Citi Can't Have Its $900 Million Back (bloomberg.com) 136
Matt Levine: Last August, Citigroup wired $900 million to some hedge funds by accident. Then it sent a note to the hedge funds saying, oops, sorry about that, please send us the money back. Some did. Others preferred to keep the money. Citi sued them. Yesterday Citi lost, and they got to keep the money. I read the opinion, by U.S. District Judge Jesse Furman, expecting to learn about the New York legal doctrine of finders keepers -- more technically, the "discharge-for-value defense" -- and I was not disappointed. But I was also treated to a gothic horror story about software design. I had nightmares all night about checking the wrong boxes on the computer.
Hedge Funds: Keep $$, Bank Depositors: Not a chanc (Score:5, Insightful)
Its almost like the system is rigged...
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Like the system backs the bank when it's a tiny bit of money, but when the bank fucks up 900 million they need to eat it?
It's an interesting theory that the system is rigged against banks and one I've not heard before.
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Yes, the law is very definite on this point: if a bank transfer lands in the account of you, the little guy, by mistake, you have to give it back. If you spend it instead it's a felony.
Re:Hedge Funds: Keep $$, Bank Depositors: Not a ch (Score:5, Informative)
If the bank owes you that money, then no, you don't have to give it back.
That's what happened here. The bank wired money for debt that it owed. They meant to trick their own system into wiring the money into an internal account. This is so that they can close those debtor accounts in order to create new sketchy ones. It would be too much work to do this manually. Well, the software was confusing and some settings weren't clicked, so the money was actually transferred to the real debtor accounts.
So, Citi accidentally paid off the debts that it owned, and then asked for that money back. The law says that you don't have to return money if it can be applied to a valid debt. Nobody got free money.
Re: Hedge Funds: Keep $$, Bank Depositors: Not a c (Score:4, Informative)
That's the key, but it takes brainpower and nuance to understand so it doesn't make the headline.
It isn't quite that "Citi Can't Have Its $900 Million Back" as the headline claims.
It is more like "Citi can't demand return of $900M debt payments to exchange it with different shell accounts that shelter Citi from future debt liability."
Citi owed the money. They sent a debt payment that was correct to the penny. They intended to set up a fancy sheltering system, but instead accidentally paid the debt as agreed.
The judge was right here. The company paid the debt, and can't recall the money to set up a worse, complex system.
Re:Hedge Funds: Keep $$, Bank Depositors: Not a ch (Score:5, Informative)
Citibank can't get back $500 million it wired by mistake, judge rules [cnn.com]
The law usually punishes those who spend money accidentally deposited in their accounts. Accidental transfers are common in the digital age, and wires can be paid back instantly. A Pennsylvania couple faced felony charges after spending money accidentally deposited in their account. But New York law has exceptions to this rule, known as the "discharge-for-value-defense."
If the beneficiary is entitled to the money and did not know it was accidentally wired, they can keep it. Revlon lenders said they believed Citibank was wiring prepayments for a loan. After all, the money accidentally wired was the exact amount "to the penny" Citibank owed them, although the loan wasn't set to mature for quite some time.
Re:Hedge Funds: Keep $$, Bank Depositors: Not a ch (Score:5, Funny)
So basically the headline and summary are misleading. I'm dismayed.
Re:Hedge Funds: Keep $$, Bank Depositors: Not a ch (Score:5, Funny)
So basically the headline and summary are misleading. I'm dismayed.
Yep welcome to.... uh... what year were headlines invented? That year, welcome to that year.
Headlines (Score:2)
I think the Babylonians were writing headlines on clay tablets about 5000 years ago.
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It's just a timing error (Score:3)
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Except the company who took out the loan didn't agree to do that. So Citi may have to eat the amount sent early, rather than taking it from them. It'll be held up in more lawsuits and appeals going forward.
Re: It's just a timing error (Score:4, Interesting)
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Re: It's just a timing error (Score:3)
Basically.
Citi accidentally paid a debt with cash.
Being a typical evil bank, they had intended to pay the debt with a structured repayment system that shielded them from liability and would allow them to potentially profit from the debt, like folding it into subprime mortgages, or at least find some way to wipe it from the books over the years.
They hoped the judge would force returning the cash and instead replace it with the complex banking instruments.
The judge said, "Cash works, the debt is paid."
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I'm kinda surprised they sued. Suing someone doesn't tend to improve your business relationship with them, and clearly they had one as they were taking out some pretty big loans. Why not just take another loan out instead?
Seems like they burned some bridges and wasted a lot of money on lawyers... Then again in finance they probably don't care about relationships, and have lawyers on staff.
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Money is the one thing that can bring out the dick in everyone.
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Money is the one thing that can bring out the dick in everyone.
