[HN Gopher] Citibank's $900M Blunder
___________________________________________________________________
Citibank's $900M Blunder
Author : superasn
Score : 282 points
Date : 2020-08-20 11:17 UTC (11 hours ago)
(HTM) web link (finshots.in)
(TXT) w3m dump (finshots.in)
| Yizahi wrote:
| This is exactly the same situation as in IT with "colored bits".
| Bits don't have color of course, they are just 1 and 0. So when
| you have a sequence of bits on your storage and it happens to be
| a sequence legally owned by someone (DRM), what happens? Could
| you have randomly clicked on a keyboard all day and generate
| exact same sequence as some corporation is selling for money?
| Maybe. It is possible. But would court agree with this? No. To
| the court bits have color, even if they are the same it does
| matter how they have appeared on your storage and why. And the
| same exact sequence of bits acquired by different means would be
| treated differently by the court. So most likely court will force
| Brigade to return the money, at least I think it is logical to do
| so.
| RobRivera wrote:
| This is fascinating, in so far as the surface details
| materialize. However I feel as details of the loan are read in
| detail in can be reasonably argued that one side is in fact more
| right than the other, but the devil's in the details.
|
| Early loan payment is a feature of credit. The cashflow is a
| feature of a fixed income. If the cashflow can be cut short and
| money returned at the debtors option, the creditor is once again
| found in a situation of having to seek a superior investment
| opportunity and thats a risk in some portfolio managers' eyes.
|
| I think the argument that the spot economic signals are stacked
| against revlon isn't a factor in citis favor, and a hedge fund is
| exercising fiduciary responsibility by closing the debt,
| ESPECIALLY if the debt has an early payment clause.
|
| If citi is told to go "pound sand" then they've effectively
| acquired a bond position on Revlon tho, so the argument that the
| hedgefund must return the money sounds valud from the sense that
| currently, revlon doesn't have a formal bond agreement with citi.
|
| I'm very curious as to the court's position in this case, bc if
| citi has to bite the bullet, IB world is going to laugh at citi
| noisy_boy wrote:
| If I owe you money and my wife forgot my bag with money in your
| house, you don't get to keep it just because the amount matches
| or I'm in bad shape. Either I pay up as per terms and conditions
| and we are fair and square. If I default, you can sue me and if
| the court orders to impound my assets, you get to take/sell my
| stuff. Not before that.
| WarOnPrivacy wrote:
| This story hints that huge entities aren't just predatory
| scumbags with consumers but also with each other. I believe this
| shows how corp execs are surrounded by unethical, profit-driven
| behavior. That helps shape & reinforce their eat/be eaten world-
| view, that they then impose on masses of individuals who neither
| live in their world nor live by their principles.
|
| My above view is formed by a couple of things. One is years of
| providing IT support for a car dealership conglomerate. Every
| vendor relationship existed to extract cash from the auto-group;
| that goal shaped and drove the relationship. The services
| provided were tokens to facilitate that goal.
|
| Based on the car dealership world, the lifting-all-boats,
| capitalist ideals, where profit drives us to better each other is
| a facade. The reality is that everyone is meat. That non-
| predators walk into this grinder to buy their transportation
| feels like cruel, dark humor.
|
| The other thing that shapes my view is time I spent integrating
| new energy tech into mansions. The projects could take months and
| that led to sometimes candid conversations with the owners. One
| guy made his billion by baiting VC capital into his company then
| shuttering his biz after funneling the capital into his family's
| pockets. The VC firm also went under, with all jobs lost at both
| businesses. He was especially proud of how he framed one guy on
| federal charges who thought to bring attention to this. That
| seemed to be enough to keep regulators at a distance.
|
| I don't think capitalism is evil. However, experience is teaching
| me that insufficiently regulated capitalism is driven by actions
| that are indistinguishable from evil. Those actions typically
| leave enormous damage in their wake.
| rurp wrote:
| This reminds me of a similar story from a very different domain:
| The World Series of Poker. Some years back a high limit player
| went to the bathroom and hung his money belt on the inside of the
| stall door, did his business, then walked out forgetting the belt
| was in the stall.
|
| As soon as he realized his mistake he ran back in a panic because
| the belt contained over $700,000 in high denomination chips. By
| the time he got back the money was gone.
|
| The tournament director announced what had happened (leaving out
| most of the details) and asked for the person who found the money
| belt to return it.
|
| This sparked a lot of conversation at the event that year. Aside
| from the ethics of keeping the money there would be some big
| practical hurdles. High value casino chips are carefully tracked
| individually, so the issuing casino would almost certainly
| recognize any large chips from that haul as having been paid out
| to the original owner.
|
| I later heard second or third hand that the money belt was
| returned with all of the chips to the person who lost them, who
| in turn gave that person a sizable reward.
| j0ba wrote:
| The business banking division of citi is absolute garbage, and
| this is just more proof.
| tmsh wrote:
| Whether this is a good strategy for Brigade Capital (cons:
| risking reputation with banks and the public, low chance of truly
| being able to keep the money, pros: increasing reputation in some
| circles with investors, and giving off an error of cut-throated-
| ness, 176.2 million dollars today) comes down to churn rate.
|
| I used to trade equities (high frequency, etc.) and I'll never
| forget the one trading / programming infinite loop I had while
| doing some pairs trading (this was like maybe 2005). It was with
| Goldman. Accidentally, went long something like 10,000 shares of
| AMGN at the time. I remember it was an Amgen / Biogen pairs
| trade. Clearly it was an 'out trade' or mistake. I called
| Goldman's desk immediately (the trading was of course all
| automated). Anyway, I talk to a Goldman trader. He looks up the
| order. Again, I'm long a lot more AMGN than I should've been and
| it's very unusual. Back then you could call trading desks - not
| sure how automated it is now... If there was an accident
| involved, the fair thing to do is to "bust the trades"
| (originally based on trading floors, trading pits, etc.). And
| lots of trading firms had these relationships with brokers like
| Goldman back in the day. AMGN is trading up a bit from when these
| orders came in - so I'm actually making a little money off this
| mistake, but I just want to unwind / exit this mistake. He
| agrees. I breath a sigh of relief.
|
| I go back to trying to figure out what stupid infinite loop
| triggered this issue and make sure I'm completely out of
| everything (note, this was a huge learning lesson in my
| programming career in terms of always building in safety checks).
| 30 minutes go by and the trades aren't busted. I call Goldman
| back and now am worried, as by this time Amgen stock has started
| to go down, so now these trades are really hurting more and more
| (20k, 30k, etc. in 2005 dollars for a young programmer/trader).
| Now it's in Goldman's favor and I speak to another guy and they
| refuse to bust the trades.
|
| Why do I mention this? Because again it's all a matter of churn.
| They made implicitly the calculation of - is this going to
| jeopardize the trading activity our firm is giving Goldman and
| cause us to split up? If not, if the expected cost of churn is
| less than they can make via a short-term reward, they don't care.
|
| I now work for Amazon, and I recall Bezos saying he'd always be
| happy to make up a loss for a customer instead of losing them as
| a customer. While I think this is a good thing in the world, in a
| way it all comes down to churn (and LTV). And the true price of
| your reputation for future customers based on your reputation for
| treating customers.
|
| Brigade Capital has to make that call. For me, Goldman as a
| company is doing fine (despite my never trusting them again after
| that) - so perhaps it was the right call for them to make (re:
| their culture -- certainly, an argument can be made that they're
| not liable; however the other argument that they agreed verbally
| to the bust and then went back on their word...).
|
| I've since left the trading industry, and strongly believe in
| long-term value / valuing the relationship with the customer
| above all and, economically, the LTV of a customer. But I'm savvy
| enough to know that indeed an Amazon LTV is way way more than a
| single cost of an item. Now Amazon can't refund every single
| order that is lapsed or it will really start to eat up LTV, but
| it makes a lot of economic sense to protect the customer
| relationship (it's not just being nice).
|
| But there's always a tradeoff. Is 176.2 million worth it v. the
| reputation hit and increase in churn rate for existing customers
| + the lowered expectation of new customers? Perhaps for them it
| is. (Are they a 1B under management company? a 100B under
| management company? According to wikipedia it says 35B, so 176.2
| is small relatively to them v. their reputation) In the long run,
| given the difficulty in overcoming the legal aspects around this
| issue (i.e., given their chances of not winning the lawsuit) and
| having their public perception be reduced for future business
| relationships (reputation once lost is very difficult to regain),
| I doubt it.
|
| Richard Posner was/is a big fan of the economic theory of law. In
| a way, there is a market value to kindness, which is an odd
| thing. But the good/moral thing is usually the more valuable
| thing in the long run (since we all vote with our wallets for
| what we think is sustainable and good/moral/honest things are
| usually more sustainable for business).
| rossjudson wrote:
| It's probable that Brigade is not the only credit/investor
| involved. If Revlon doesn't pay (or defaults), other creditors
| have rights too, and there are processes to fairly distribute
| assets.
|
| "Oops, we're keeping it" is an invitation to bypass those
| processes.
| julienfr112 wrote:
| If during discovery, they found an internal email of Brigade
| Capital saying "these dumbass of City send us the money !! IN
| FULL !! Never though we were going to see again that Revlon
| money", Brigade Capital is screwed.
| helsinkiandrew wrote:
| I'm not sure that $900M can be called a 'few million' as stated
| in the article.
|
| 200 or 300 million is probably the upper limit for a few?
| twic wrote:
| There's a 1.8 billion loan outstanding, split between several
| lenders. Citi accidentally paid half of that loan back to some
| of the lenders, transferring 900 million. All the lenders but
| one returned the payment, leaving 176 million in dispute.
|
| So, Citi did make a 900 million dollar blunder, as the headline
| says, but the subject of the story is that remaining 176
| million. It's a misleading headline, not because it's not true,
| but because it doesn't describe the subject of the article.
| chki wrote:
| I think you misread something. The "few million" do not refer
| to the 900M but instead to the interest on the loan which is
| actually "a few" (less than 10) million.
| [deleted]
| celticninja wrote:
| That's pretty close to how much it is. $172 million and change.
| The $900m figure was the total amount sent, all but the $172m
| has been returned, at least according to the article.
| kehphin wrote:
| Why doesn't Revlon just pay Citibank over time the remaining
| balance that Citibank "paid" for them to Brigade Capital?
| JoeAltmaier wrote:
| Because they are likely to be bankrupt before that happens.
| Everybody involved knows this, and is acting on that certainty.
| social_quotient wrote:
| I'm struggling a little on the details. Citi paid 900mm to
| lenders of which only 175mm went to Brigade.
|
| Things I'd like to know:
|
| -Who got the other amount and Did they return it?
|
| -The 900mm mistake is actually several mistakes not just 1 simple
| typo? How is that possible.
|
| As for wrapping my head around this. It's a total debt of 1.5bn.
| Let's drop some zeros and see how we think of it. Let's say 15k
| credit card with AMEX. I owe 150 in interest but instead I send
| 1,500. Would they refund the mistake? Let's go ahead and follow
| the headline and say I paid 9k of my 15k balance. Would they
| refund the mistake? (Honest question) This scenario is at the
| consumer level and zeros matter but I see sloppiness somewhere in
| Citi and their dealing with money when it's specifically what
| they are trusted to do. As for the "loss"...
