The court case between Citigroup and Brigade Capital Management over Citi’s “mistaken” repayment of Revlon loans worth $900 million is already heating up.
Just one day after Citi filed a complaint against the hedge fund firm in a New York court, the two met before a judge to discuss whether the court can prevent Brigade from using its cut of Citi’s payment, valued at roughly $175 million.
Citi’s complaint, filed Monday, claimed that the firm mistakenly transferred $900 million of its own money to companies including Brigade. Citi is the administrative agent on 2016 loans to cosmetics company Revlon and is responsible for facilitating the loan payments.
Citi said in its initial complaint that instead of transferring the accrued interest due on Revlon’s loan, it accidentally transferred the loan’s full principal and interest back to the lenders, one of which was Brigade. Brigade then allegedly converted that money into cash.
After filing that complaint on Monday, Citi also asked the court to temporarily prevent Brigade from using the money until the court makes its final decision in the case.
”We quickly caught our payment error and are taking the appropriate actions to recover those funds,” a spokesperson for Citi said in a statement to II Tuesday.
Following Tuesday morning’s meeting, legal teams for both Citi and Brigade sent letters to the court, officially responding to that request.
According to the letter Brigade’s attorney sent to the court, Citi didn’t give notice of the transfer error until the day after it made the transfer.
Brigade said that the transfers “didn’t appear in error” because Citi paid the exact amounts of principal and interest outstanding. Brigade also alleged that the transfers would have required many levels of authorization and that Citi transferred money to all its lenders and funds, not just one outlier.
According to Brigade, Citi allegedly still hasn’t explained how the accidental transfers happened.
“It is not believable that a sophisticated institution like Citibank could have transferred nearly $1 billion, in the exact amount outstanding under the 2016 Credit Agreement, in error,” Brigade said in its letter to the court. Brigade added that it did nothing to “induce or coerce” Citi’s payments.
Citi’s complaint, filed Monday, said that its accidental payments were accompanied by calculation statements that show the correct amount of money due. Additionally, the lending agreement says that any prepayment requires three-days’ notice.
The letter Citi’s attorney filed on Tuesday said that these discrepancies should have been a “red flag” to Brigade and should have signaled to the firm that the transfers were erroneous.
According to Citi’s initial complaint, Brigade’s choice to convert nearly $175 million into cash for its own use threatens “the integrity of the administrative agency function and the trust in the global banking system.”
Citi is asking the court to order Brigade to repay the nearly $175 million with interest and to pay the firm damages for “misconduct.” According to Citi’s complaint, the causes of action for the lawsuit are unjust enrichment, conversion, money had and received, and payment by mistake.