Sounds like a great slogan for a male BDSM escort service -- or political campaign. :-)
Re:Hedge Funds: Keep $$, Bank Depositors: Not a ch (Score:5, Interesting)
The people who got accidentally paid were already suing Citibank before the payment, because Citi was attempting to restructure the loan in a way that would screw them over. In the process of this screwing, Citi accidentally re-payed the loan in full (they were trying to only do a paper-repayment). Basically, Citi tried to screw people, and accidentally ended up unscrewing them instead. Then tried to sue the people they had meant to screw over, so they could undo the unscrewing.
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Lol that does sound exactly like the sort of thing Citibank would do.
Re:Hedge Funds: Keep $$, Bank Depositors: Not a ch (Score:4, Interesting)
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They asked all the creditors nicely to return the money. $400M was returned.
The $500M they sued over was the creditors who did not return the money. Those creditors are unlikely to give future loans, because they're the ones already pissed at Citi.
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Or how it is going through my head., the right money went to the right people at the wrong time (too early). So they are allowed to keep it as early transitions are legitimate. If it was the wrong money or the wrong people, that would be a whole other matter.
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It wasn't technically the right money. It was the bank's money, not the borrower company's money.
Sounds like a problem between Citi and Revlon, not the initial creditors. Citi was handling the account for Revlon and basically accidentally gifted their client $900M as a pre-payment to the creditors.
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Re:Hedge Funds: Keep $$, Bank Depositors: Not a ch (Score:5, Interesting)
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I accidentally made a $10k payment onto a credit card instead of my towards my mortgage once. It was somewhat difficult to get that money back, even though I was not carrying a balance on the card. Now imagine I did have a balance on the card but urgently needed the money to pay the mortgage - I'd have been screwed for sure.
I made an overpayment on a card once, all it took was a phone call to get them to send me a check for the overage. They weren't able to send it back to my bank account via ACH transfer (which is how I paid it). Probably wouldn't have been so easy if I had a balance on the card and they applied the payment to the balance.
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I did that once, and needed the money pretty badly. The credit card company said they could return the payment, in 60 days. The credit card company: Citi.
Fuck them.
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I accidentally made a $10k payment onto a credit card instead of my towards my mortgage once. It was somewhat difficult to get that money back, even though I was not carrying a balance on the card. Now imagine I did have a balance on the card but urgently needed the money to pay the mortgage - I'd have been screwed for sure.
If you didn't have a balance on the CC, I imagine the whole payment did/would show up as a balance credit going forward, simply put your $10k mortgage payment on your CC to zero it out. But, ya, had you a balance on the card, your payment would have been applied, with any remaining as a credit, though you could still then charge $10k on that card to even things out...
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Very few banks will let you charge your mortgage payment.
You might be able to "cash advance" it, but that's usually cumbersome or not-free.
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Very few banks will let you charge your mortgage payment.
You might be able to "cash advance" it, but that's usually cumbersome or not-free.
Of course, thanks.
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Ah, so it's like I accidentally payed my mortgage early, then sued the bank to get the payment back.
I guess. Look, here is the "spirit" of this ruling:
The people that received the money had no reason to believe that they shouldn't have, and in fact and maybe only as an aside, had every reason to believe that they should have.
So the laws that apply to situations where unexpected money, that cant be explained, shows up in your account, are different from the ones where money you expected to get shows up.
"Don't spend money that you cant explain how you have."
Torrow's headline (Score:2)
But New York law has exceptions to this rule, known as the "discharge-for-value-defense." ... If the beneficiary is entitled to the money and did not know it was accidentally wired, they can keep it.
Tomorrow's headine:
Citibank Announces Move Out Of New York
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No. It's closer to you having a credit card with the bank and owing $100 on the card with a minimum payment of $10. You intend to send $10 to maintain the account in good standing, but you send $100 instead. Then you sue the bank trying to get that $100 back.
Ba
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(COVID hurt the beauty industry badly - with people not going into the office, there's no reason to layer on the makeup).
Especially with Zoom's "touch up my appearance" option enabled by default.
Re:Hedge Funds: Keep $$, Bank Depositors: Not a ch (Score:5, Informative)
It all comes down to what was the most rational assumption that the asset managers would have made when they received the wires. The way the wires were sent was a direct instruction that Revlon had repaid the full amount of its loan early. This sometimes happens, so why would the asset managers have questioned it?
From the ruling:
Given a choice between assuming that Revlon had paid off the 2016 Term Loan early — as borrowers sometimes do, and assuming that Citibank or Revlon had mistakenly transferred over $900 million — something no bank may have ever done before (and may never do again) — it would have been borderline irrational to choose the latter. It seemed far more likely to me that Citibank had made the August 11th payments on purpose but without a contemporaneous notice, than that Citibank had accidentally transferred hundreds of millions of dollars to multiple lenders in the exact amounts they were owed.