|
| Let's consider how this should likely play. The loss here of Citi
| isn't materially that they lose the money. It would get rolled
| into a loan to Revlon at the same rates. Revlon still has to pay
| it, just Citi has to float the time. The material loss to Citi
| should be near zero - they could even sell the loan at a slight
| loss to get it off their plate. Oops we sent 900mm to you... Now
| we are the loan holder. They end up with money tied up and should
| Revlon go to bankruptcy then they will realize this loss.
|
| Stats -Citi has a 100bn market cap.
|
| -They have currently 685bn in loans outstanding to borrowers.
|
| -currently holding 26.4bn for credit losses for pandemic.
|
| https://www.citigroup.com/citi/news/2020/second-quarter-2020...
|
| The only news I really see here is how Citi ops let an unexpected
| amount get sent without proper authorizations.
| LatteLazy wrote:
| If you're employer sent you 10x your monthly salary, you would
| be expected to return 9 of those x's. Not just "great, don't
| pay me again for 9 more months, let's hope I don't quit before
| then lol".
| dkarp wrote:
| This actually happened to me, albeit more like 2.5x instead
| of 10x. I was told it was easier to take it out of my future
| salary, so that is what was done. The most annoying thing was
| trying to work out what I'd be paid the third month after
| taxes as we're taxed at source in the UK
| LatteLazy wrote:
| I've always had it the other way with New jobs: "whoops, we
| screwed up and didn't pay you, maybe we'll get to it next
| month lols."
| alasdair_ wrote:
| Yeah. I remember having the same issue, especially at
| places where they only pay people monthly l, in arrears,
| so sometimes it can take more than eight weeks after
| starting work to get a first paycheck.
| 1024core wrote:
| Why do people keep confusing this with employment? This is
| like a mortgage! It was a loan that Brigade gave to Revlon.
| It's not like Brigade was doing work for Revlon.
| LatteLazy wrote:
| It's all the same really: If your bank screwed up and 10x
| paid your mortgage, would you be happy to just stump up
| that cash or would you expect the error to be reversed? Is
| it reasonable for you to have 10 mortgage payments just sat
| around or would that payment cause you massive problems as
| you would have no money at all for food or fuel or taxes
| for quite a while?
| koboll wrote:
| Right, but that's because I'm _not owed_ 10x my monthly
| salary.
| LatteLazy wrote:
| Yes, you are, just not yet, exactly like revlon/brigade.
| salamander014 wrote:
| No, you aren't. Unless he was on contract for the year,
| the salary for the rest of the year won't be paid in full
| if the employee leaves or is fired, for example.
|
| A loan is the opposite.
| LatteLazy wrote:
| Sorry to be blunt but... you're sort of wrong twice:
|
| * EVEN IF he has a contract for the year, there would
| still be 1001 things that might happen between then and
| now that mean he isn't actually due payment (company
| bankruptcy, his death etc). That's why he cannot keep the
| money.
|
| * And that is exactly the same position that
| Revlon\Brigade are in: Brigade are no more SURE they will
| get paid or that Revlon will even be legally required to
| pay them...
| URSpider94 wrote:
| There's a difference between obligation and payment
| terms.
|
| I undoubtedly owe my mortgage lender for the full amount
| of the loan on my house. I can choose whether to just pay
| the monthly payment, or I can pay more at any time, up to
| the full outstanding principal. If I send my lender a
| bigger check, they'll gladly cash it and apply it to the
| principal, and I don't think I'd have any luck in asking
| for the money back. It's implicit with most loans that
| the borrower can pre-pay ahead of the payment schedule at
| any time.
|
| For my salary, my employer's obligation is only for the
| past two weeks of work. Any overpayment on their part
| would be due back to them immediately.
| cameldrv wrote:
| I'm pretty sure if you could show that your bank made a
| mistake and transferred them 10x your mortgage payment,
| that they would give it back.
| karpierz wrote:
| You may not be required to pay the full loan if your
| company goes bankrupt. A loan is a series of scheduled
| payments which are likely but not guaranteed to happen.
| vxNsr wrote:
| > _I owe 150 in interest but instead I send 1,500. Would they
| refund the mistake? Let's go ahead and follow the headline and
| say I paid 9k of my 15k balance. Would they refund the mistake?
| (Honest question) This scenario is at the consumer level and
| zeros matter but I see sloppiness somewhere in Citi and their
| dealing with money when it's specifically what they are trusted
| to do. As for the "loss"..._
|
| It's different for a very important reason.
|
| Revlon didn't authorize the money to be sent. This is like you
| telling your bank to send a check to AMEX for $150 and they put
| down $1500 on the check, it comes out of their funds, not
| yours, and then when AMEX cashes the check that's when the
| mistake is discovered.
|
| The important point is that Citi made the mistake not Revlon.
|
| My guess is that if Citi loses the suit they'll end up being
| the lender for the part that Brigade loaned.
| manquer wrote:
| The problem is citi is the guarantor of the revlon loan .
|
| It is more like your dad paying your credit bill in full
| instead of the minimum and now saying he wants the money back
| andreareina wrote:
| I'm not finding anything that says Citibank is a guarantor,
| only administrator, whatever that means. If Citibank did
| guarantee the loan, then Brigade has no need to fear
| Revlon's bankruptcy right, since they'd be able to collect
| from Citi. Unless they're worried that _Citi_ is going to
| go under, which is another kettle of fish.
| manquer wrote:
| It is cash flow . Everyone is in a crunch , if revlon
| default on this loan, and then go under , getting money
| of anyone will take a long while .
|
| Brigade gave the loan pre pandemic , under very different
| conditions , today they are probably happy with the money
| back.
|
| It could also be that They may other liabilities of their
| own, where this liquidity could be useful.
|
| Under normal market you want as little of money with you,
| money in the bank does not earn much , it is doubly
| important if you are in the business of making
| investments .
|
| However in poor confidence conditions you want as much
| liquidity as you can have which is why everyone starts
| buying treasuries when markets go south .
| Estroikas wrote:
| People need to get out of the idea that just because something
| or someone has extra 0s in their account, that they should be
| more liable for things. Mistakes can happen at all levels, if
| society intends to build fair and equitable environments, it
| needs to stop looking at group A or group B differently. Don't
| forget that if there is an undue burden to be 100% all of the
| time, it will be priced into the offering at some point,
| leading the end user to foot the bill.
| alasdair_ wrote:
| > People need to get out of the idea that just because
| something or someone has extra 0s in their account, that they
| should be more liable for things.
|
| Perhaps. The thing to note is that if someone loses a lot of
| money, they are treated far better in terms of societal
| resouces (courts, judges, police time etc.) than those who
| lose small amounts, even though if the system was fair all
| losses would be treated equally.
|
| For example: if you tell the police you've had $500 in damage
| done to your car, they may get as far as filing a report but
| nothing else will usually happen. If a company has $500
| million in property damage done, there will be an enormous
| investigation and the DA will be actively involved etc.
|
| In other words, group A and group B are already looked at
| differently.
| signal11 wrote:
| > Let's say 15k credit card with AMEX. I owe 150 in interest
| but instead I send 1,500. Would they refund the mistake?
|
| Yes if you had exceeded your minimum payment:
| https://www.fool.com/the-ascent/credit-cards/articles/overpa...
| rcar wrote:
| Overpayment in credit card terms is typically when you pay
| more than the full balance, not more than the minimum
| payment. Getting a refund under the given circumstances (1500
| on a 15k bill with a 150 min pay) might be possible from some
| lenders, but would almost certainly involve a lot of time on
| the phone with customer service reps.
| tinco wrote:
| Maybe it's like that Hawaii mistake, the "pay installments"
| button was right next to the "repay full loan" button.
|
| Also, that it now happened to 900M means it has probably
| happened before to smaller loans before, I bet there's some
| sort of law about that.
| curryst wrote:
| Some of the earlier articles about this mentioned that Revlon
| is struggling and that the creditors were worried about getting
| paid back for the loan.
|
| This seems like a really bad loan to service.
| avianlyric wrote:
| I think this is a bit of a jump
|
| > Let's consider how this should likely play. The loss here of
| Citi isn't materially that they lose the money. It would get
| rolled into a loan to Revlon at the same rates. Revlon still
| has to pay it, just Citi has to float the time.
|
| Neither Citi or Revlon have agreed to lend/borrow money from
| each other. Citi isn't party to any of the loans Revlon has
| taken out (other than as a financial administrator). So why
| would Citi suddenly just taken on this loan to Revlon?
|
| It would like if your bank accidentally paid off your credit
| card (we'll ignore how that might actually happen). You
| wouldn't suddenly have a loan agreement with your bank.
|
| How would that work? Neither party agreed any terms. What would
| the interest rate be, repayment period etc?
|
| Your bank won't even know what agreement you had with your
| credit card provider, so they would need to rely on you being
| honest about what you owed and the interest to pay. And no they
| couldn't just ask your credit card provider, that would be a
| massive breach of privacy.
|
| That's ignoring the fact there's no guarantee that your bank
| can support such a loan. Even if they have the cash, they might
| not be able to continue meeting their regulatory capital and
| liquidity requirements. Especially as it would be a high risk
| loan (both in your hypothetical scenario and in Citi's real
| scenario).
|
| In short there are many reasons why you can't just go "oh it's
| your loan and your problem now, good luck with the hot potato".
| PascLeRasc wrote:
| Let's take your example and just call it a $150k small business
| loan instead, since most small businesses will just be making
| the minimum interest payment, not really trying to pay it off
| quickly, where I could see a regular person throwing money at
| half their credit card debt after selling their car or
| something.
| polack wrote:
| > The 900mm mistake is actually several mistakes not just 1
| simple typo? How is that possible.
|
| They probably repaid all lenders that are customers of Citibank
| and that took part in the $1.8 billion loan to Revlon. Maybe
| one button to "close" the loan? :)
| flerchin wrote:
| If my bank accidentally paid off my entire credit card balance
| when I instructed them to pay the minimum payment, I'd be glad
| that it's between the bank and the credit card company. Not sure
| if I have an agreement with my bank to repay them, and under what
| terms.
| VBprogrammer wrote:
| This reminds me of a story. A friend of mine once had a
| significant amount of money (several thousand euro) deposited
| into his account accidentally. Being a bit of a shyster he left
| it alone for several months but eventually started spending it.
|
| Some years later he got several phone calls from his bank all
| in a very short period of time. His luck ran out. Apparently
| what had happened is that he'd been in the bank having
| something changed on his account, the next person came in to
| deposit money but the teller failed to change the account.
|
| In the end they arranged a very low interest loan for him to
| pay back the money over time, so in the end he probably came
| out ahead.
| fsckboy wrote:
| IANAL but have anecdotally been involved in similar law to this
| case where I was told:
|
| Courts don't issue injunctions routinely "just to freeze things
| and be fair till the case plays out"; courts issue injunctions
| when the court considers that the party who seeks the injunction
| has a good claim and has every expectation of prevailing.
|
| so by that measure, the judge freezing the assets means Citi has
| a good chance of getting its money back.
|
| (also, I looked up Kelly v Solari on wikipedia and the case was
| from 1841. I don't think English Common Law from after US
| independence would apply)
| ary wrote:
| U.S. law is based on English Common Law.
|
| https://en.wikipedia.org/wiki/Common_law#United_States
| scott31 wrote:
| This was probably priced in when the hedge fund decided to lend
| the money
| deeteecee wrote:
| I'm a bit confused by the article. It ended with a question about
| whether Brigade should keep that money but has only answered on
| the side of "Brigade is wrong. They should return the money
| back."
