one transaction incl interest. Can you go back to bank (lets take Citi for simplicity) and ask for money back and telling that you will send for one month only with right account. How will Citi react?

i dont understand how Brigade can so brazenly make off with the money here. why would people want to work with them given this behavior?

It's because (according to them) it's their money. It's not some random sum coming from some stranger, it's the exact amount they were owed.

Simple math --- will this action cost them $175m in future profit?

Brigade accepted money from Citibank on behalf of a bankrupt debtor corporation (an economic zombie). No humam voluntarily working with Brigade was harmed.

Because people take loans from whoever will give them one.

If I owe you money and my wife forgot my bag with money in your house, you don't get to keep it just because the amount matches or I'm in bad shape. Either I pay up as per terms and conditions and we are fair and square. If I default, you can sue me and if the court orders to impound my assets, you get to take/sell my stuff. Not before that.

That’s the Chance card I want to draw in Monopoly

It's probable that Brigade is not the only credit/investor involved. If Revlon doesn't pay (or defaults), other creditors have rights too, and there are processes to fairly distribute assets.

"Oops, we're keeping it" is an invitation to bypass those processes.

I think Citibank should be returned all the money they paid minus the owed regular loan payment.

I also have no sympathy for them, and this seems like karmic retribution for how they treated funds, retail investors, and mortgage holders during the financial crisis of 2008.

> how they treated funds, retail investors, and mortgage holders during the financial crisis of 2008.

What did they do exactly?

This story hints that huge entities aren't just predatory scumbags with consumers but also with each other. I believe this shows how corp execs are surrounded by unethical, profit-driven behavior. That helps shape & reinforce their eat/be eaten world-view, that they then impose on masses of individuals who neither live in their world nor live by their principles.

My above view is formed by a couple of things. One is years of providing IT support for a car dealership conglomerate. Every vendor relationship existed to extract cash from the auto-group; that goal shaped and drove the relationship. The services provided were tokens to facilitate that goal.

Based on the car dealership world, the lifting-all-boats, capitalist ideals, where profit drives us to better each other is a facade. The reality is that everyone is meat. That non-predators walk into this grinder to buy their transportation feels like cruel, dark humor.

The other thing that shapes my view is time I spent integrating new energy tech into mansions. The projects could take months and that led to sometimes candid conversations with the owners. One guy made his billion by baiting VC capital into his company then shuttering his biz after funneling the capital into his family's pockets. The VC firm also went under, with all jobs lost at both businesses. He was especially proud of how he framed one guy on federal charges who thought to bring attention to this. That seemed to be enough to keep regulators at a distance.

I don't think capitalism is evil. However, experience is teaching me that insufficiently regulated capitalism is driven by actions that are indistinguishable from evil. Those actions typically leave enormous damage in their wake.

If Brigade Capital held account in Citibank, and the transaction credited this account, could Citibank just revert the transaction (with fingers crossed that no-one noticed)?

I'm a bit confused by the article. It ended with a question about whether Brigade should keep that money but has only answered on the side of "Brigade is wrong. They should return the money back."

I can only pity the poor chap who made the mistake. But then I would also assume such large sums would require multiple signatures/ approvals at Citibank which makes it strange why the error happened.

Whether this is a good strategy for Brigade Capital (cons: risking reputation with banks and the public, low chance of truly being able to keep the money, pros: increasing reputation in some circles with investors, and giving off an error of cut-throated-ness, 176.2 million dollars today) comes down to churn rate.

I used to trade equities (high frequency, etc.) and I'll never forget the one trading / programming infinite loop I had while doing some pairs trading (this was like maybe 2005). It was with Goldman. Accidentally, went long something like 10,000 shares of AMGN at the time. I remember it was an Amgen / Biogen pairs trade. Clearly it was an 'out trade' or mistake. I called Goldman's desk immediately (the trading was of course all automated). Anyway, I talk to a Goldman trader. He looks up the order. Again, I'm long a lot more AMGN than I should've been and it's very unusual. Back then you could call trading desks - not sure how automated it is now... If there was an accident involved, the fair thing to do is to "bust the trades" (originally based on trading floors, trading pits, etc.). And lots of trading firms had these relationships with brokers like Goldman back in the day. AMGN is trading up a bit from when these orders came in - so I'm actually making a little money off this mistake, but I just want to unwind / exit this mistake. He agrees. I breath a sigh of relief.

I go back to trying to figure out what stupid infinite loop triggered this issue and make sure I'm completely out of everything (note, this was a huge learning lesson in my programming career in terms of always building in safety checks). 30 minutes go by and the trades aren't busted. I call Goldman back and now am worried, as by this time Amgen stock has started to go down, so now these trades are really hurting more and more (20k, 30k, etc. in 2005 dollars for a young programmer/trader). Now it's in Goldman's favor and I speak to another guy and they refuse to bust the trades.

Why do I mention this? Because again it's all a matter of churn. They made implicitly the calculation of - is this going to jeopardize the trading activity our firm is giving Goldman and cause us to split up? If not, if the expected cost of churn is less than they can make via a short-term reward, they don't care.

I now work for Amazon, and I recall Bezos saying he'd always be happy to make up a loss for a customer instead of losing them as a customer. While I think this is a good thing in the world, in a way it all comes down to churn (and LTV). And the true price of your reputation for future customers based on your reputation for treating customers.