On the other hand, if $1000 magically appears in your account, it is not rational to think the bank just wanted to give you money. That is why you are liable if you spend it.
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If it was $1000 many people wouldn't even notice. If your monthly income is $10k+ and your outgoings are thousands as well (rent, mortgage, car etc.), and especially if your account is well into the black, it's not that difficult to miss some random payment or just assume it was some refund or thing you forgot about.
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If your monthly income is 10K+, your outgoings are thousands, and $1000 is deposited into your account by mistake, yeah, you wouldn't notice it, but you also wouldn't be spending so much that you won't be able to give the $1000 back. Why would someone with thousands of outgoing dollars in money each month spend down to the last $1000 of their account?
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Pretty much this. If it's so much money that it causes you to spend more than you have, then you really shouldn't be oblivious to it.
If it is a small portion of your money, then you won't even spend it before it gets clawed back.
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My accounts are "well into the black" and I know the comings and goings of every cent. It's called managing your personal finances... Just sayin'.
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Nah. Deposits are shown in their own column so any amount randomly appearing in one of my accounts would instantly stick out when I look at it. I find myself more actively managing my money when there's enough of it that it matters where I keep it, so I'll at least log in every week or so... and I certainly know where all my money is coming from!
It's much easier to miss someone taking money out because there are many more transactions in that direction. Once, my debit card was compromised and it took me wee
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That's probably because as a depositor, you sign a contract with the bank that gives them the right to take their money back.
Re:Hedge Funds: Keep $$, Bank Depositors: Not a ch (Score:4, Interesting)
There was no reason for the recipients to assume the payments were anything but legitimate payments paying off Citi's obligation. These weren't random accounts, and the amount transferred was the exact payoff amount for each obligation,
This isn't a case of a customer finding a random amount of money deposited in their account by an unknown depositor.
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Interesting how this diverges from whatever law governs regular bank depositors. There are countless stories of people finding money in their accounts, and then being LIABLE if they spend it, instead of reporting the mistake to the bank...
This is a bit different than an accidental deposit you were not entitled to and having to pay it back; in that case you'd know the moeny wasn't yours. Citi had loans from the funds they wired the money to, and the amount wired matched the outstanding balance so it was not unreasonable to assume Citi was paying off the loan. Citi is out the cash but it's not like they lost $900 billion; they can always borrow it again if they want to; as a result other than perhaps not having the cash on hand they didin't s
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well actually they MAY suffer lasting harm, but it is their own fault. Citibank were paying back Revlon based debt, In effect Citibank took on the liability of that debt. None of the lenders are likely to reloan the money as they know Revlon is in a shitton of financial trouble.
Good point. I had read it as they made the mistake on Revlon's behalf; further looking into shows they were to make an interest payment but accidentally paid off the loan. The courts logic seemed sound - Citi intended to make a payment, the creditors received exactly what is owed and the chances of such an error so small that it is not unreasonable to think the loan was being paid off and thus do not have to return the money. So Citi is on the hook for Revlon's loan. If they did try to find new lenders t
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I see nothing that says that Revlon loses the $500 million immediately, just that Citi cannot get the $500 million back from the places it sent it too. From the very first paragraph of the opinion: "It mistakenly wired, in addition to Revlon’s $7.8 million,almost $900 million of its own money as well."
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If the bank owes you money and puts that money in your account, you can spend it.
In this case, these aren't customers of the bank, so it's not a matter of the bank crediting their accounts. Ie, your is even further from this situation.
It's actually more a case of suppose I owe you money.
You get a payment from me for the amount I owe you.
Later my bank says "oops, we didn't mean to send that payment from Ray's account". Well tough titty, Ray's bank - Ray owed gwills, gwills got the payment from Ray, you can'
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Wrong analogy that isn't even close. A closer one would be if you prepay off a loan and then a month later ask for the money back.
Re: Hedge Funds: Keep $$, Bank Depositors: Not a c (Score:3)
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Interesting how this diverges from whatever law governs regular bank depositors. There are countless stories of people finding money in their accounts, and then being LIABLE if they spend it, instead of reporting the mistake to the bank...
Its almost like the system is rigged...
That's a different situation. If the bank drops $1,000 into your account and you had no reason to receive that money, then you can't spend it. But, if you'd given a $1,000 loan to the bank and they gave you $1,231.17 which was the exact amount they owned in principal+interest, then it's be reasonable to assume they paid off the loan early.
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Interesting how this diverges from whatever law governs regular bank depositors. There are countless stories of people finding money in their accounts, and then being LIABLE if they spend it, instead of reporting the mistake to the bank... Its almost like the system is rigged...