| Animats wrote:
| Look at the bigger picture. The loan here was probably made
| originally by Citibank to Revlon, and then the loan was sold to
| Brigade. That's implied by the expected payment flow - Revlon to
| Citibank to Brigade. So Citibank was the loan originator, and
| when they sold the loan, became just the servicer of the loan.
| That's all quite common.
|
| Citibank, by paying off Brigade, effectively bought the loan
| back. Something Citibank might choose to do under some
| circumstances, and may have the contractual option do to. If
| Revlon were not going broke, this would be a non-problem. Revlon
| still has the obligation to pay Citibank. Citibank would just
| have another loan on the books, and could hold onto it and
| collect the payments, or sell it off again.
|
| Revlon is in trouble and trying hard to restructure their
| debt.[1] As a servicer, that wasn't Citibank's problem. Having
| accidentally bought the loan back, now it is.
|
| This will probably all turn on the contract terms. Did Citibank
| have the option to buy back the loan from Brigade? Details like
| that.
|
| I have a friend at a big law firm who deals with contract law
| messes like this. She's said that IPOs and startups are fun -
| everybody is happy and upbeat. In bankruptcies and workouts,
| everybody hates everybody else. No fun.
|
| [1] https://www.bloomberg.com/news/articles/2020-05-04/revlon-
| wi...
| nutjob2 wrote:
| > effectively bought the loan back
|
| Yes, at full price. Meanwhile Revlon debt is trading at a
| roughly 70% discount on the open market.
| JoeAltmaier wrote:
| I just wonder, if I as a private person had a brain fart and
| wrote a check in full for my car loan, instead of just an
| installment, what are my chances of retrieving that money? Very
| small I should think.
|
| So, are corporations classed as fictional persons? Then let
| Citibank live with the mistake. As I would have to.
| pps43 wrote:
| First world problem. My check would bounce, therefore I would
| not have to retrieve anything (beyond bad check fee).
| andreareina wrote:
| The analogy doesn't apply because Citibank doesn't owe Brigade
| anything, they just happen to also be Revlon's banker.
| mehrdadn wrote:
| > I just wonder, if I as a private person had a brain fart and
| wrote a check in full for my car loan, instead of just an
| installment, what are my chances of retrieving that money? Very
| small I should think.
|
| I would've assumed that if you contacted them immediately and
| gave them adequate notice of the mistake, you'd be able to get
| it sorted. Very curious what the actual answer is in the real
| world.
| chasd00 wrote:
| unless you were able to request a stop payment on the check
| prior to it clearing I don't see how you would be able to get
| the money returned. Or, at least, whatever entity you owed
| the money to would not be required to return it. Maybe they
| would if they so chose but I don't see any way you could
| force them.
| oasisbob wrote:
| Since you used a check, chances are pretty high your could
| issue a stop-payment order to your bank and the check would be
| refused. (Assuming you realized in time.)
|
| It would be similar if you paid with ACH, IIRC. Participation
| in the ACH network requires acceptance of a strict timing
| schedule whereby txns are reversible under certain
| circumstances for a limited period of time.
| xadhominemx wrote:
| No the chances are very good you would get your money back. And
| it would be very bad if Citi did not get their money back -
| there is no advantage to a payment system that cannot undue
| obvious errors of this magnitude.
| ianhawes wrote:
| As someone that has inadvertently paid a BOA credit card bill
| in full when I meant to transfer money to a different
| account.... You ain't getting shit back.
| driverdan wrote:
| That's not the same situation. It's like you used your bank's
| online bill pay to mail a check for the current month's
| payment. Instead the bank sent a check for the full amount,
| drawn from their own funds.
| Tenoke wrote:
| I dont know about your jurisdiction but I know of plenty of
| cases where banks have overturned erroneous transactions when
| contacted quickly enough.
| adrr wrote:
| I'm confused why Brigade isn't being charged criminally. Any time
| a individual receives a transfer in error and doesn't return it,
| they are hauled off to jail for theft of funds.
|
| Example: https://www.bbc.com/news/world-us-canada-49643015
| TrackerFF wrote:
| The argument here, from Brigade Cap, is that they simply got
| paid the outstanding debt - as the transfer equaled to that
| same figure.
|
| But, logic from the business side, says that no company would
| realistically drain all their resources on paying outstanding
| long-term debt. That's why they took out the debt in the first
| place.
| manquer wrote:
| They are owed the exact same amount they got from revlon. They
| didn't get free money.
|
| If you mistakenly pay back extra on a loan/mortgage bank is not
| going easily give it back to you, especially if you were about
| to go bankrupt.
| adrr wrote:
| Money came from Citi bank which is just facilitating the
| transfer and an employee made a mistake a used bank money
| instead of the entities money.
|
| It's like you payback the loan but the bank accidentally uses
| its own money and not your money. You'd get hauled off to
| jail if you didn't return the money.
| manquer wrote:
| I am not sure it is so simple mistake as a typo by a single
| employee , brigade was paid the exact amount they were owed
| principal + interest . It wasn't some one's transaction
| they got, they were instead paid early by mistake .
|
| It is more like you dad who guaranteed your loan paid it
| off fully instead of paying only the monthly amount and now
| saying it was a mistake.
|
| Administrator in this context is more a guarantor than
| facilitator .
|
| Sure courts may say that your dad does get the money back,
| but it is not straightforward as you say, if you were that
| lender getting the money back from a likely defaulter , you
| surely won't give it back unless the court says so.
| vlovich123 wrote:
| They're arguing that Revlon prepaid the amount they owed to
| Brigade for financing a deal. Moreover, Citibank was the bank
| that was supposed to be making payment installments to Brigade
| on Revlon's behalf.
|
| This is very different from the case you're referring to.
| gigatexal wrote:
| Man. Banks never make errors in my favor. Pass Go do not collect
| 200.
| binbag wrote:
| The financial understanding of the comments in this thread worry
| me.
| hn_throwaway_99 wrote:
| Can someone tell me how these large financial transfers work, and
| why there isn't a time period when the money can be returned? I
| think an error of this magnitude would have been recognized
| almost immediately, no?
|
| I mean, if someone does an ACH transfer into my bank account, it
| can 'clear', but it can still be revoked days later if there was
| something wrong with the transaction. Indeed, this was the basis
| for a bunch of "Nigerian Prince" scams where scammers would send
| money to someone's account, that person would see it 'cleared',
| then they'd send some larger amount of money to the Nigerian
| Prince, after which the original deposit was revoked, and the
| bank account holder was on the hook for the now (usually large)
| negative balance.
| avianlyric wrote:
| There are many different payment scheme out there, which all
| have different parameters.
|
| ACH is someone unique in that money can just be pulled back,
| and even in transactions that take a long time to clear,
| doesn't mean that you can cancel them.
|
| Clearing time is usually caused by multiple sequential systems
| at multiple institutions taking their time do something. But
| once Citi started the transaction, and their system send the
| payment messages they probably couldn't retract the payment.
|
| Once the first payment message was sent it immediately created
| a liability on Citi for the money (either to the payment scheme
| or the receiving bank), at that point actually moving the money
| becomes a bit academic, an unbreakable promise has already been
| made.
| A4ET8a8uTh0 wrote:
| It depends. Given the amounts involved, it is unlikely that ACH
| was used. With wire transfers, the basic rule is 'once it is
| out, it is out'. You may be able to get money back by
| communicating with recipient and by sending a request for the
| funds back, but they do not have to honor it. Recipient's back
| will basically ask the recipient if they agree to the return,
| and if they don't, that is the end of the story. That is
| basically why CITI was forced to sue. Other recipients played
| nice. That one recipient did not.
|
| edit: There may be some leeway if there is fraud involved, but
| even then it is more along the lines of bank freezing the funds
| than about sending them back.
| ferros wrote:
| How does a hedge fund decide they want to keep money that's not
| theirs and fight it in court?
|
| And they manage people's money as a business.
|
| Who would entrust these people with their money after learning of
| this case?
|
| edit: typo.
| koolba wrote:
| If you accidentally pay back your full credit card balance, but
| only meant to pay the min monthly payment, you wouldn't expect
| them to give it back to you would you?
| nrmitchi wrote:
| I don't particularly like the credit-card analogies I'm
| seeing around here. There is a big difference; a credit card
| is an open line of credit, which is not the case for these
| loans.
|
| After a credit card is paid off "in full" (for example's sake
| let's assume a 10k card), you can then use that to spend 10k.
| You still have access to 10k worth of "buying power".
|
| A loan like this is different. Once it's paid, Revlon (even
| though this isn't Revlon's fault) can't just turn around and
| draw down the line again. That's the difference between a
| loan and a line of credit.
|
| The fact that it is widely believed that Revlon will be
| bankrupt before actually paying off this loan just makes it
| more likely that Brigade is taking advantage of the situation
| with no true belief that this was nothing more than a
| mistake.
| dubbel wrote:
| But it was not Revlon making the mistake. It was Citibanks
| mistake. They are not indebted to Brigade Capital. Revlon is.
|
| If your bank would pay back your full credit card balance by
| accident, you would expect it to be able to get the money
| back, wouldn't you?
|
| If it had been Revlon making the mistake this would be a
| different story.
| koolba wrote:
| I'd expect the bank to eat the cost if they could not
| recover the funds.
|
| Just because the receiver of the funds is not at fault does
| not mean the customer should take the hit.
| [deleted]
| oarsinsync wrote:
| > If your bank would pay back your full credit card balance
| by accident, you would expect it to be able to get the
| money back, wouldn't you?
|
| If the bank paid off my entire credit card balance instead
| of the < 1% payment I had scheduled, without an instruction
| from me, and without debiting my account because I don't
| have the funds to do that entire amount, I don't think I
| would care all that much. My CC issuer probably wouldn't be
| interested in returning the money if they had reason to
| believe I'd never pay them back in full as well.
|
| That just leaves the bank that cares. The bank that made
| the expensive mistake.
| 1024core wrote:
| > How does a hedge fund decide they want to keep money that's
| not theirs and fight it in court?
|
| Imagine an alternative scenario:
|
| Interest rates are down. Revlon is looking to refinance the
| loan, and finds a lender (LENDER_B) who will let them refinance
| their loan from Brigade, but at a lower interest rate. Revlon
| then tells their bank, Citibank, to pay off Brigade's loan as
| they'll be getting a loan from LENDER_B instead. Citi goes
| ahead and sends the payoff amount to Brigade. Meanwhile,
| LENDER_B discovers something at the last moment and pulls out.
| Now Revlon claims they never meant to pay off Brigade.
|
| Remember: people lie all the time.
| Kneecaps07 wrote:
| The pessimistic side of me says that they know they're going to
| lose. However they're investing the $175m in the meantime and
| will make more money from it than they're losing by paying the
| lawyers.
| dmurray wrote:
| TFA says the court has ordered the money to be frozen until
| it can make a decision about who gets it.
| mobilefriendly wrote:
| But the hedge fund is owed that exact amount of money from
| Revlon. It is an accidental pre-payment by Citibank, it isn't
| just a clerical error where the recipient has no claim on the
| funds. And it is likely that Revlon is going to default on
| their loan in the future, which probably factored into the the
| hedge fund's decision-making.
| grumple wrote:
| But the money they were paid with wasn't Revlons... it was
| Citibank's. This is theft from Citibank shareholders.
| joncrane wrote:
| Yes but the "theft" in this case is Citibank's incompetence
| resulting in a decline of shareholder value. Brigade isn't
| stealing anything.
