Citigroup asked a US judge on Tuesday to freeze funds it mistakenly sent Revlon Inc creditors amid a lawsuit over one of the largest clerical errors by a bank in years. Last week, Citi repaid a nearly US$900 million loan made to Revlon, a day after lenders sued the cosmetic company over its restructuring tactics, but the repayment was made in error.
Citi quickly caught the payment error and was taking steps to recover the funds, the bank has said.
Citi had been acting as agent on the loan, meaning it collected payments from Revlon to distribute to the creditors, but the accidental payment came from the bank's own funds.
Brigade Capital Management LP, which got US$175 million from the payment, has so far refused to give the money back. Citigroup wired the money to 43 Brigade funds because they were Revlon's lenders, rather than Brigade itself.
To target Brigade as if they were the lender here, it just doesn't work and it doesn't make sense with respect to the type of relief they're seeking, said Robert Loigman, a lawyer representing Brigade.
An attorney for Citigroup asserted that as manager of the funds, Brigade has the power to return the money to the bank, and that if a judge rules the hedge fund can keep the funds it would create dangerous precedent.
We think it creates serious issues for the banking industry If players like Brigade can understand, by all accounts, that this was unintentional, that this was a mistake, and can reap a windfall from it, said Matthew Ingber, who represents Citi.
A judge will rule later whether or not to grant the bank's request for a temporary restraining order. The hearing was cut short because the judge had to be at a bail hearing.
Given the virtual world that we're in, I can't simply make people wait in the courtroom, he said.