For media-related inquiries, contact Suzanne Donnels at 416.367.6978 or Yohan Sauves at 514.841.6552. the amounts of principal and interest that Revlon owed on the loan to its lenders. For a partial restructuring of the facility, Revlon agreed to make about US$7.8 million in interest payments to the lenders. "While Citi has taken steps to reduce the likelihood of such a failure in the future, today's decision provides welcome stability and upholds the concept of collaboration required for a well-functioning syndicated loan market." . Reuters provides business, financial, national and international news to professionals via desktop terminals, the world's media organizations, industry events and directly to consumers. 7. All of these red flags should have led them to ask any one of the million questions that would have led to discovery of the mistake, Katyal said. On Feb. 16, U.S. District Judge Jesse Furman ruled against Citigroup, saying the prepayment was a "discharge for value," and the asset managers were not on notice of Citigroup's blunder. Or will Vladimir Putin simply wait out the West, continuing his daily killing of Ukrainian civilians while letting the Russian economy collapse? It filed the suit after Revlon hinted that it might challenge the bank's status as a creditor. Staying current is easy with Crain's news delivered straight to your inbox, free of charge. Student housing is one of the hottest corners of real-estate investing right now. The new rules (known as Rule 10D-1) require U.S. national securities exchanges and securities associations to establish standards requiring listed issuers Financial Gloom and the Increase in Insolvency Filings. View our privacy policy. Citibank's latest battle over accidental Revlon loan repayment. A trio of circuit judges ruled Thursday that Revlons creditors, which include Brigade Capital Management, HP Investment Partners and Symphony Asset Management, should not be allowed to benefit from Citis mistake. Citi sued Revlon on Friday in bankruptcy court, arguing the makeup giant should be ordered to reimburse the bank for what Citi couldn't recoup after it mistakenly sent $900 million of its own money not Revlon's to the cosmetics company's creditors. The filing refers Citi's "mistaken" repayment of a $900 million loan for cosmetics maker Revlon. 10. NEW YORK (Reuters) -Citigroup Inc is entitled to recoup about $500 million of its own money that it accidentally wired Revlon Inc lenders three years early, a U.S. appeals court said on Thursday . As for Citis appeal, a Second Circuit panel heard oral arguments in September 2021, but a ruling could take months. In the leading New York case on this defence, Banque Worms v. Bank America Intl, 570 N.E.2d 189 (N.Y. 1991), the New York Court of Appeals (the highest New York appellate court) said (at 196): When a beneficiary received money to which it is entitled and has no knowledge that the money was erroneously wired, the beneficiary should not have to wonder whether it may retain funds; rather, such a beneficiary should be able to consider the transfer of funds as a final and complete transaction, not subject to revocation. A federal judge has ruled that Citibank isn't entitled to the return of $500 million it sent to various creditors last August. 2022 FOX News Network, LLC. Law360 provides the intelligence you need to remain an expert and beat the competition. Separately, Citigroup sued Revlon in bankruptcy court in August, asking the court to dispel any doubt about its right to repayment under the Revlon term loan. Citibank says that Revlon owes it $500 million. Adding to the confusion, the payment was to the penny what was owed, he said. According to reports at the time, Corbats exit was hastened along after it became clear that federal regulators were preparing a formal reprimand for Citis failure to upgrade the banks outdated technology systems that would have monitored transactions like wire transfers. 212.588.5500. The venture-capital slump is over. The appellate court judges ruled, however, that the defendants cannot claim the benefit of the rule because they were on notice of a mistake., [T]he discharge-for-value rule does not shield the beneficiary of a mistaken transfer from claims for restitution if the beneficiary is on inquiry notice of the mistake, the judges wrote. Screen for heightened risk individual and entities globally to help uncover hidden risks in business relationships and human networks. Furman said lenders' assumption about repayment made sense given that Revlon was known to be under financial duress due to COVID-19. It was the ultimate blunder on Wall Street. It is a significant test of whether investors are willing to lend to leveraged businesses amid a slowing economy, according to this report from the Financial Times. Looking at this cautionary tale from north of the border, its natural to wonder Could it (legally) happen here?. Here is how firms like Blackstone and TPG are playing in a market that just saw a record $6.1 billion of deals. The bank warned Revlon ahead of time that it would appeal the February 2021 decision and reserve its rights to pursue repayment as an