|
| Imagine three friends. One owes money to another one, and a
| third acts as some kind of financially responsible
| intermediary. A owes money to B, and C is the intermediary.
|
| A says to C "Hey pay back B" and even though A means "pay
| back the portion I owe this month" C "accidentally" pays
| the loan back to B in full.
|
| Does B have to give the money back? If B refuses to give
| the money back to C, is B "stealing" fron C?
|
| If anything, the matter has been simplified. Instead of a
| three-party contract, it becomes a two-party contract
| between A and C and B can merrily go on her way.
| mobilefriendly wrote:
| There's no theft, it is ineptitude at Citibank. The
| economic loss for ineptitude should rightly fall on
| Citibank's shareholders.
| matsemann wrote:
| Should the economic loss of a fat finger be a billion
| dollars? Is that a just amount?
| j0ba wrote:
| Lol, it's not an economic loss, it's money paid back. Its
| not that hard to understand.
|
| If the money doesn't get paid back, THEN it would be an
| economic loss. For the hedge fund.
| grumple wrote:
| It's not money paid back. Revlon literally didn't have
| the money, it came out of Citibank's account. Citibank
| doesn't owe the hedge fund anything.
| rwbhn wrote:
| Perhaps one should have proper controls in place?
| Angostura wrote:
| You suggest that ineptitude magically cancels out theft
| somehow. It's not clear that this is so. If I leave my
| wallet at your house by accident, its not your wallet.
| CPLX wrote:
| Sure but if I lend you $1000 and then you leave your
| wallet at my house by accident with $1000 in it while
| going out drinking and overdrawing your checking account
| it's not quite so clear cut is it.
| salawat wrote:
| It is clear cut. You do not get to dictate the payment
| schedule beyond what is mutually agreed upon, or ends up
| being negotiated in a legal proceeding.
|
| Being a creditor does not magically entitle you to the
| entire value of the loan from someone at your whim. Due
| process must be followed. That's risk.
|
| Initiating or benefiting off of what amounts to a
| mistaken transaction by a proxy agency, which ultimately
| proves to be unauthorized is quite literally theft.
|
| My goodness, I'm so glad I don't do business with most
| people given the responses I'm seeing in this thread. It
| seriously leads me to think that people need to spend
| some time internalizing what it means to be a responsible
| financial facilitator.
|
| Hint: Exploiting clerical errors to perform margin calls
| isn't it. That's how you spook people out of doing good
| business, which makes the market that much riskier for
| everyone else. I _hate_ finance, and even I grok that.
| fphhotchips wrote:
| I feel like this is more like if I lend you $1000, and
| you give your friend $100 to give to me.
|
| Your friend typos the bank transfer and pays me $1000.
|
| I don't think it's unreasonable for me to assume you're
| paying back the whole loan at that point. Maybe you've
| come to an arrangement with your friend, maybe you've
| paid them in cash, whatever, that's between you and your
| friend. As far as I'm concerned we've concluded our
| business.
|
| I am not certain that this logic scales to 9 figures.
| jychang wrote:
| So when Experian negligently exposes their customer's
| data which gets stolen, it's not their fault? Punishing a
| company for ineptitude should be expected.
| ceejayoz wrote:
| It _is_ their fault, but that doesn 't mean you shouldn't
| _also_ prosecute the folks who use that data to open a
| bunch of fraudulent credit lines.
| zipwitch wrote:
| I find it interesting that everyone is presuming this is an
| accident.
|
| If something like this were to happen in cyberpunk RPG the
| players would assume that with a billion dollars on the line
| the hedge fund had either hired a hacker or suborned a
| Citibank employee in order to make certain they got paid. (As
| a hedge fund, lawyering up to hang onto the money once you
| have it is comparatively cheap.
| YetAnotherMatt wrote:
| Games do tend to have more interesting storylines than "oh
| its just people being stupid again."
|
| IRL, Hanlon's razor often works.
| boffinism wrote:
| To be fair to them, the hedge fund decided they wanted to keep
| money that they think _is_ theirs, which they had loaned to
| Revlon.
|
| Imagine a world where debtors can choose to repay lenders, and
| then change their minds and take the loan back again. It would
| make being a lender impossible. So it's sort of understandable
| if Brigade genuinely believe that, at one point, there was a
| conscious decision on the part of someone to repay the loan.
| Given that the sum they received was equal to the exact amount
| of the loan, it's not completely unreasonable.
| ferros wrote:
| Understand your point, but if I was a customer there is zero
| chance I am investing a cent with them.
|
| My thinking is if they do this with Citibank and a hundred
| million, I have no confidence in being able to recover my own
| money in case of a dispute.
| sudhirj wrote:
| If you were a customer of Brigade capital you'd be buying
| them champagne right now. They they just saved $170 million
| of your money that you would have had to accept as a loss
| should Revlon go bankrupt (which it probably will).
| satisfaction wrote:
| That's right, hedge funds have a fiduciary duty to their
| investors.
| lann wrote:
| Fiduciary duty does not mean "must make money at the
| expense of all other considerations".
| onetimemanytime wrote:
| fiduciary duty means sometimes not to burn all your
| bridges. Politics aside, Trump Inc. is blackballed by all
| but one or two banks due to such tactics.
|
| Edit: And this is not $500 BILLION so you can say, F it,
| boom or bust, let's try it. The upside isn't that much,
| relatively speaking, considering the blacklisting
| downside. Even if Revlon doesn't pay, a large % is
| already banked or will be in bankruptcy proceedings so
| it's not a 100% loss.
| KONAir wrote:
| They just tatooed "Dear Banks please don't do business
| with us ever again" on their foreheads though.
|
| Edit: That is if it is a legitimate error-error not
| citibank try to pull a takesy-backsy.
| sudhirj wrote:
| No, this is just business. Brigade has a _duty_ to its
| investors to fight tooth and nail to keep this money,
| just like a defense lawyer has a duty to use every
| advantage for the client allowed under the law, acquired
| intentionally or otherwise.
| lann wrote:
| > Brigade has a duty to its investors to fight tooth and
| nail to keep this money
|
| What kind of duty? Not a legal one, I think.
| dmix wrote:
| Arguably they decided to let that be determined by the
| courts instead of their own good will. Sounds like
| something a lawyer would recommend doing...
|
| It's like a natural process to these companies. Most
| likely CITI is getting it back. But it's probably a
| worthy gamble on the lawyering fees.
| salawat wrote:
| No fiduciary duty justifies profit taking off of a
| mistake or mis-transaction. This is like saying that a
| hedge fund is justified keeping the proceeds of a check
| written to the wrong routing/account number. Nothing, and
| I mean nothing, fiduciary duty be damned, justifies
| undermining the implicit trust that underpins the banking
| and financial system. It's why there is such a thing as
| white collar crime in the first place.
|
| Frankly, the entire chunk of money should be considered
| legally tainted until legal action is resolved; which
| means escrow it somewhere and unleash the lawyers.
| sudhirj wrote:
| It's already under litigation, so Brigade can't withdraw
| and spend it. The case is interesting because they might
| have a chance at keeping the money. In other
| circumstances (if the money had randomly landed on their
| account from an unrelated party) they'd have to give it
| back and there wouldn't be a story.
| A4ET8a8uTh0 wrote:
| The interesting side effect if they actually prevailed
| over Citi would be general improvement in wire transfer
| rooms across US. Right now they are mostly sweat shops
| with focus on speed ( and pleasing big customers ).
|
| All of a sudden, we may see some consideration given to
| proper verification ( not just quick rubber stamp ).
| salawat wrote:
| I think that may happen either way;
|
| Even if Revlon goes under because the courts pull what
| I'd call a derp, it should create the illustrative case
| that creates a business niche for higher reliability/risk
| financial transactions.
| harry8 wrote:
| You heard of this guy called something like "Don Trump"
| who had no issue continuing to get bank finance when you
| think they would have treated his business deals like
| toxic waste in a radiation dump that somone threw
| biohazrds all over?
|
| I used to think that this kind of repuational thing meant
| something. I pick Don as one of many examples just
| because he's literally gone on from that situation to
| become the president. Banks need to make big loans. If
| they make you a big loan, they owe you - go go broke it
| matters to them. You and me, nah. They'll burn us in a
| heartbeat when we're financially responsible without much
| reputation damage to the banks either. Reputation, it's
| not worth anything. And that is a sad, sad realisation
| and do not relish sharing it.
| yellowstuff wrote:
| That's not totally true. Don Trump had a _lot_ of trouble
| borrowing money, eventually only Deutsche Bank would deal
| with him, because they were probably the least ethical
| bank on Wall Street at the time, and even for them there
| was a lot of internal controversy about working with him.
| Yes, ultimately he got the loans and was able to stay in
| business, but there are other shady operators who didn 't
| and failed, you don't hear as much about them.
|
| Conversely, Warren Buffet famously has a "halo" which
| means he gets favorable terms because people know that
| doing business with him will reflect well on them.
|
| Different pockets of finance have different norms about
| who it's OK to screw and how, and even as an investment
| professional I don't understand the conventions in areas
| outside of my specialty. So it's very hard to judge as an
| outsider what is considered unethical and reputation-
| destroying, and what is considered aggressive business
| practices that happen to come at the expense of other
| sophisticated professionals.
| JumpCrisscross wrote:
| > _They just tatooed "Dear Banks please don't do business
| with us ever again" on their foreheads_
|
| So have George Soros and Carl Icahn.
| ooobit2 wrote:
| I stuck with Wells Fargo after their fraudulent account
| debacle, and I can attest first-hand that this will happen
| again, affect more people, and be only relatively as
| frustrating compared to the last big issue. It's when I
| look back on _before_ that time that I decided to break
| with business after changes to Wells Fargo ACH policy in
| 2018.
|
| In 2018, I was laid off, lost almost everything over five
| months. I had one bill on autopay that I eventually ran out
| of funds to pay. IIRC in June 2018, WF stopped denying
| repeat ACH attempts if, on the first two attempts, the
| funds were not available and/or WF would not choose to pay
| it and simply overdraw the account. Every single attempt
| would now process. On December 3, my account was at $490
| when the $600 payment attempted, then again, and again,
| over and over, for 9 business days. My account was closed
| with a -$1,800+ balance. I lost count of the number of NSF
| fees by day four or five. And Wells Fargo decided to pay
| that payment upon closure of my account. So, I went from
| $490 on December 3, 2018, to owing almost $2,000 in fees to
| Wells Fargo two weeks later.
|
| I'll pay it off when I can, as you know, it's still my
| debt, but while other banks were cutting fees, WF was
| changing its policies to ramp them up. I ended up in an
| unfortunate waltz of financial doom with them. And I had a
| low statistical risk of running into a problem with them
| because I used so few of their services. Don't leave it up
| to luck. When you see risky behavior, grab your money and
| _go_. They 're willing to keep doing crap like this because
| they know most people think it would never happen to their
| personal accounts.
| impendia wrote:
| I'm curious, is this legal on their part? I am _very
| much_ not an expert, but I almost have to wonder if this
| is worth consulting a lawyer.
|
| If it were me in your shoes, the amount of raw spite I
| would feel for Wells Fargo would be difficult to
| exaggerate.
| DamnYuppie wrote:
| I am sorry this happened to you, it seems when things get
| rough crap just all decides to pile on.
