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.
And they manage people’s money as a business.
Who would entrust these people with their money after learning of this case?
edit: typo.
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.
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.
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.
Edit: That is if it is a legitimate error-error not citibank try to pull a takesy-backsy.
What kind of duty? Not a legal one, I think.
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.
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.
All of a sudden, we may see some consideration given to proper verification ( not just quick rubber stamp ).
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.
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.
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.
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.
So have George Soros and Carl Icahn.
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.
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...
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.
If it were me in your shoes, the amount of raw spite I would feel for Wells Fargo would be difficult to exaggerate.
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.
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.
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.
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.
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.
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.
If you accidentally paid off a loan early do you think you would be able to get your money back from the bank?
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.
If the money doesn't get paid back, THEN it would be an economic loss. For the hedge fund.
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.
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.
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.
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.
IRL, Hanlon's razor often works.
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.
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.
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.
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 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.
Just because the receiver of the funds is not at fault does not mean the customer should take the hit.
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.
$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 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.