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.
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.
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.
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.
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.
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.
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.
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.
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.
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).
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.
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.
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.
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.
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 ).
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.
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.
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.
With an utterly terrible reputation Don didn't have real trouble, Don got finance. Every single time. After how many bankruptcies? How many re-structurings where his creditors lost?
You and me would have a lot of trouble getting that kind of financing without a hideous reputation. Don has one and got it. Now he's even the president. Bad reputations count for not all that much at all. And I hate that, fwiw.
Buffet's reputation, now that's a whole nother discussion. Yes it deserves to be better than Don's. Coke, McDonalds and buying off-market at huge discounts to support management against shareholders. Obesity, diabetes and legal resdistribution of people's retirment savings to berkshire hathaway. Yes, a reputation too good to be true nonetheless. I agree.
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.
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...
> 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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
>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.
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.
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.
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.
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.
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.
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.
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?
> 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.
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.
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.
> 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.
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.
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?"
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.
> 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).
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?
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.
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.
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.
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?
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.
> 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.
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.
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.
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...
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.
"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."
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.
Brigade accepted money from Citibank on behalf of a bankrupt debtor corporation (an economic zombie). No humam voluntarily working with Brigade was harmed.
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.
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.
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.
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.
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.
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.
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.
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.
> 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? :)
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.
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.
> 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.
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".
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.
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.
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...
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.
Probably. However if you pay off your mortgage by accident, they won't just give you back the money. They might also be uninterested in giving you a new mortgage if you are already declaring bankruptcy.
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
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.
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.
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?
> 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”.
> 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.
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.
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 .
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.
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.
> 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.
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.
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.
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.
But did the bank follow your direction in making the payment, or did they not follow your direction in making the payment. that makes all of the difference.
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.
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.
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.
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.
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.
>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...
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 :)
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 th...
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.
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).
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.
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.
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.
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.
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.
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.
Please cite a law here. The money was owed, it may have been distressed and in default (so due immediately) the balance was paid.
Seriously, no lender is responsible for investigating at the level you are talking about - seriously, they do not need to figure out if you used your own money, the paying agent used their money, a title company paid out a title claim and used their money, an insurance company settled the debt as a result of a loss event etc.
Paying agents in other areas (securities / bonds) pay trillions a year - the system would not work if everyone was always having to worry that the "good funds" being used to pay debts were not good funds.
I would think facilitating payment would only leave you liable for the amount given to you to transfer, not the amount of your assets that total the amount of debt between the parties you are facilitating for.
If Alice owes Bob $500, and I've agreed to take Alice's $5 bill to Bob, and I accidentally give Bob my own $500 bill, Bob doesn't get to keep it. The liability I took on in that transaction is for the amount of money I accepted from Alice for the purpose of delivering to Bob, not Alice's total debt.
That doesn’t seem relevant to me. If you and I both have accounts at a particular bank and they draw from yours instead of mine, generally I’d expect the bank to take the money from me and give it to you to right the situation. However, are you just SOL if I don’t have the cash to make you whole again? Just because we both use the same bank?
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.
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.
It's been a while since I read my mortgage note, but I believe the only condition under which it is callable is a default. Unless I've misunderstood what callable means in this context.
You've got the right of what callable means. After researching more about this, I have learned that some mortgages also have additional callable acceleration provisions to lower the bank's risk - such as when a borrower's credit score falls.
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.
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.
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.
> 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.
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.
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".
> 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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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[ 4.6 ms ] story [ 95.8 ms ] threadAnd they manage people’s money as a business.
Who would entrust these people with their money after learning of this case?
edit: typo.
If the money doesn't get paid back, THEN it would be an economic loss. For the hedge fund.
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.
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.
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.
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.
IRL, Hanlon's razor often works.
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.
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.
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.
Edit: That is if it is a legitimate error-error not citibank try to pull a takesy-backsy.
What kind of duty? Not a legal one, I think.
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.
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.
All of a sudden, we may see some consideration given to proper verification ( not just quick rubber stamp ).
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.
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.
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.
You and me would have a lot of trouble getting that kind of financing without a hideous reputation. Don has one and got it. Now he's even the president. Bad reputations count for not all that much at all. And I hate that, fwiw.
Buffet's reputation, now that's a whole nother discussion. Yes it deserves to be better than Don's. Coke, McDonalds and buying off-market at huge discounts to support management against shareholders. Obesity, diabetes and legal resdistribution of people's retirment savings to berkshire hathaway. Yes, a reputation too good to be true nonetheless. I agree.
So have George Soros and Carl Icahn.
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.
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...
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.
If it were me in your shoes, the amount of raw spite I would feel for Wells Fargo would be difficult to exaggerate.
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.
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.
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.
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.
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.
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.
If you accidentally paid off a loan early do you think you would be able to get your money back from the bank?
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.
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.
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.
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.
$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?
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.
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.
Just because the receiver of the funds is not at fault does not mean the customer should take the hit.
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.
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.
C returned money owed to B in full, which B was not expecting.
C asked for the money back from B.
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.
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).
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".
The judge will NOT be friendly to the other side.
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. ;)
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.
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.
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.
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.
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.
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...
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.
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...
https://www.9news.com.au/national/masterchef-contestant-dani...
200 or 300 million is probably the upper limit for a few?
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.
(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.
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.
> 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.
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.
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.
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.
This seems like a really bad loan to service.
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? :)
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.
A loan is the opposite.
* 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...
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.
> 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”.
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.
It is more like your dad paying your credit bill in full instead of the minimum and now saying he wants the money back
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 .
Yes if you had exceeded your minimum payment: https://www.fool.com/the-ascent/credit-cards/articles/overpa...
So, are corporations classed as fictional persons? Then let Citibank live with the mistake. As I would have to.
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.
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.
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.
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...
Sounds like quite a canny lawyer to me!
* 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 :)
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 th...
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.
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.
And hold onto it for dear life while the bank attempts to reclaim it when they realise their error.
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.
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.
Seriously, no lender is responsible for investigating at the level you are talking about - seriously, they do not need to figure out if you used your own money, the paying agent used their money, a title company paid out a title claim and used their money, an insurance company settled the debt as a result of a loss event etc.
Paying agents in other areas (securities / bonds) pay trillions a year - the system would not work if everyone was always having to worry that the "good funds" being used to pay debts were not good funds.
If Alice owes Bob $500, and I've agreed to take Alice's $5 bill to Bob, and I accidentally give Bob my own $500 bill, Bob doesn't get to keep it. The liability I took on in that transaction is for the amount of money I accepted from Alice for the purpose of delivering to Bob, not Alice's total debt.
that is how loan servicing works.
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.
What about the interest accrued from keeping the money for a time?
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.
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
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.
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.
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.
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.
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.
Example: https://www.bbc.com/news/world-us-canada-49643015
This is very different from the case you’re referring to.
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.
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.
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.
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.