assignee of the creditors who kept their share of the Revlon payoff. The Court ruled that that the payments Citibank made on August 11, 2020, were final. Citi said it would appeal the decision. Revlon filed for Chapter 11 bankruptcy protection in June, asserting that its debt load left it too cash-poor to make timely payments to vendors. Download Insider's app here. 21-487. Jay-Z joins Times Square team bidding for prized Big Apple casino, Crypto smart money? In setting up the wire transfers to make the payments, on August 11, 2020, Citibank accidentally paid off the facility in full, including the entire principal amount owing, a total of almost US$900 million. Quotes displayed in real-time or delayed by at least 15 minutes. "The parties get returned to the position that they bargained for.". year loan to Revlon, Inc. ("the Loan" or "the Debt"), with responsibility . Print article. Montral, QC, H3A 3N9 Holders of $400mn of the . Citi wins appeal in $500M Revlon transfer case Bloomberg Tweet Share Share Email Reprints Bloomberg Citigroup Inc. persuaded a federal appeals court to force a group of Revlon Inc.. articles a month for anyone to read, even non-subscribers! 21-487 (2d Cir. From Bloomberg Law: Some of the Revlon Inc. creditors who were accidentally sent more than $900 million by Citigroup Inc. were denied a bid for a wider review of an appeals court ruling ordering them to give the money back. Legal Statement. According to Furman, the lenders were justified in believing that Citis repayment was intentional. Ben Clarke. In a decision rendered September 8, 2022, a three-judge panel for the United States Court of . The recent In re Citibank ruling has drawn attention, primarily due to the amount of money involved and the severe implications for Citibank.. Leval and Judge Robert Sack had originally decided to ask the New York Court of Appeals for a ruling, he said, but later reconsidered on the strength of the banks arguments. JPMorgan is trying to harness the power of quantum-computing. Those managers deserve "finality," their lawyer Kathleen Sullivan told the appeals court. Access unmatched financial data, news and content in a highly-customised workflow experience on desktop, web and mobile. On Tuesday, a federal judge ruled that the recipients don't have to have to return the cash. That loan was scheduled to mature in 2023. A federal judge denied Citigroup Inc.'s request to claw back roughly $500 million it mistakenly paid out of its own pocket to investment firms that made loans to cosmetics giant Revlon Inc . Bloom joined Macquarie at the beginning of the pandemic, and in that time she has convinced the bank to invest in its first-ever hotel deal. Citibanks appeal remains pending, and Citibank and other financial institutions are continuing their efforts to limit the damage. In February 2021, Citi failed to convince a district court judge to force creditors of the cosmetics firm Revlon to return $504 million of the money the bank errantly paid on Revlons behalf. Several of the lenders did not return the payments and Citi sued. The Big Take is the very best of Bloomberg's in-depth, original reporting from around the globe every day. Law360 (March 18, 2021, 9:21 PM EDT) -- The Second Circuit agreed Thursday to fast-track Citibank NA's challenge to a New York federal judge's decision allowing Revlon Inc. creditors to keep. The payee has changed its position in good faith, or is deemed in law to have done so. Who is Satoshi Nakamoto? The August blunder by Citi, Revlon's loan agent, satisfied a nearly $900 million debt that Revlon wasn't due to pay until 2023 and delivered an unexpected windfall to lenders on what had become an increasingly risky investment. Revlons creditors must return the $504 million Citierrantly paid on the cosmetics firms behalf, a federal appeals court, In a 3-0 decision, the 2nd U.S. With recent drops in crypto prices severely affecting several digital asset lenders and exchanges, we explore 2022 DAVIES WARD PHILLIPS & VINEBERG LLP, 155 Wellington Street West Authors. For general inquiries, contact info@dwpv.com. We believe we are entitled to the funds and will continue to pursue a complete recovery of them.. While the bank says it will appeal the decision, a failure to overturn it will leave Citigroup holding the bag on the bulk of . Highland Capital has already repaid the loan, Institutional Investor previously reported. Citigroup wins appeal in Revlon's $500 million transfer case. The bank wants to use cutting-edge technology to solve problems at lightning speed, from options pricing to fraud detection. Citi acted as the administrative and collateral agent for the loan, which means that it acted as an intermediary between Revlon and the lenders. In a 3-0 decision, the 2nd U.S. Shortly before the lawsuit was filed, Citi made the $900 million payment. Circuit Court of Appeals in Manhattan. So Citi has sued Revlon, in an attempt to get a judge to say that the debt is real. As soon as Citi realized its mistake, executives began trying to claw the money back. Calculation statements provided to the lenders stated that interest payments were due, and since the payment was