New York-based investment bank Citigroup Inc. is seeking the support of the federal courts to recover part of a $900 million payment it made in error to creditors. The banking giant has asked a federal court in New York to order hedge fund Brigade Capital to return a big chunk of the mistakenly sent funds – about $176 million.
According to a filing submitted to the Southern District of New York Court, Citigroup mistakenly sent the wrong amount to creditors on behalf of struggling cosmetics firm Revlon. It said the amounts transferred to creditors were at most over 100 times the size that was originally intended.
After discovering its blunder, Citibank immediately sent notices and letters to the recipients asking them to return the money. The bank claimed that the accidental overpayment as nothing more than an "operational mistake" on its part. While some creditors promptly sent back the mistaken amounts to Citibank, others have yet to respond to its requests.
Citigroup originally meant to send Brigade Capital $1.5 million to cover interest payments on a $174.7 million loan. However, the bank instead sent Brigade $175 million. On Tuesday, representatives from both Citigroup and Brigade faced off in a hearing over the former's payment blunder. Citigroup originally filed a lawsuit against Brigade on Monday.
The two groups were scheduled to meet back in court on Wednesday. Citigroup's request for a temporary court-ordered freeze on the $175 million sent to Brigade was granted after Tuesday's hearing. The bank's request for a preliminary injunction to force Brigade to return the money has yet to be granted.
During Tuesday's hearing, Brigade claimed that it no longer had the $175 million sent by Citigroup. The company pointed out that it had acted as an investment or collateral manager for over 40 funds that Citigroup had wired payments to.
Citigroup's lawyer, Matthew Ingber, told the court that Brigade, which is the largest lender that Revlon had owed money to, flat out refused to return the money. He added that Brigade claims that the payment wasn't made in error despite clear indications that the amount sent was unintentional and a mistake.
So far, Citigroup has managed to recoup less than half of the $900 million it had sent out in error. Some lenders had slammed Citigroup's actions in pursuing a lawsuit against Brigade, pointing out that Revlon had defaulted on its loans and it would have been required to repay them all in full in any case.
