
Citibank's $900M Blunder - superasn
https://finshots.in/archive/citibank-billion-dollar-blunder/
======
nrmitchi
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.

~~~
jtc331
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.

~~~
jmvoodoo
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.

~~~
freeone3000
That is incorrect - I would actually owe my bank an additional prepayment
penalty, according to my mortgage structure.

~~~
PascLeRasc
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".

~~~
binbag
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.

~~~
deathanatos
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.

------
whatok
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.

~~~
appleiigs
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.

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

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

~~~
natpalmer1776
That's probably why the courts agreed to freeze the funds completely.

~~~
HumblyTossed
I missed that very obvious point, thanks.

------
social_quotient
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...](https://www.citigroup.com/citi/news/2020/second-
quarter-2020-earnings.htm)

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

~~~
LatteLazy
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".

~~~
koboll
Right, but that's because I'm _not owed_ 10x my monthly salary.

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

~~~
salamander014
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.

~~~
LatteLazy
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...

~~~
URSpider94
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.

~~~
cameldrv
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.

~~~
true_religion
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.

------
Hermel
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.

~~~
basseq
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.

------
ferros
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.

~~~
boffinism
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.

~~~
ferros
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.

~~~
ooobit2
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.

~~~
jermaustin1
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...

~~~
impendia
> 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.

~~~
jasonwatkinspdx
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.

------
Animats
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...](https://www.bloomberg.com/news/articles/2020-05-04/revlon-wins-
approval-for-debt-deal-facing-some-investor-pushback)

~~~
nutjob2
> effectively bought the loan back

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

------
rurp
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.

------
JoeAltmaier
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.

~~~
mehrdadn
> 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.

~~~
chasd00
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.

------
saimiam
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.

~~~
iamshs
"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...](https://www.smh.com.au/business/companies/masterchef-finalist-
caught-in-conveyancer-hack-recovers-half-her-money-but-could-still-be-
homeless-20180624-p4znfe.html)

~~~
sukilot
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.

~~~
below43
Looks like she got it back

[https://www.9news.com.au/national/masterchef-contestant-
dani...](https://www.9news.com.au/national/masterchef-contestant-dani-venn-
home-sale-hack-pexa/58245cf0-b6ac-45bb-a904-d97d770877b4)

------
adrr
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](https://www.bbc.com/news/world-us-canada-49643015)

~~~
manquer
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.

~~~
adrr
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.

~~~
manquer
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.

------
hn_throwaway_99
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.

~~~
avianlyric
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.

------
AndyMcConachie
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.

------
shajznnckfke
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?

------
credit_guy
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...](https://www.institutionalinvestor.com/article/b1mzydxt246pl9/Brigade-
Capital-Claims-It-s-Not-Believable-That-Citi-s-900-Million-Transfer-Was-a-
Mistake)

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

------
LatteLazy
>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...

~~~
ace32229
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!

~~~
LatteLazy
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 :)

------
ineedasername
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.

------
RobRivera
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

------
m3at
> 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?

------
jasonlfunk
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.

~~~
DangitBobby
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?"

~~~
TuringNYC
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.

~~~
DangitBobby
We just told the same story

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

------
Yizahi
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.

------
flerchin
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.

~~~
VBprogrammer
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.

------
julienfr112
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.

------
fsckboy
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)

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

[https://en.wikipedia.org/wiki/Common_law#United_States](https://en.wikipedia.org/wiki/Common_law#United_States)

~~~
fsckboy
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.

------
Ballu
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?

------
djohnston
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?

~~~
boffinism
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.

------
noisy_boy
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.

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

------
rossjudson
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.

------
voices_carry
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.

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

What did they do exactly?

------
WarOnPrivacy
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.

------
inshadows
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)?

------
deeteecee
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."

------
seshagiric
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.

------
tmsh
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).

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

------
rkagerer
_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.

------
dmix
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.

------
vmception
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?

------
helsinkiandrew
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?

~~~
chki
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.

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

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

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

~~~
docdeek
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. ;)

~~~
matsemann
I think it would be more like: Someone owns you $3 million, and then _someone
else_ erroneously sends you $3 million.

~~~
antihero
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.

~~~
stOneskull
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.

------
scott31
This was probably priced in when the hedge fund decided to lend the money