|
| Long ago I stopped all auto payments from my checking
| account. I do the old fashion thing of paying each bill
| every month on a schedule. I don't really send checks, it
| is all via bill pay and I can schedule them out in
| advance so I only really do this twice a month.
| jermaustin1 wrote:
| A similar thing happened to my wife, from the age of like
| 12 she had a wells fargo savings account, her mother
| would deposit $50 each time her father paid child
| support. It was supposed to be an account that when she
| graduated highschool and went off to college she would
| have some money for random things. She and I met during
| Junior year of high school, and moved in to a shitty
| apartment near her college at 18, thinking that she had
| some money to help with the deposit. I paid everything
| first, then she was going to pay me back.
|
| Turns out her mother had been depositing the $50 each
| week automatically until she was about 17, but was also
| randomly over the years withdrawing nearly all of it. And
| at the time she went in, she was -$240 on the account,
| and they wouldn't allow her to close it until that was
| paid off, and they were going to continue feeing her $20
| each month for having less than the required amount. By
| the time we finally had the income available to close the
| account it had accrued around $1000 in fees.
|
| And yet, for some stupid reason, I am still with Wells
| Fargo today, 15 years on...
| PascLeRasc wrote:
| Can we help you get out? I've personally opened accounts
| with all the popular online banks like Ally, SoFi,
| Simple, Schwab, Marcus, etc. If you have any questions
| I'd be very happy to help you leave WF. At the very least
| you'll have no account fees, way better customer service,
| and a decent interest rate.
| jermaustin1 wrote:
| I have bank accounts at almost every major bank in the
| US, including online banks, but WF is still my primary
| account. There are just so many services that do a direct
| debit that make it hard to switch off of. I use privacy
| for a lot of things now, but the handful of things that
| need direct debit I just use my wells fargo account.
| impendia wrote:
| > And yet, for some stupid reason, I am still with Wells
| Fargo today, 15 years on...
|
| Why?
|
| I hate to rub salt in your wounds, but they have
| demonstrated that they are unworthy of your business.
| Acting on this would play a small part in forcing them to
| either change, or else go out of business.
| jasonwatkinspdx wrote:
| When I was younger I worked for a wells fargo joint
| venture that did credit investigations related to
| mortgages. To this day I'm convinced that the way they
| set up their QA policy was deliberately designed to
| enable fraud. I most definitely would not do business
| with them.
| CPLX wrote:
| The real insight will come when you realize _every_ very
| large scale financial institution you do business with will
| retain your money without hesitation or remorse if they
| feel they have the legal right to do it.
| twic wrote:
| Well yes. So would i, _if i felt i had the legal right to
| do it_. So would you.
| muro wrote:
| If there was a mistake in the transfer and the money
| wouldn't belong to me, even if legal, I would return it.
| I'm sure many would do the same. Not everything that is
| legal, is moral.
| JackFr wrote:
| If there was a mistake in the transfer the money wouldn't
| legally belong to you.
| Bootvis wrote:
| A dispute about this is exactly what is described in the
| article.
| CPLX wrote:
| No, you and I are different.
|
| We would likely be guided by a sense of personal ethics
| and our own values, which would make us consider
| returning money even if through a technicality we had the
| legal right to keep it.
|
| At the level these companies are interacting at, there's
| no such thing as ethics of this kind. The legal system
| _is_ the values system, and if they can make money on a
| legal technicality they 'll do it without further
| thought.
|
| They're more like great vampire squids wrapped around the
| face of humanity, relentlessly jamming their blood
| funnels into anything that smells like money, as someone
| more eloquent than me once noted.
|
| Worth remembering if you find yourself dealing with large
| scale financial institutions.
| raverbashing wrote:
| Was Revlon in arrears on their payments? Wasn't Revlon going
| to pay before Citi fat-fingered the operation?
|
| Because what you're saying goes both ways. The bank doesn't
| have the right to take money out of my account to pay a loan
| except for what was arranged as a payment plan.
| rzwitserloot wrote:
| Just playing devil's advocate here:
|
| That's not Brigade Capital's problem, and that's also not
| Revlon's problem.
|
| I think it's entirely obvious brigade should return the
| money. But, playing devil's advocate:
|
| Brigade gets a payment, 'out of nowhere' (it wasn't agreed
| upon beforehand, nor part of the repayment schedule), from
| the bank of Revlon, earmarked 'revlon'. Hey, the intent is
| clear enough, and Brigade sees this as an implicit
| contract. This transfer can be seen as equivalent to a note
| from the bank: "I, CitiBank, in my function as the bank of
| Revlon, hereby prepay some of the debt, and whilst revlon
| did not personally sign this note, that is okay because I
| am their bank, you can trust me."
|
| And Revlon, having made no such agreement with citibank,
| also 'wins' their case and this money isn't scratched out
| of their accounts.
|
| CitiBank, having made the error, is going to have to eat
| the 9 digit loss, but is of course allowed to recoup it,
| according to the normal schedule, and without charging
| interest (not that this matters much, what with interest
| being near nil), vs. revlon.
|
| If revlon goes broke before they can, that's a bad day for
| citibank.
|
| NB: To be clear I think when talking about 9 digits, this
| is a preposterous interpretation, but it IS one.
| salawat wrote:
| >Hey, the intent is clear enough, and Brigade sees this
| as an implicit contract.
|
| The only way you get anything remotely resembling
| something such as an implicit contract is by butchering
| the legal concept into unrecognizability, which
| admittedly, the tech sector has enabled other sectors to
| do with wild abandon. A contract requires a meeting of
| the minds, consideration for all, and to explicitly lay
| out mutually agreed upon terms. Unless both sides agreed
| to see it the same way, it isn't a contract. It's a
| worthy subject to resolve via litigation, and to be
| frank, out as the Brigade at significant risk of possible
| criminal charges if a judge is not amused and Citibank
| heads to the Attorney General.
| oasisbob wrote:
| Isn't the whole point of the UCC to remove all sorts of
| litigious details in contract situations like making
| payments?
|
| eg, If I agree to pay my babysitter $50 and write an
| American-style check (aka bank draft), me and the
| babysitter don't need to negotiate the finer details of
| that payment method.
| salawat wrote:
| Yes. However, you have the capability to void and recover
| the sums represented by that cheque. It's built into the
| system in that sense. This is why most debt servicers
| implement different flows for early payments. You need an
| explicit indication from the payer they intended to make
| that extra payment. It may not seem like as big a thing
| when you're talking small-claims court amounts of money,
| but once you hit the bigger tiers of financial
| transaction, this is exactly why people are dedicated
| toward ensuring all the i's are dotted and t's crossed in
| order to ensure payments in the right amount end up in
| the right places in the right amounts.
| onion2k wrote:
| _The bank doesn 't have the right to take money out of my
| account to pay a loan except for what was arranged as a
| payment plan._
|
| If you accidentally paid off a loan early do you think you
| would be able to get your money back from the bank?
| TheCondor wrote:
| But they don't think it is theirs. They know it was a mistake
| and decided to "think" it is theirs. This is just basic loan
| sharking and being shitty.
|
| The allure of investing in hedge funds is the lack of
| regulation. As courts decide these matters I wouldn't
| surprised if that results in some regulation. It will be
| interesting to see. The banks tend to have deep lobby
| connections.
| csomar wrote:
| > How does a hedge fund decide they want to keep money that's
| not theirs and fight it in court?
|
| $175m
|
| > And they manage people's money as a business.
|
| Seems like they are protective about any money that lands on
| their accounts.
|
| > Who would entrust these people with their money after
| learning of this case?
|
| If they are giving this money to the fund (that is their
| customers), whom of them is going to complain?
| luckylion wrote:
| They have a good point for it being theirs: they're owed that
| exact amount by Revlon. From their point of view, somebody at
| Revlon figured "let's just pay them in full" and a few days
| later somebody else thought "that wasn't a good idea, let's get
| the money back".
|
| If it was e.g. the expected amount with one or two additional
| zeros, that might point to a typo. But the exact amount of
| $176.2mn instead of $1.5mn? That may still be a mistake, but
| it's not that obvious.
| londons_explore wrote:
| If by knowing intricacies of law and being lucky they're making
| their clients richer, I want to be one of their clients...
| user5994461 wrote:
| Exactly, it's a hedge fund, the customer base is extremely
| wealthy investors or pension funds.
|
| These customers won't think that the fund is in the wrong for
| holding money it is owed, from a company that might go
| bankrupt any minute and default on the debt.
| salawat wrote:
| That's the issue though. There is an obligation inherent to
| all actors in the system. A "Rule Zero", and "Rule 1/2" if
| you will.
|
| Zero: Thou shalt do good business to service they debts
| within the period negotiated, under the terms set forth
| prior. Thou shalt eschew business that knowingly unduly
| harms thy counterparty, or results in large chunks of value
| getting converted into lawyer's fees.
|
| Rule 1/2: Thou shalt be burned by bad business, because no
| one seems to grok and internalize the second tenet of Rule
| Zero.
| LatteLazy wrote:
| >At this point, you're probably thinking -- Finders Keepers.
|
| No, because that's not how any of this works, even when you're a
| child.
|
| It's well established that obvious mistakes are obvious mistakes
| and you don't get to profit from them. Brigade either had a very
| dumb lawyer or they were having a really bad cash-flow problem
| and wanted this money to cover their issues...
| ace32229 wrote:
| I think the article does quite a good job of explaining why
| this isn't necessarily an obvious mistake.
|
| Sounds like quite a canny lawyer to me!
| LatteLazy wrote:
| It's interesting to me that the article missed a lot of the
| reasons though:
|
| * no discussion of scibeners errors
|
| * no mention of the effect on citi of being forced to buy
| 900m in bonds/debt they never consented to buy
|
| * no discussion of the chilling effect on the wider credit
| system
|
| * no discussion of why all the other creditors returned their
| payment without issue
|
| "Should this money be returned" is a fair and interesting
| question. The answer is Yes and for a long list of reasons.
| But the article picks a single one, a technical one and the
| example used is a bit weak. Theres still a lot of meat left
| on these bones imho :)
| voices_carry wrote:
| I think Citibank should be returned all the money they paid minus
| the owed regular loan payment.
|
| I also have no sympathy for them, and this seems like karmic
| retribution for how they treated funds, retail investors, and
| mortgage holders during the financial crisis of 2008.
| dependenttypes wrote:
| > how they treated funds, retail investors, and mortgage
| holders during the financial crisis of 2008.
|
| What did they do exactly?
| whatok wrote:
| There's a lot of comments in here saying that it was the amount
| Brigade was owed so they probably just thought it was prepayment.
| There is no chance on earth prepayment of a loan was made without
| any sort of communication beforehand. Brigade very well knows
| that they weren't supposed to receive the $ (at this point in
| time) but it's a cheaper option to take this to court and
| potentially keep the money (low probability event) than give it
| back and see a potentially much smaller sum in restructuring
| (high probability event).
|
| Anyone familiar with distressed situations knows that these
| things are knife fights so this kind of behavior is not
| surprising. Brigade is big enough that banks aren't going to
| refuse to do business with them because of something like this.
| 1024core wrote:
| > There is no chance on earth prepayment of a loan was made
| without any sort of communication beforehand.
|
| I just paid off my mortgage recently. The lender (Wells Fargo)
| had absolutely no clue I was doing that. I never told them, and
| I never took permissions from them. They just got a check for
| the outstanding amount. Mortgage closed.
