Citigroup granted court orders to freeze half of a $900m payment sent out by mistake

Some creditors who were owed the money by the bank's client, Revlon, refused to return it

(FILES) In this file photo The Citibank Corporate Office & Headquarters is viewed in midtown Manhattan July 14, 2014.   Citigroup reported a steep decline in first-quarter profits on April 15, 2020 as it set aside around $7 billion in case of loan defaults due to coronavirus shutdown. Net profit came in at $2.5 billion for the quarter ending March 31, down 46 percent from the year-ago period. Revenues rose 12 percent to $20.7 billion. / AFP / Timothy A. CLARY
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Citigroup secured court orders freezing almost half of the more than $900 million (Dh3.3 billion) it says was accidentally sent to Revlon lenders this month.

A federal judge on Wednesday froze $127.3m that HPS Investment Partners has refused to return and $109.7m that Symphony Asset Management is holding. The same judge on Tuesday issued a temporary order freezing $174.7m that Brigade Capital Management has declined to give back.

Citigroup is suing all three, which together hold $411.7 million in Revlon debt. The bank had been acting as an agent on Revlon’s loan, collecting payments from the company to distribute to the creditors. Citigroup said it had intended to make interest payments on Revlon’s behalf but accidentally transferred a sum more than 100 times as big from its own funds. It has begun briefing watchdogs, including the Office of the Comptroller of the Currency and the Federal Reserve, about how it mistakenly misdirected so much money, sources have said.

Representatives of HPS and Symphony declined to comment on Tuesday’s lawsuit. Benjamin Finestone, a lawyer for Brigade and HPS, told the judge the firms don’t concede the transfer was a mistake, saying it appeared to be a “full payoff” of the loan.

“This mistake has not been explained to date,” Mr Finestone said. “There is strong evidence, your honour, that this was in fact a payoff.”

For one thing, he said, the August 11 date of the payment the bank says was interest on the loan was “odd”, as it wasn’t the usual interest payment date.

Brigade, which says it isn’t a Revlon lender itself, has told US District Judge Jesse Furman it doesn’t have the $175m. Citigroup wired payments to about 40 funds that use Brigade as their investment or collateral manager, it said on Tuesday.

Neither of the two companies sued on Tuesday had returned the payments after repeated emails and requests, Citigroup said in the lawsuit. Their actions “threaten the integrity of the administrative agency function and trust in the global banking system,” the bank said.

“Many lenders are continuing to return Citibank’s money” over the past 24 hours, and the bank is “working closely” with others who are co-operating, Matthew Ingber, a lawyer for Citigroup, told Judge Furman in a conference on Wednesday. He didn’t name any of the lenders he said are returning the funds.

Citigroup’s lawyer said at an earlier hearing that Brigade was the only one of dozens of lenders that has “flat out” refused to return the money. The two were back in court on Wednesday as the judge worked out the next steps in their legal battle, including whether to hold a hearing on the bank’s request for a preliminary injunction forcing Brigade to give the money back while the case proceeds.

Citigroup sued Brigade on Monday and then HPS and Symphony late on Tuesday. Judge Furman combined the two suits and scheduled a two-day trial to begin in late September.

“We were hoping we wouldn’t have to file this lawsuit against Brigade,” Mr Ingber said when Judge Furman asked him whether more litigation was coming.

“We’re hopeful we don’t have to file any more lawsuits.”