After a Judge Ruled in Lenders’ Favor, Citi Is Trying to Stop Them From Spending the Mistaken Loan Repayment

Less than a month after a New York judge ruled that lenders accidentally repaid by Citigroup could keep their money, Citi is trying to stop the firms from using it.  

On Tuesday, the investment firm filed a request asking the judge to require the lenders to freeze the transferred funds until Citi files an appeal to a higher court.  

According to Citi’s filing, “the money represents a lottery-like windfall of hundreds of millions of dollars [for the lenders]. They were not expecting to receive this money for several years, if at all.” 

The filing refers Citi’s “mistaken” repayment of a $900 million loan for cosmetics maker Revlon. The bank had acted as an intermediary between Revlon and the lenders. Although Revlon hadn’t transferred the $900 million to Citi, the bank — which said it was intending only to pay the interest due to the lenders — repaid the loan in full, court records show.  

Many of the lenders held onto the money, saying they believed it was an early repayment before Citi alerted them to the mistake. So Citi filed several lawsuits in an effort to get it back.  

The firm sued Brigade Capital Management, Bardin Hill Loan Management, Investcorp Credit Management, Greywolf Loan Management, Zais Group, Allstate Investment Management, Medalist Partners Corporate Finance, Tall Tree Investment Management, New Generation Advisors, and Highland Capital Management Fund Advisors. 

In February, New York Southern District Court Judge Jesse Furman ruled in favor of the 10 investment advisory firms, who collectively received more than $500 million from the firm. The remainder of the money went to lenders that had returned it, thus avoiding lawsuits.

[II Deep Dive: Judge Rules That Revlon Lenders Can Keep Citi’s Mistaken Repayment] 

According to Citi’s newest filing, if the judge does not grant the order — or an order to extend a temporary restraining order already in place — the lenders could use the money elsewhere, making it more difficult for the bank to reclaim the funds following a successful appeal.  

“Without an order freezing the mistakenly transferred funds, the lenders will be able to disperse the disputed funds through a byzantine network of investors around the world — many of which may transfer the funds again to yet more parties,” the lawsuit said. “If that happens, the defendants may well become powerless to return the disputed money, and Citibank likely would be unable to trace its funds absent 100-plus separate collection actions.”

This, according to Citi, would leave the firm with a “hollow” victory if it wins the appeal.