| whatok wrote:
| What's your point? This isn't a mortgage. Mortgages are much
| more standardized and don't involve as many parties. Everyone
| involved with a corporate loan is going to want to have a
| discussion if there are unscheduled prepayments made. Even
| more so given that this is a distressed situation.
| addison-lee wrote:
| So you just placed a check in an envelope and mailed it to
| the bank with no other documents? What did you write in the
| "memo" field on the check?
|
| Edit: looking into WF's website below, you sent a check with
| your account number to an address specifically set up to
| receive mortgage payments--you are being disingenuous with
| your "comparison".
|
| https://www.wellsfargo.com/mortgage/manage-account/payments
| Chris2048 wrote:
| They didn't claim to send an anonymous check - they were
| responding to the idea that you need pre-clearance to
| overpay.
| johnwheeler wrote:
| Not only that, but it's citi's money, not revlons. It's revlons
| debt, not citi's. In my mind, it's as simple as that.
| draw_down wrote:
| Sure, so Citi should recoup their money from Revlon, except
| that won't happen because Revlon is going to go bankrupt.
| Which is the whole reason Brigade held onto the payment.
| stingraycharles wrote:
| And I better hope the court thinks like this as well,
| otherwise the whole legal safety net of the banking world
| just became more like Bitcoin (and even they can just fork
| the whole blockchain in case of an error, like they did with
| Ethereum).
| Chris2048 wrote:
| > There is no chance on earth prepayment of a loan was made
| without any sort of communication beforehand
|
| Surely this is a contract detail? I had a variable mortgage, if
| I wanted to make an over-payment I just paid the money into the
| account, no communication needed.
| koboll wrote:
| Right, but under the definition of Unjust Enrichment as laid
| out in the article, it requires both a mistake + not being
| liable to pay.
|
| So there's a difference between "whoops I paid money to the
| wrong person" and "whoops I prepaid my loan back in full",
| which is that the latter fails to satisfy one of the two
| criteria of unjust-ness.
|
| Perhaps there's more nuance in the legal definition that this
| article missed, though.
| asdfasgasdgasdg wrote:
| _Citibank_ is not liable to pay Brigade. The fact that
| _someone_ is liable to pay Brigade does not entitle them to
| Citibank 's money.
| holtalanm wrote:
| but, Citibank IS liable to pay Brigade, on behalf of
| Revlon.
|
| that is how loan servicing works.
| asdfasgasdgasdg wrote:
| No, I don't believe it is. The loan servicer for my
| mortgage is not liable to pay it on my behalf. If they
| accidentally transferred money to the bond holders for
| the loan, they would of course be able to retrieve it. I
| would be shocked if this is not reversed in court, unless
| there are some significant missing details from the
| story.
| IncRnd wrote:
| It's not as specious as you believe. Your bank can almost
| certainly call your mortgage loan at any time. From the
| other side, prepayment of a loan, even without
| communication, happens all the time.
| oarsinsync wrote:
| Bank error in your favour. Collect $175mm.
|
| And hold onto it for dear life while the bank attempts to
| reclaim it when they realise their error.
| donor20 wrote:
| Citibank has agreed to be the paying agent for the
| borrower. Literally every other payment received from the
| borrower came from citibank. Those checks can and should be
| cashed.
|
| Similarly, the company servicing your mortgage may not own
| it. Doesn't matter, if you pay to them they need to reduce
| the mortgage balance (even though you didn't owe them
| specifically the money) and then carry out their
| responsibilities with lender.
| stingraycharles wrote:
| That's a technicality. In the case of a loan payment, it
| isn't Citibank's money they are wiring, so you cannot
| just say "this was a loan payment, it's just they keep
| it".
|
| Of course it's acceptable that this caused confusion with
| the receiving party, but it does not mean they can keep
| it. It's not the money from the party that was supposed
| to pay back the loan.
| IncRnd wrote:
| Citibank literally did make a loan payment - of the exact
| amount due in principal plus interest. That means that
| Citibank calculated the amount due, and sent the payment.
| stingraycharles wrote:
| It can mean a computer calculated that (like some
| dashboard with multiple buttons and one that says "pay
| everything" which was accidentally pressed) and it did
| not take any conscious action for that to happen, so that
| doesn't say anything about intent.
| appleiigs wrote:
| Everything you say is correct if it was Revlon's money, but it
| wasn't. So even if Brigade delay long enough for a
| restructuring, Brigade still won't be able to keep the money.
| They are independent events: 1) unjust enrichment is Citibank
| vs. Brigade. 2) restructuring is Brigade vs. Revlon's other
| creditors/investors.
| Someone1234 wrote:
| Per the article you're over-simplifying what is going on, to
| the point of making it seem clearer cut than it actually is.
|
| Citibank actually has a business relationship with Brigade
| Capital, they're Brigade's contractor essentially, and they
| essentially _COULD_ owe Brigade money themselves via this
| arrangement:
|
| > As the administrator of the gargantuan arrangement, it was
| incumbent on Citibank to collect payments from Revlon and
| transfer it to the lenders, including Brigade Capital. The
| company was expected to transfer $1.5 million in interest
| payments to the hedge fund a few days back.
|
| Brigade are claiming that his is Citibank paying money they
| owe, and has nothing to do with Revlon.
|
| PS - I think Brigade will ultimately lose the court case. I
| think their arguments are easily unwound, but I suspect the
| court case will take a while because the argument isn't as
| black/white as it may first appear, there's actually a three-
| way relationship here.
| HumblyTossed wrote:
| > Brigade still won't be able to keep the money.
|
| What about the interest accrued from keeping the money for a
| time?
| natpalmer1776 wrote:
| That's probably why the courts agreed to freeze the funds
| completely.
| HumblyTossed wrote:
| I missed that very obvious point, thanks.
| whatok wrote:
| Yes, they are independent events involving different parties
| but that does not matter for Brigade's purpose. By making the
| incorrect payment, there is a non-zero chance that Brigade
| will have 175mm that previously did not exist. If they are
| able to keep that money, all else equal, their position as a
| creditor is unaffected but they've effectively cashed out a
| portion of their position ahead of other creditors. I don't
| think it's likely that they will be able to keep the money
| but their returns change quite a bit if they're able to.
| jasonlfunk wrote:
| I think the last point made by Brigade proves it was a mistake.
| If Revlon is in such financial trouble they Brigade believes they
| won't be able to pay back the loan, why would they have paid back
| the entry thing, with interest, early? And if it wasn't a
| mistake, why would they be asking for it back now? It seems
| perfectly straightforward to me.
| mobilefriendly wrote:
| Brigade's opinion of the situation does not make it a mistake.
| The question is more the process at Citibank and Revlon. And
| prepayment isn't really a mistake in the sense that Brigade
| received an unjustified windfall. I think Brigade will win, and
| Citibank will have to take the loss.
| londons_explore wrote:
| > why would they have paid back the entry thing, with interest,
| early?
|
| This isn't all that rare - it just means they were able to
| convince someone else to invest in the business, and pay off
| the whole loan for them.
|
| Kinda like when you're in loads of debt and you transfer the
| debt from one credit card to another because it has slightly
| better terms.
| cataphract wrote:
| > If Revlon is in such financial trouble they Brigade believes
| they won't be able to pay back the loan, why would they have
| paid back the entry thing, with interest, early?
|
| From what I understand, they paid the interest accrued until
| the moment of the payment, not the amount they would have paid
| under the terms of the loan. So from the POV of the lender,
| maybe they were able to refinance the loan under better terms
| with some other lender (perhaps Citibank).
| DangitBobby wrote:
| C sent B money that B wasn't expecting and immediately asked
| for it back... Nothing more clear-cut. Thankfully the tax
| payers will get to fund the next riveting installment of "was
| this obvious mistake actually legally a mistake?"
| sukilot wrote:
| The fictions created by of law collapsed when faced with the
| reality that negative things do not exist.
| TuringNYC wrote:
| C, acting on behalf of A, which owed money to B:
|
| C returned money owed to B in full, which B was not
| expecting.
|
| C asked for the money back from B.
| DangitBobby wrote:
| We just told the same story
| onetimemanytime wrote:
| IIRC, if a bank moves $3 million to my account, and I spend it,
| it's fraud.
| draw_down wrote:
| Have you tried becoming a hedge fund?
| mobilefriendly wrote:
| Maybe not, if the bank owed you $3 million, but wasn't due
| until next year.
| bostonpete wrote:
| What if the bank owed you $3 million to begin with?
| skinkestek wrote:
| An American friend of mine living here had a decent chunk of
| money transferred to his account by an American company.
|
| Next three (or so) days he try to give it back and they
| wouldn't listen.
|
| Next day after that they contact him to say he needs to give
| the money back immediately "or else".
| jagged-chisel wrote:
| "Why wasn't this important to you three days ago when I
| _tried_ to give the money back? "
| OldHand2018 wrote:
| Always, always, always keep correspondence like this in a
| form that can be shown in court.
|
| The judge will NOT be friendly to the other side.
| docdeek wrote:
| If I understand the article correctly, the equivalent here
| would be that the bank owed you $3 million to be paid over the
| next 10 years but paid it all to you today in one lump sum.
|
| Now if they had paid you $5 million, that might leave you open
| to a fraud charge if you spent it because you were never
| expecting that much. But if they paid you the $3 million they
| were going to pay you but just 10 years early...is it
| different?
|
| That said, I reckon it's clearly an error. ;)
| matsemann wrote:
| I think it would be more like: Someone owns you $3 million,
| and then _someone else_ erroneously sends you $3 million.
| antihero wrote:
| More like, someone owes you $3m, they have a guy that comes
| to your house and pays you the instalments for them. They
| accidentally pay you the full $3m out of their own pocket.
| As far as you're concerned, that's the money owed to you,
| so it's their problem to recoup that from the debtor.
| stOneskull wrote:
| that guy had a bad day, paying off people's debts, and
| all but one of the people said 'yeah, mistakes happen,
| ok'. this one says 'nope, too bad'. they might be legally
| right to keep it, and so would the others, but the others
| care about integrity, reputation, and relationships. it
| seems greedy and sociopathic to keep it but maybe the guy
| needs to learn from his mistake and they're teaching an
| important lesson.
| onetimemanytime wrote:
| Bingo! They were supposed to send $1.5 Million "Instead of
| sending the money from Revlon's account, Citi transferred
| $900 million to a group of lenders from its own account,"
| so it is a mistake. Something they said as soon as they
| found out. Whatever is owed is separate and has to be
| solved based on that agreement.
| abtom wrote:
| Except that the "someone else" was employed for the purpose
| of facilitating the payment from the party that owes you
| money, back to you.
| user5994461 wrote:
| What if the _someone else_ happens to be the bank of the
| first person and the transfer is done under the name and
| reference of the first person?
| SigmundA wrote:
| How about this you have a mortgage on a house for 3 million
| and lender is worried you will stop paying maybe because
| you missed some payments.
|
| Now you schedule a bill pay at your bank for back payments
| to your lender and your bank messes up and pays off the
| entire mortgage with their money.
|
| The lender then recieves a lump sum payment from you which
| pays off the mortgage and they are happy.
| saimiam wrote:
| These clerical errors must be more common than I thought.
|
| A few years ago, when I had taken a mortgage to buy a house, I
| had the exact amount of the mortgage transferred into my account
| instead of going to the seller or wherever it was supposed to go
| - maybe to the seller mortgage provider?
|
| I returned the money but I'm no hedge fund.