not made on a scheduled interest payment date, there was only one way in which interest would have been due, which was with prepayment of the full principal. Both in the United States and Canada, credit agreements will henceforth include what are being dubbed Revlon Clawback clauses. Big traders fell for Sam Bankman-Fried, Billionaire pays for thousands of employees to party at Disney World, Iconic NYC wine store Sherry-Lehmann may close after 88-year run, Surging retail theft could force Walmart to close stores and raise prices, CEO warns, Grayson Chrisley gives health update after terrifying car wreck, Kanye West references abstinence until marriage, deathcon comments in new song, Bachelor alum Tia Booth gives birth, welcomes baby boy with fianc Taylor Mock, Video: Newly re-signed Aaron Judge likely to be next Yankees captain, Amy Robach spotted for first time since 'GMA3' absence over T.J. Holmes romance, I tattooed my eyeballs purple and bluenow I'm going blind. They said they didn't think the transactions were erroneous until Citi claimed as much and demanded repayment. Password (at least 8 characters required). The decision comes as Jane Fraser is set to take over as the banks chief this month, becoming the first female CEO of a major US bank after Michael Corbat announced his retirement in September. 'FAILURES' AT CITIGROUP CITED IN CEO PAY CUT AS HE HEADS FOR THE EXIT. Reuters, the news and media division of Thomson Reuters, is the worlds largest multimedia news provider, reaching billions of people worldwide every day. Revlon erroneous payment decision reversed on appeal. But New York also offers an exception if the money sent pays off a valid debt and the recipient wasnt notified of the mistake in a timely manner. The case stemmed from New York-based Citigroup's August 2020 prepayment of an $894-million loan for Revlon, which lacked enough cash to repay it, that was not due until 2023. With masked-up, stuck-at-home consumers buying less makeup and nail polish, Revlon has struggled to stay afloat and narrowly avoided a bankruptcy filing in November. All rights reserved. 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The lenders, however, argued that Judge Furman's decision should stand because those who receive money from reputable third parties like Citi should not question if the payments are legitimate. Stay up to date with what you want to know. In August 2020, Citi accidentally sent Revlon lenders including Brigade Capital. "Finding the best accommodation between the objectives of speed and legal soundness is not always easy. On August 11, 2020, instead of making a payment to the lenders of accrued interest in the amount of $7.8 million, Citibank mistakenly made a $558,558,375.74 payment, which included the full amount of Revlon's outstanding principal balance. Click here to login, 2022, Portfolio Media, Inc. | About | Contact Us | Legal Jobs | Advertise with Law360 | Careers at Law360 | Terms | Privacy Policy | Cookie Settings | Help | Site Map, Enter your details below and select your area(s) of interest to stay ahead of the curve and receive Law360's daily newsletters, Email (NOTE: Free email domains not supported). Revlon currently operating under bankruptcy protection would love to not owe Citi anything. The New York discharge-for-value defence has not been recognized under Canadian law, but it is not clear that a different result would necessarily be reached by a Canadian court on facts similar to those in the Citibank decision. 514.841.6400, 900 Third Avenue Market data provided byFactset. ", A Citibank branch in Buenos Aires, Argentina on Feb. 19, 2016. A lawyer for the investment firms declined to comment to The Wall Street Journal. And internally, Citi bankers did have a laugh about it. The appellate decision is a major victory for Citigroups main banking unit in its efforts to redeem the embarrassing blunder, which captivated Wall Street and forced Citibank to explain to regulators how it made the jumbo mistake. John J. Malm PREMIUM (312) 422-6855 Chicago, IL Asbestos & Mesothelioma, Medical Malpractice, Nursing Home Abuse, Personal Injury, Products Liability, Workers' Compensation Website Email Profile Mark T. Wakenight PREMIUM (708) 848-3159 Oak Park, IL Divorce, Family Law Website Email Profile Julia Williams PREMIUM (312) 357-1515 Chicago, IL Law360 takes your privacy seriously. All quotes delayed a minimum of 15 minutes. On August 11, 2020, Revlon instructed Citibank to transmit interim interest payments to its lenders. See here for a complete list of exchanges and delays. Musk Spars With San Francisco Over Probe of Bedrooms at Twitter, Stock Traders Skittish With Worrisome Bond Signals: Markets Wrap, Ex-Theranos President Balwani Gets 13-Year Prison Term in Fraud Case, Apple Scales Back Self-Driving Car and Delays Debut Until 2026. And the borrower will agree that such mistaken payments do not discharge its obligations and that the agent is subrogated to the rights of the lenders to the extent that any such payments are not recovered by the agent. Neal Katyal, a lawyer for Citi, told the appeals court that Revlons creditors should have been skeptical of the early