Citibank Accidentally Loses $500 Million
Have you ever sent a bank payment to the wrong party by accident? Usually, to get the issue resolved, all it takes is a quick call to your bank to let them know your mistake. But what if your bank told you that you could not have your money back? — you would be upset. Last August, Citibank accidentally wired $900 million in one of the biggest botches in banking history.
Usually, the law prohibits people from spending money that was accidentally deposited in their bank accounts — these mistakes are common in the digital age. Two years ago, a couple in Pennsylvania faced felony charges after spending nearly $120,000 after the money was mistakenly put in their accounts. But there are exceptions to this law. New York law allows receivers to spend the money if they did not know it was accidentally wired, and if they are entitled to the money.
Citibank acted as a loan agent for cosmetic company Revlon — they received principal and interest payments from Revlon and passed the payments to Revlon’s lenders. Citibank meant to send around $8 million in interest to Revlon’s lenders, but instead, they sent $900 million including $175 million to a hedge fund.
Some of the lenders who accidentally received the millions returned the money. However, many did not return a single cent — so Citibank sued them.
Revlon lenders say they legitimately thought the millions were sent for Revlon’s loan, and the courts agreed. Lenders received the full interest and principal payments owed by Revlon, so they assumed Revlon decided to pay their debts. Citibank has lost $500 million as lenders have refused to give the money back.
Imagine coming home from work and telling your partner you got fired for accidentally sending $900 million.
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.