| user5994461 wrote:
| I thought the mortgage was given to you and you transferred the
| money to the seller when the deal is completed?
|
| I'm scared to think what would have happened if it were me, the
| money sent to the seller, not suspecting any error at all and
| unable to return anything.
| atwebb wrote:
| Normally handled by the closing office using escrow accounts,
| not by the buyer/seller themselves.
| Chilinot wrote:
| Well if you hadnt payed it back, then the house wouldnt have
| been payed. And the purchase would be invalid. Also your bank
| would probably have taken legal action against you.
| mschuster91 wrote:
| > These clerical errors must be more common than I thought.
|
| They are, but I'm surprised that there seems to be no 4-eyes
| principle on such high transfers. Having two (or three)
| employees sign off on any transfer above ten million dollars
| seems like a cheap precaution against blunders of this scale.
| wil421 wrote:
| How do you know it wasn't the IT system that caused the
| problem?
| DaiPlusPlus wrote:
| That presumes that the "IT system" is capable of making
| huge actions by itself (or by itself via a bug or operator
| error): that immediately makes alarm-bells ring in my head
| because it says the IT system's security/authorization
| system isn't operating on the basis of least-privilege.
|
| There are ways to engineer automated processes to prevent
| things like this from ever happening, for example, all
| transactions over, say, $10m, could be required to be
| signed using PKI keys held only on smartcards physically
| held by those involved - and the big-fat-table that holds
| transactions in their IBM Z-series would be automatically
| audited to undo any transactions lacking the necessary
| signatures. And all of this should be evident in the
| printed hardcopy that the gov-level auditors would love to
| see.
|
| ...and that's just an idea off the top of my head right now
| at 5am (and a bottle of IPA) and I've never worked in
| fintech or banking.
|
| Given that shady stuff happens at the highest-levels inside
| legacy banking institutions (e.g. HSBC and the South
| American drugs trade - or Deutsche Bank and sanctioned
| Russian entities... and the current White House occupant) -
| and because I know that these banks do hire great engineers
| for their internal systems - that "clerical errors" don't
| happen like this - something fishy is afoot and I guarantee
| that we'll never know the truth.
| oasisbob wrote:
| The problem, having worked in banking, is that the core
| system is separate from the loans system, almost
| certainly. More complexity. Probably some semi-automated
| batch handling which is far more brittle and janky than
| anyone suspects.
|
| But regardless, at some point, this system still thinks
| the transaction has been authorized. I'm sure there's a
| huge audit log showing who/where/why the mistake was
| made.
|
| But I've also seen end-of-period processing at a smaller
| financial institution where humans are involved and a few
| spreadsheets hairpin their ways through different systems
| with lots of manual intervention and QA. One step was
| literally very close to "audit 0.01% of payments before
| sending the CSV into the lockbox escrow processing
| system...
| sukilot wrote:
| Is it so hard to imagine that an IT system would have
| bugs?
| DaiPlusPlus wrote:
| By analogy: think about how a preemptive multitasking OS
| with protected virtual memory means that a misbehaving
| user process cannot bring down the machine: the kinds of
| bugs in user programs in the time of DOS or Windows 3.0
| that would destroy the world (e.g. a user process
| overwriting kernel memory, or a single-threaded user
| process failing to yield to the kernel) just can't happen
| with a modern kernel.
|
| The same kinds of security and safety guarantees that
| stem from the overall system architecture _can_ exist in
| banking systems - that's my point.
|
| So yes, until everyone switches to Haskell we will always
| have bugs - but the _kinds_ of bugs can be limited - as
| can the scale of their impact - with good system design.
| mschuster91 wrote:
| I (and for what it's worth also regulators) expect that a
| bank has procedures in place to catch bugs that lead to
| such "mistakes".
| iamshs wrote:
| "The former MasterChef contestant, Dani Venn, and her husband
| Chris Burgess were left homeless last week when $250,000 from
| the settlement of her recently sold Melbourne property was
| stolen by hackers who set up third party accounts to breach the
| fledgling electronic property transfer system Property Exchange
| Australia (PEXA).
|
| Ms Venn's bank, the Commonwealth Bank, was able to freeze
| $138,000 of the funds, but the hackers who entered the system
| via her conveyancer's account made off with the remainder.
|
| "The $110,000 is missing and it's not recoverable," she said."
|
| https://www.smh.com.au/business/companies/masterchef-finalis...
| sukilot wrote:
| Wow PEXA flat out stole $110K from a random civilian to cover
| for their own negligence. And face zero consequences for it
| because they are a state-approved monopoly.
| below43 wrote:
| Looks like she got it back
|
| https://www.9news.com.au/national/masterchef-contestant-
| dani...
| nrmitchi wrote:
| I fail to see all of the defense of Brigade that is happening
| here. Arguments that "Well Revlon owned them the money, they just
| through it was a prepayment" seems like a gross simplification of
| the situation. A prepayment of this magnitude would never happen
| without some sort of other communication.
|
| Further, as far as I know, Brigade was _not_ owed $175M. There
| was a debt for that amount, but at the time the payment was made,
| they were only owed what was specified in the payment plan
| /agreement, which would have been the $1.5M. Just because they
| were also owed more money in the future, does not mean that it
| was owed now.
|
| As a "down to earth" example, my employer will owe me more money
| in the future, according to the terms of my employment. But on
| September 1st, they will only owe me my bi-monthly paycheck.
|
| If they over-pay me, and deposit a full years worth of my salary
| into my account, it is not reasonable for me to say "Oh, I guess
| they chose to prepay me for a year! Awesome." Your employer will
| take that over-payment back, and if you fight it, you will lose.
| 1024core wrote:
| Your "employer" argument is specious.
|
| A more apt example is mortgage. I just prepaid my mortgage
| recently (as a part of refi), but it is the exact same
| situation: instead of making interest payments, I chose to just
| pay everything that was owed at once.
|
| Maybe Revlon was thinking of getting a much cheaper (low
| interest) loan than what it had obtained from Brigade?
| jiofih wrote:
| You must contact the bank first to do that, or use an
| automated system of theirs, but you can't just drop the money
| in their account.
| addison-lee wrote:
| Yes they are being disingenuous with their comment (and
| commenting on every thread here with their comparison).
|
| They sent a check with their account number to an address
| specifically set up to receive mortgage payments.
|
| https://www.wellsfargo.com/mortgage/manage-account/payments
| bumby wrote:
| I'm failing to see how that is a disingenuous argument?
| paulcole wrote:
| Except you haven't provided the work for the next year yet.
| Brigade did provide the "work" in the form of the money they
| had already lent out.
| TAForObvReasons wrote:
| As far as the debtor, to whom Brigade "provided work", is
| concerned no payment was intended to have been made. It was a
| mistake committed by the bank. From a news article cited in
| the post:
|
| > "Revlon did not pay down the loan or any part of the loan,"
| a representative for [Revlon] said in an emailed statement.
|
| https://theprint.in/economy/citigroup-accidentally-
| wired-900...
| 1024core wrote:
| Maybe Revlon was planning on getting a lower interest rate
| loan. And that loan fell through at the last moment, and
| now they're claiming it was a mistake?
| nrmitchi wrote:
| 1) If you're refinancing a loan, you do not pay off the
| old one until you have the new one. This is not only
| common sense, but typically before you get the new loan,
| you don't have funds to pay off the old one even if you
| wanted to.
|
| 2) Revlon did not make this payment. The payment was made
| in error by Citibank, and Revlon was not part of it.
|
| The conjecture of "Revlon made a bad decision and is now
| trying to back-track", while technically _possible_
| sounds like a conspiracy theory.
| woofie11 wrote:
| Let me walk you through how this plays out.
|
| Lawyers from Brigade and Citibank calculate Brigade's odds of
| winning. Let's say both sides agree it's 5%. That means the
| expect returns on litigating this are $8.75 million to Brigade.
| The cost of litigation is $2 million. The two sides discuss.
| They settle for anywhere between $6.75 and $10.75 million,
| depending on who negotiates better. That's where neither side
| wants to litigate.
|
| For being a little bit douchey, Brigade walks out a few million
| ahead.
|
| If sides can't agree (e.g. Citibank lawyers estimates 1% odds
| of winning and Brigade 10% odds), they go to court. But 9 times
| out of 10, it's a settlement like that.
| TAForObvReasons wrote:
| What complicates things, and makes it more interesting, is
| the precarious state of Revlon.
|
| If they declare bankruptcy and restructure the obligations
| while the case is pending, Brigade would have been forced to
| take a loss on the loan. If they try to argue for the money
| as repayment for the debt, a bankruptcy court could claw back
| the money and redistribute according to the capital structure
| (akin to what happened during the Madoff resolution)
| lifeisstillgood wrote:
| So while this dispute is ongoing, Revlon has an extra 175M
| of someone else's money that could be brought into play
| during their bankruptcy- so they actually have an incentive
| to declare early?
| bumby wrote:
| What's the upside for Revlon in this case? I don't think
| the upside outweighs the downside unless the bankruptcy
| is inevitable
| terminalcommand wrote:
| I don't know about the case details, but Brigate might argue
| that Citibank paid Revlon's debt. There is nothing stopping you
| from clearing someone else's debt. It is as easy as doing a
| bank transfer.
|
| Unjust enrichment argument would be much stronger if Citibank
| did not have any involvement with the parties. For example if I
| send my money to an account numbered 100001 but I intended to
| send it to 1000011, I could argue that I don't know the account
| holder 100001 and I sent the money by mistake.
|
| Classical contract law is a byzantine beast, and it does not
| take mistakes lightly. Brigade might have thought that they
| secured an interest-free loan and want to use it. This would
| undermine Brigade's credibility and completely mess with their
| relationship with Citibank. But they might have thought what
| the hell, we get free financing.
|
| They also might be holding this as leverage against Citibank,
| if Citibank needs those funds urgently, they'll have to settle.
| 1024core wrote:
| > There is nothing stopping you from clearing someone else's
| debt.
|
| But Citibank was not "someone else". Citibank was Revlon's
| banker.
|
| Imagine if you used BankOfAmerica to pay off your credit card
| bills monthly. Now imagine that you owe your CC a large
| amount, but are paying it off month-by-month (using BoA, as
| always). One month, BoA takes all of the owed money out of
| your account and sends it to you CC company, thereby paying
| off your CC debt. How is the CC to know whether you meant it
| or not?
| binbag wrote:
| But they didn't take the money out of Revlon's account.
| They just paid it from their own funds.
| crb002 wrote:
| "Revlon was expected to transfer a few million dollars to some
| of its lenders." - Brigade was owed money, and while Brigade
| must return funds in excess of the loan, it can't be forced to
| reloan the money - Citgroup would have to cure by pulling out
| their own checkbook to loan Revlon.
| megiddo wrote:
| Finders keepers is actually a pretty strong argument in a case
| such as this.
|
| For instance, years ago, I had a business account of mine
| attached because an employee with signatory privileges had a
| garnishment against him.
|
| The judge ruled that since the lender that seized the money
| already had it, and I couldn't prove that the money wasn't
| absolutely, definitely not the property of the signatory (who
| was not an owner), we could split the money.
| jtc331 wrote:
| Your employer analogy doesn't hold up because you have not yet
| tendered the services to your employer for which they would be
| indebted to you in the future.
|
| A better a analogy would be your mortgage, which is in fact a
| debt you owe in full, a payment schedule notwithstanding.
