Photographer: David Paul Morris / Bloomberg
Photographer: David Paul Morris / Bloomberg
A lawyer for Citigroup Inc. told a federal judge on Friday that he knew of another large bank that had recently made an even larger payment error than his own $ 900 million transfer to Revlon Inc. Lenders
Attorney Neal Katyal dropped the bomb at a hearing in which Citibank urged the judge to extend the more than half-million-dollar freeze it connected to asset managers for Revlon’s creditors last summer – an epic back office mistake that led to a narrow saw trial. Some of them returned the money and Citibank unsuccessfully sued ten others for the $ 504 million they refused to return. The judge froze the funds during the dispute.
Photographer: Al Drago / Bloomberg
Katyal never identified the other bank after alluding to it on Friday. The view focused on whether the freeze would continue. The judge did not rule.
“Toothpaste can’t be put back in the tube,” Katyal told U.S. District Judge Jesse Furman in Manhattan by video conference. “There is no guarantee that this can be resolved later” if Furman releases the money and Citibank wins an appeal filed shortly after the judge ruled on the defendants in February.
“Lottery-like fall”
Citibank asset managers sued, among them Brigade capital management, HPS Investment Partners i Symphony Asset Management: They have asked the judge to lift their disposition on the money, saying that they received exactly what they owed them and that they should be free to use the cash as they wish. Citibank argues that the money “represents a lottery-like advantage” for creditors and may not be recoverable, or even traceable, if distributed to investors around the world.
Read more: Citi confronts “search engine guardians” in the fight against the $ 500 million resolution
To emphasize this point, Katyal invoked the implosion of Archegos Capital Management, the family office of investor Bill Hwang, which went from relative darkness to Wall Street infamy in a matter of days after a series of wrong bets on Chinese technology and US media companies . He told Furman that the collapse of Archegos is further proof that Revlon lenders cannot guarantee that they will return the money to Citibank if it is not frozen and the bank wins its appeal.
Just two weeks ago, Archegos could have said “that it was one of the most respected institutions in the world, and that it wasn’t, in a moment of disappearance,” Katyal said.
Adam Abensohn, a fund lawyer, backed down on the argument that Citibank would suffer irreparable damage if the money ban was lifted.
“As long as they deal with solvent institutions, they don’t run the risk of charging,” he said. “There has been no suggestion, nor could there be, that lenders are playing the three-card mound.”
Harder sale
Citigroup said the money should remain closed.
“While many lenders have acknowledged that the payment was made in error and have returned several hundred million dollars, we have been forced to sue other lenders,” Danielle Romero-Apsilos said in a statement on Thursday. company spokesman. “These funds sent to these lenders have been frozen by court order and we want this freezing to continue through our appeal. We believe we have strong arguments to appeal.”
Quinn Emanuel Urquhart and Sullivan LLP, which represents the asset managers, declined to comment on the case.
On his surprise ruling in February, Furman found that companies should not be expected to know that bank transfers were a mistake.
Read more: Citi loses bid to recover massive error
Keeping funds on hold will be harder for the bank than before, said Elliott Stein, a senior litigation analyst at Bloomberg Intelligence.
“Citibank won a freeze of funds before the trial, but it may have more difficulty extending that freeze now that it lost at trial,” he said. “One of the key elements, which shows that Citi would be irreparably harmed if the freeze is lifted, can be applied more strictly after the trial.”
Higher stakes
For Citibank, bets can be even higher than the amount you demanded to recover. Some of the money managers who returned the money did so as long as they were treated like the others and Citibank returned the funds to them if the bank lost the case, according to people who know about it.
Stein said he was “skeptical at the time” that these companies would prevail in recovering the money returned to the bank.
“Just as Citibank has had to suffer the consequences of its error, so too can these funds have to suffer the consequences of their error in not initially recognizing their legal rights,” he said.
Read more: Citigroup executives have tried to “lessen the pain” of a $ 900 million mistake
It will depend on “the documentation and releases between the lenders and Citi that accompanied the return of funds,” he said. Braden Perry, expert on legal and regulatory issues who has followed the case.
“In general, if there has been a release of liability, this is legally binding and usually states that you are taking some action (here the return of funds) and that you agree not to take any other legal action,” he said. “But again, they will be specific between the lender who returned the funds and Citi.”
Furman’s decision in February has already led to changes, which has led to it language in loan agreements that would force investors to return the money in the event of a similar error.
The case is Citibank NA v. Brigade Capital Management, 20-cv-6539, U.S. District Court, Southern District of New York (Manhattan).
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(Updates with more details on hearing and context from the second section.)