loan payoff because they never received formal notice about it, according to Bloomberg. Don't miss the chance to get the biggest news first! A surprise ruling by a New York judge on Tuesday blocked Citigroup's efforts to recover $500 million it had mistakenly sent Revlon's lenders last year as the so-called administrative agent on the company's loan. Try our Advanced Search for more refined results. Get the free daily newsletter read by industry experts. Since then, more than $500 million has been deployed toward deals in the real-estate sector. Furman ruled for the creditors in February 2021, saying they shouldnt have been expected to know the transfer was a mistake. One of the briefs in support of the banks position was filed by the Loan Syndications and Trading Association, a not-for-profit group that represents more than 500 firms involved in the origination, syndication and trading of commercial loans, including both Citigroup and most of the creditors in the case. 4. The August 2020 transaction represented a full payoff of a 2016 loan that wasnt due until 2023. Dec. 06, 2022 - After years of deliberations and delays, the U.S. Securities and Exchange Commission (SEC) adopted final rules on clawbacks in October 2022. 685 Third Avenue Revlon has seen a meme-stock-like bounce of 582% since mid-June, the wire service reported, although the companys shares remain 30% below where they were a year ago. The August 2020 transaction represented a full payoff of a 2016 loan that wasn't . Oh and ICYMI Revlon filed for bankruptcy in June. 416.863.0900, 1501 McGill College Avenue Kathleen Sullivan, representing the lenders, told the panel the decision needs to stand because those who receive funds from a third party should not have to wonder if the payments are legitimate. The court decision, written by New York Southern District Court Judge Jesse Furman, shows that he ruled in favor of the 10 investment advisory firms Citi sued in August. And no one from the cosmetics company has sufficiently explained how Citi would have no claims to pursue in Revlons bankruptcy case despite paying off a sizable portion of the companys debt. Subscribe to the Banking Dive free daily newsletter, Subscribe to Banking Dive for top news, trends & analysis, The free newsletter covering the top industry headlines, Encapture Announces Inclusion in Bank Director's FinXTech Connect Platform, First Tech Appoints Chief Experience Officer and Chief Marketing Officer, Apromore Announces Series B Funding by Salesforce and GBTEC, Keynova Group Releases Q4 Online Banker Scorecard, Bank of America Ranks No. olleagues who were supposed to act as a safeguard failed to catch the error. Citibank mistakenly . The retailer has scale, brand recognition and a pedigree in an ex-Marcus CEO. Representatives for Revlon did not immediately respond to requests for comment from Law360 or Bloomberg. Morgan Stanley revealed in a filing Monday that it bought 400,650 shares in the cosmetics company in the last financial quarter a move that sent Revlons stock price up 27%, according to Reuters. Citi served as the administrative agent on the loan. It is also apparent that the Court believed that the finality of wire transfers was important to the integrity of the wire transfer system, a point reiterated by Justice Furman (this concern may be peculiar to New York law, reflecting the role of New York as a financial centre). The asset managers included Brigade Capital Management, HPS Investment Partners and Symphony Asset Management, among others. In sending such a large amount, Citi's lawyers argued that those receiving it should have known it was an error. Citations Copy Citation. Revlon stock drops after Citibank wins appeal in $500M transfer case | Seeking Alpha My Portfolio My Authors Top Stocks Latest News Markets Stock Ideas Dividends ETFs Education On the Move. The lenders which include Brigade Capital Management LP, HPS Investment Partners LLC and Symphony [] Citibank appeals lendersfrom the . Since Revlon had been engaged in negotiations to restructure its debt, it was not unreasonable for lenders to believe that it must have decided to pay off this facility, rather than the possibility that Citibank had accidentally wired almost $900 million. The judge said it was reasonable for the lenders to believe that Revlon and Citi, perhaps with Mr. Perelman's help, had "figured out a creative way to pay down" debt. But Katyal said the banking industry wires $5.4 trillion each day, and mistakes will happen. PLEASE NOTE: A verification email will be sent to your address before you can access your trial. Law360 may contact you in your professional capacity with information about our other products, services and events that we believe may be of interest.Youll be able to update your communication preferences via the unsubscribe link provided within our communications.We take your privacy seriously. No. It remains to be seen whether any other changes will emerge in syndication practices or whether more care will be taken in complying with the details of procedures called for in credit agreements like delivering notices in a timely manner. As FX News Group has