| jmvoodoo wrote:
| Except the loan was paid including all interest for the
| lifetime of the loan. If you prepaid your mortgage that way,
| even on purpose, your bank would owe you a good portion of
| your money back.
| freeone3000 wrote:
| That is incorrect - I would actually owe my bank an
| additional prepayment penalty, according to my mortgage
| structure.
| PascLeRasc wrote:
| What? Every time I try to learn what a mortgage is it
| seems more like a scam. The only thing a bank should say
| to paying more is "thank you".
| tobyjsullivan wrote:
| It's a bit complicated financially and the details vary
| based on fixed vs variable terms but I'll try to offer a
| simplified example of why pre-payment penalties exist.
|
| Imagine I go to a bank today and take out a $100,000
| mortgage on my house at a fixed rate of 2% (yeah - that's
| 2020) on a 5-year term[0] with a 25-year amortization.
|
| The bank gives me that $100,000 cash today on the
| expectation that they will get it back with 5 years of
| interest (calculation is a bit complex but should work
| out to just over $9k over the 5 years).
|
| We could keep it simple and say that once you've agreed
| to pay a bank $9k in profit, they are in the business of
| making sure they get that profit. Repaying any amount of
| the debt ahead of schedule does not exempt you from
| paying that anticipated profit.
|
| In the banks' defence, the details are a little more
| complicated in practice. Banks rarely lend out their own
| money. When I take out this mortgage, the bank just
| issues a $100,000 bond to an investor. The bank
| presumably guarantees the bond so the risk to the
| investor is less than the mortgage itself and, so, the
| bond has a lower interest rate - say 0.5%. The difference
| in interest rates is the actual profit to the bank.
|
| Bonds have a couple characteristics: a) they are fixed-
| term (in this case, 5 years); and b) payout of both
| interest and principal is guaranteed (by the bank)
|
| So if you decide to pay back your mortgage (or some
| amount) ahead of schedule, the bank still has to pay out
| their bond commitments and that money needs to come from
| somewhere. And the bank isn't gonna front it. Depending
| on markets and current interest rates, the bank may be
| able to re-use that bond on someone else's mortgage so
| your penalty may be reduced in some cases.
|
| [0] These shorter-than-amortization terms are a thing
| here in Canada. Not sure if it works the same in other
| countries.
| barkingcat wrote:
| A mortgage is a scam because the richer person (the bank)
| can scam the poorer person (you) simply because they have
| the money to scam you.
|
| And you will take it because where else are you going to
| get the money?
| loktarogar wrote:
| Still cheaper than renting.
| binbag wrote:
| I don't think you understand how banks earn money. People
| deposit funds which they then loan to others. The
| interest they get from the debtors is more then the
| interest they pay depositors. If everyone repaid their
| mortgage early they have no profit, so they need to cover
| themselves for that. They aren't charities.
| thedanbob wrote:
| As I understand it, the logic is the bank is expecting to
| make a good deal of money over the life of the loan in
| interest. Prepaying reduces that profit, so they penalize
| you to discourage that behavior. Note that not all
| mortgages have that penalty (mine doesn't).
| VLM wrote:
| As with most financial things it depends on location and
| time and specific conditions.
|
| Generally, its been illegal since 2014 nationwide to have
| a prepay penalty. In my state its been illegal as long as
| I've had a mortgage. In some weird but possible
| conditions its possible post-2014 to have a prepayment
| fee at the national level for a normal residential
| mortgage.
|
| You'll see all kinds of random dates at the national
| level. From what I understand the 2010 Dodd-Frank act was
| the enabling legislation, the new rules came out in 2013,
| and went into effect in early 2014, but its all the same
| issue.
| bumby wrote:
| It depends on the conditions of the loan as well. I don't
| believe any VA-backed loan can be assessed pre-payment
| penalties
| jmalicki wrote:
| While it may not be an explicit penalty at time of
| prepayment, the risk of losing revenue due to
| prepayment/refinancing if interest rates drop is
| definitely modeled priced into the terms of the loan,
| just as the risk of you going bankrupt and not being able
| to pay is.
| hectormalot wrote:
| I think gp meant prepayment including all future
| interest, which would more than cover prepayment fees.
|
| High-lvl: prepayment fees is roughly equal to interest
| owed minus alternative interest options the bank has (eg
| someone else's mortgage). Disclaimer: Dutch perspective.
| dahfizz wrote:
| I don't understand. You're saying if I decided to pay off
| my mortgage all at once, my bank would "owe" me my payoff
| check?
| ganoushoreilly wrote:
| I think op is implying the difference in non-accrued
| interest. IE your payment at that point would be all
| principle, thus negating the loan and incurring over
| payment.
| sombremesa wrote:
| If you calculate all the money you will put into your
| mortgage loan over time, add it all up, and write a check
| for that amount, it will be more that your principal
| balance because of interest.
| paulmd wrote:
| Interest accrues on a monthly basis, so if you pay it off
| now you won't accrue the interest on an ongoing basis.
|
| In other words - over the life of the loan/mortgage you
| will pay $X in principal and $Y in interest. If you
| suddenly pay the whole thing back, then $Y becomes much
| smaller. So if you paid $X + $Y in a lump sum then you
| would receive some money back, is what they are saying.
| Because you have overpaid on the interest, because that
| interest never accrued.
|
| (not sure whether in this case Citibank paid the full sum
| of the principal or expected interest or not, but yes, if
| you did that on your mortgage then you would be entitled
| to receive some money back)
| devcpp wrote:
| Brigade did not provide their service either. A lender
| provides the service of lending money over a certain amount
| of time. This money is like a contractor paid by the hour,
| working at the borrower's service. Brigade should not be
| entitled to having that money back until that time has either
| elapsed or the borrower decides to alter the payments.
|
| Another comparison would be me giving my wallet to a friend
| to buy something, then the wallet falls from his pocket into
| my landlord's hands, who declares this must be my next
| payment for rent. This does not sound fair.
| IncRnd wrote:
| > Brigade did not provide their service either. A lender
| provides the service of lending money over a certain amount
| of time. This money is like a contractor paid by the hour,
| working at the borrower's service. Brigade should not be
| entitled to having that money back until that time has
| either elapsed or the borrower decides to alter the
| payments.
|
| That's not true. For comparison, many times a mortgage
| lender can call the loan at any time. The service of
| Brigade loaning the money had already happened.
|
| > Another comparison would be me giving my wallet to a
| friend to buy something, then the wallet falls from his
| pocket into my landlord's hands, who declares this must be
| my next payment for rent. This does not sound fair.
|
| A better comparison would be if your bank mailed a check
| every month to your mortgage lender, then suddenly sent a
| check for the exact remaining balance plus interest
| accrued.
| arthurcolle wrote:
| this second example seems like a better analogy for the
| situation
| IncRnd wrote:
| That's not at all appliable to this situation. If Brigade had a
| Due For No Reason clause, they could have called the loan in at
| any time, just like a bank calling a mortgage due at any time.
|
| Even without such a clause, Brigade is owed the entire pricipal
| and all accrued interest, which is exactly what was paid. There
| was a payment plan, but that doesn't affect the actual amount
| owed.
|
| This literally was a prepayment. The question is whether this
| was accidental or not.
| djohnston wrote:
| i dont understand how Brigade can so brazenly make off with the
| money here. why would people want to work with them given this
| behavior?
| sukilot wrote:
| Simple math --- will this action cost them $175m in future
| profit?
| sukilot wrote:
| Brigade accepted money from Citibank on behalf of a bankrupt
| debtor corporation (an economic zombie). No humam voluntarily
| working with Brigade was harmed.
| tehwebguy wrote:
| Because people take loans from whoever will give them one.
| boffinism wrote:
| It's because (according to them) it's their money. It's not
| some random sum coming from some stranger, it's the _exact_
| amount they were owed.
| Hermel wrote:
| IANAL, but all of this probably depends on a tiny detail: did
| Revlon instruct Citibank to pay the $176.2 million to Brigade
| Capital?
|
| (1) If the answer is yes, then this qualifies as a payment
| instruction. In a payment instruction, a bank sends someone money
| on behalf of the payer and in return claims that amount from the
| payer. In that case, citibank would have to recover the 176.2
| million from Revlon.
|
| (2) If the answer is no and citibank sent out the money by
| mistake without having been instructed to do so, it should be
| able to reclaim it from Brigade Capital.
|
| The article mentions that citibank never deducted the paid amount
| from Revlon's account. This would hint at option (2) being the
| case.
| basseq wrote:
| Revlon did not instruct Citibank to pay the $176.2M:
|
| _> Their first line of defence is Revlon's own statement --
| "Revlon did not pay down the loan or any part of the loan"._
|
| IANAL, but this seems pretty cut and dried in favor of
| Citibank.
|
| _Citibank_ does not have any liability to Brigade, and they
| paid the money "from its own account". Combined with
| Citibank's role as an _intermediary_ between Revlon (who,
| again, did not instruct or actually pay the money) and Brigade,
| I don 't see how Brigade has any claim on _Citibank 's_ money.
| JumpCrisscross wrote:
| > _this probably depends on a tiny detail: did Revlon instruct
| Citibank to pay the $176.2 million to Brigade Capital?_
|
| This is not the lender's problem. If the borrower's bank pays
| the lender bank, the lender has some claim to the money.
|
| If the lender inappropriately deducted the funds from the
| borrower's account, that's a problem for them to sort out.
|
| In any case, good to get modern case law to this question.
| vmception wrote:
| Okay guys, so now that everyone got their silly irrelevant
| armchair legal analogies out of the way:
|
| What would you like to happen and why?
| Ballu wrote:
| How this is different from this scenerio:
|
| Think you send the money for mortgage payment from your brother
| account who doesnt has any financial relationship wrt that
| mortgage (by mistake).. Plus you pay for whole year in one
| transaction incl interest. Can you go back to bank (lets take
| Citi for simplicity) and ask for money back and telling that you
| will send for one month only with right account. How will Citi
| react?
| dwighttk wrote:
| That's the Chance card I want to draw in Monopoly
| AndyMcConachie wrote:
| I have absolutely no sympathy for Citibank in this instance.
| They're a bank. Their job is to do stuff like facilitate
| transfers and keep records. That's their primary mission. If
| they're too incompetent to do that properly then maybe they
| shouldn't be in business.
| Invictus0 wrote:
| I suppose you write perfect bug free code all the time?
| zadkey wrote:
| The strength of an organization is it's ability to overcome
| the weaknesses of any one individual. Developers don't have
| to have a business sense, product owners don't have to be
| technical, etc.
|
| In the Dev world, there are QA engineers, code reviews,
| multiple environments, user acceptance testing, etc, to
| protect the codebase.
|
| In the corporate world, a CEO doesn't have to know how to do
| everything. He knows how to make good decisions and to defer
| to people who are more knowledgeable than him on specific
| issues.
|
| Good processes stop problems before they make it to
| production. And while an individual can make a mistake within
| an organization, the organization's processes will serve as
| safeguards that prevent that mistake from being propagated
| throughout the org's codebase.
|
| In the case of Citibank, they should have good processes in
| place to prevent this kind of colossal mistake. So again the
| mistake of an individual should not be propagated but
| reviewed and fixed before affecting anything. As the other
| guy said, they should have had measures in place to prevent
| this kind of thing, especially considering it is a
| significant aspect of their overall business strategy.
| dmix wrote:
| I'm curious since they also paid a bunch of other people, totally
| 900M that it will be a helpful argument in court to return the
| 177M.
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