Brigade Capital has to make that call. For me, Goldman as a company is doing fine (despite my never trusting them again after that) - so perhaps it was the right call for them to make (re: their culture -- certainly, an argument can be made that they're not liable; however the other argument that they agreed verbally to the bust and then went back on their word...).

I've since left the trading industry, and strongly believe in long-term value / valuing the relationship with the customer above all and, economically, the LTV of a customer. But I'm savvy enough to know that indeed an Amazon LTV is way way more than a single cost of an item. Now Amazon can't refund every single order that is lapsed or it will really start to eat up LTV, but it makes a lot of economic sense to protect the customer relationship (it's not just being nice).

But there's always a tradeoff. Is 176.2 million worth it v. the reputation hit and increase in churn rate for existing customers + the lowered expectation of new customers? Perhaps for them it is. (Are they a 1B under management company? a 100B under management company? According to wikipedia it says 35B, so 176.2 is small relatively to them v. their reputation) In the long run, given the difficulty in overcoming the legal aspects around this issue (i.e., given their chances of not winning the lawsuit) and having their public perception be reduced for future business relationships (reputation once lost is very difficult to regain), I doubt it.

Richard Posner was/is a big fan of the economic theory of law. In a way, there is a market value to kindness, which is an odd thing. But the good/moral thing is usually the more valuable thing in the long run (since we all vote with our wallets for what we think is sustainable and good/moral/honest things are usually more sustainable for business).

The financial understanding of the comments in this thread worry me.

What do you think?

I think if someone owes me a sh't-ton of money, I should send someone to go work in their bank and make a serendipitous mistake.

I'm curious since they also paid a bunch of other people, totally 900M that it will be a helpful argument in court to return the 177M.

Okay guys, so now that everyone got their silly irrelevant armchair legal analogies out of the way:

What would you like to happen and why?

I’m not sure that $900M can be called a ‘few million’ as stated in the article.

200 or 300 million is probably the upper limit for a few?

I think you misread something. The "few million" do not refer to the 900M but instead to the interest on the loan which is actually "a few" (less than 10) million.

That's pretty close to how much it is. $172 million and change. The $900m figure was the total amount sent, all but the $172m has been returned, at least according to the article.

There's a 1.8 billion loan outstanding, split between several lenders. Citi accidentally paid half of that loan back to some of the lenders, transferring 900 million. All the lenders but one returned the payment, leaving 176 million in dispute.

So, Citi did make a 900 million dollar blunder, as the headline says, but the subject of the story is that remaining 176 million. It's a misleading headline, not because it's not true, but because it doesn't describe the subject of the article.

Why doesn’t Revlon just pay Citibank over time the remaining balance that Citibank “paid” for them to Brigade Capital?

Because they are likely to be bankrupt before that happens. Everybody involved knows this, and is acting on that certainty.

IIRC, if a bank moves $3 million to my account, and I spend it, it's fraud.

Maybe not, if the bank owed you $3 million, but wasn't due until next year.

What if the bank owed you $3 million to begin with?

An American friend of mine living here had a decent chunk of money transferred to his account by an American company.

Next three (or so) days he try to give it back and they wouldn't listen.

Next day after that they contact him to say he needs to give the money back immediately "or else".

"Why wasn't this important to you three days ago when I tried to give the money back?"

Always, always, always keep correspondence like this in a form that can be shown in court.

The judge will NOT be friendly to the other side.

If I understand the article correctly, the equivalent here would be that the bank owed you $3 million to be paid over the next 10 years but paid it all to you today in one lump sum.

Now if they had paid you $5 million, that might leave you open to a fraud charge if you spent it because you were never expecting that much. But if they paid you the $3 million they were going to pay you but just 10 years early…is it different?

That said, I reckon it’s clearly an error. ;)

I think it would be more like: Someone owns you $3 million, and then someone else erroneously sends you $3 million.

Except that the "someone else" was employed for the purpose of facilitating the payment from the party that owes you money, back to you.

What if the someone else happens to be the bank of the first person and the transfer is done under the name and reference of the first person?

How about this you have a mortgage on a house for 3 million and lender is worried you will stop paying maybe because you missed some payments.

Now you schedule a bill pay at your bank for back payments to your lender and your bank messes up and pays off the entire mortgage with their money.

The lender then recieves a lump sum payment from you which pays off the mortgage and they are happy.

More like, someone owes you $3m, they have a guy that comes to your house and pays you the instalments for them. They accidentally pay you the full $3m out of their own pocket. As far as you're concerned, that's the money owed to you, so it's their problem to recoup that from the debtor.

that guy had a bad day, paying off people's debts, and all but one of the people said 'yeah, mistakes happen, ok'. this one says 'nope, too bad'. they might be legally right to keep it, and so would the others, but the others care about integrity, reputation, and relationships. it seems greedy and sociopathic to keep it but maybe the guy needs to learn from his mistake and they're teaching an important lesson.

Bingo! They were supposed to send $1.5 Million "Instead of sending the money from Revlon’s account, Citi transferred $900 million to a group of lenders from its own account," so it is a mistake. Something they said as soon as they found out. Whatever is owed is separate and has to be solved based on that agreement.

This was probably priced in when the hedge fund decided to lend the money

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