reported, Citi lost its legal battle with Revlon lenders who got the money allegedly sent by mistake. Judge Furman agreed with the lenders that they "believed, and were justified in believing, that the payments were intentional." ), Create custom alerts for specific article and case topics and, I took a free trial but didn't get a verification email. But at least one Wall Street bank is seeing a boost from its stake in Revlon. Get the free daily newsletter read by industry experts. Reception: 24th Floor It could be interpreted very broadly to capture any case in which the mistaken payment discharges a debt owed to the payee. Now Citi is arguing that errant payoff makes the bank one of Revlons creditors. Put simply, you dont get to keep money sent to you by mistake unless youre entitled to it anyway, Park wrote, While Citi has taken steps to reduce the likelihood of such an error in the future, todays decision provides welcome stability and upholds the concept of cooperation needed for a well-functioning syndicated lending market, a bank spokesperson told, The blunder occurred after an employee who was. He . Kludgey software and a poorly designed user interface contributed to. to the an Managers for the Lo . (Bloomberg) A federal appeals court saved Citigroup Inc. from an epic blunder that became the talk of Wall Street, rejecting a ruling that Revlon Inc. creditors could keep more than half a billion dollars the bank . As in Canada, where the relevant law is provincial (although likely similar in common law provinces), in the United States, the application of this doctrine may vary somewhat from one state to another. Great for the hedge funds. Citigroup accidentally sent the $900 million to Revlon lenders in August 2020, an amount that paid off the entirety of a term loan rather than fulfilling a much smaller interest payment as intended. Few cases in recent memory have stirred up as much concern and controversy in the syndicated loan marketon both sides of the Atlanticas the Revlon case. The Boston-based VC shop is doubling down on seed- and early-stage artificial intelligence companies across the cybersecurity, cloudtech, and automation spaces. As per Forbes, shares of Citigroup are edging up 0.7% Tuesday, pushing the stock's one-year gain to about 6.5%. The lipstick seller, which has been pummeled by the coronavirus pandemic, narrowly avoided filing for bankruptcy protection in November, making debts to Revlon an increasingly risky investment. The facts were sufficiently troublesome that a reasonably prudent investor would have made reasonable inquiry, and reasonable inquiry would have revealed that the payment was made in error., In a separate opinion, Circuit Judge Michael Park called the lawsuit a straightforward case that many smart people have grossly overcomplicated and that we should have decided many months ago.. Already a subscriber? Citi (C) bank, which was acting as Revlon's loan agent, meant to send about $8 million in interest payments to the cosmetic company's lenders. Bankers have embarked on a high-stakes attempt to offload a $15 billion financing package to investors for the buyout of Citrix. But with smaller efforts failing to work with North Korea and Iran, will it be enough? Citibank was the administrative agent for a syndicated term loan to Revlon. They believed that Citi was helping Revlon restructure its debt and weather the Covid-19 pandemic in ways that would weaken their claims on key brand assets and hurt the value of their investments. Your favorite NYC restaurants not only escaped to Florida, they're expanding, Star power! Justice Furman found that the lenders did not have constructive notice of the mistake for various reasons, including the following: How Would a Canadian Court Decide a Similar Case? U.S. District Judge Jesse Furman ruled in favor of ten investment advisory firms that collectively received more than $500 million in mistaken wire transfers from Citi on August 11, according to a . In a painful piece of bad timing, Citibank was preparing to resign its role as administrative agent on the loan when it wired the huge sum to the lenders. At the heart of the lawsuit is a mistaken repayment of a $900 million loan for cosmetics maker Revlon. Citibank was trying to send an interest payment to Revlon lenders managed by Angelo Gordon & Co., who were swapping their positions in a 2016 term loan for positions in a different credit facility. And for a look back inside Citi's $900 million blunder, check out this piece from Insider's Yoonji Han and Dakin Campbell. 12 . But mistrust between the lenders and Citi had been building even before then. Investors are keen to write checks, but they might have some new conditions for those startups in need of money. Revlon filed for Chapter 11 protection from creditors on June 15, and Thursday's decision could result in the asset managers being involved in restructuring talks. $ 7.8 million in interest payments to the funds and will continue to pursue a complete list of and... A Second Circuit panel heard oral arguments in September 2021, saying they shouldnt have been to... 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