It's actually NOT like that. These creditors were owed that money and Citi paid them the exact amount owed -- which was the bulk of their creditors' defense. According to the various new articles I've read, if they had not been entitled to the funds, the court would have ruled they be returned. This was a case of the loans being paid off early by mistake and the bank wanting a mulligan on the payments.
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This article is too long, convoluted, and gossipy (Score:2)
Re: This article is too long, convoluted, and goss (Score:2)
You mean because succeeding would have turned them into adults ... melting their faces like in Raiders Of The Lost Arc?
Not exactly finders keepers, some more context (Score:5, Informative)
The money went to existing loan payments [cnn.com]
Citibank, which was acting as Revlon's loan agent, meant to send about $8 million in interest payments to the cosmetic company's lenders. Instead, Citibank accidentally wired almost 100 times that amount, including $175 million to a hedge fund. In all, Citi (C) accidentally sent $900 million to Revlon's lenders.
The rule is not exactly "finders keepers" in that free money appears out of nowhere but the recipient was expecting the money eventually, they get to keep it. In this case, the loans were paid off way in advance instead of an interest payment. From the recipient's side, no alerts were triggered as it appeared that the loans were paid to the exact penny that was owed. It was just earlier than expected.
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Citibank, which was acting as Revlon's loan agent, meant to send about $8 million in interest payments to the cosmetic company's lenders. Instead, [they paid off the principal]
Did the interest stop at that point? If so no foul. Citibank screwed up and needs to negotiate a new loan. If not they're out a service that they bought.
I presume it's the former, as it would not be reasonable to expect that they would pay off the loan early if the interest were prepaid (which it clearly wasn't if they were making
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misleading (Score:3)
Not surprised. (Score:3)
Remember when you had full access to any of their accounts, by changing the account number in the browser's address bar? (As reported here.)
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No, I don't remember that.
Re:Not surprised. (Score:4, Informative)
https://yro.slashdot.org/story... [slashdot.org]
Amazed Any Wire Transfers Work (Score:2)
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This 'error' had nothing to do with the wire transfer system. If you go to pay your credit card, and instead of clicking the 'minimum payment' box you check the 'current balance' box, the wire transfer system will do exactly what you said to do - transfer the entire balance from your account to the card issuer. That is in effect what happened here.
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This story has nothing to do with the fact that the payments were wired to the lenders.
Imagine your partner took your joint checking account and went thru and paid off all your credit card debt with the money you put aside to pay your property taxes. Do you expect the credit card companies would return those payments once you realize what happened?
That is essentially what happened. The bank issued payments in the exact amount owed to each lender. These weren't random amounts or random transfers of money, th
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yes, but they would call it a cash advance and bill me for it at 24%
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What about ... (Score:2)
Re:What about ... (Score:4, Informative)
The $900 million was sent to the people it was supposed to be sent to, just earlier than they intended to send it. That is why the recipients get to keep it.
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You have been mislead by a completely misleading title and summary from msmash
USS Fitzgerald 2.0? (Score:5, Interesting)
This article blames it on poor UI design. [arstechnica.com]
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This article blames it on poor UI design. [arstechnica.com]
Wow, looking at that, I'm surprised this doesn't happen more often. And the fact that the verifiers involved ALSO didn't know how the software worked is pretty damning.
Oracle Flexcube (Score:2)
Holly crap, that Oracle Flexcube software makes banking look more complicated than flying the Space Shuttle, and perhaps as dangerous! And they had a poor outsourced Indian guy working with that, probably for a measly wage...
But, yeah, just business as usual as far as Oracle is concerned - just buy their software, nobody ever got fired buying Oracle!
Understand the situation (Score:3)
The bank had a relationship with each organization it sent money to, and the payments weren't random, they were the EXACT amount, in full, owed to each organization.
If you have an auto loan with an outstanding balance of, say, $4,287.19, and instead of sending in your $318.49 payment you sent the bank a check for the amount owed $4,287.19, the bank would assume you wanted to pay off and close out your loan and do so. When you call the bank up three days later and say "oopsie" the bank is not obligated to refund your payment and re-open your loan.
It's no different if the money is sent via wire transfer or paper check.
It's no different if it is the bank sending the money to its lenders.
Related Bad Software Design (Score:2)
My personal favorite in this regard: In Microsoft Windows desktop, right click on a USB drive to open the menu and it has "Format" right next to "Open" -- don't miss!
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The Format option opens a new window where you need to confirm the format, so it's not that big of a deal if you miss.
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My personal favorite in this regard: In Microsoft Windows desktop, right click on a USB drive to open the menu and it has "Format" right next to "Open" -- don't miss!
Right... and don't miss the windows that then opens asking you how you want to format the drive, and once you pressed "yes" there don't miss the "are you sure?" confirmation dialog.
Yes, putting "format" right beside "open" is bad design, but the risk of anything bad actually happening is slim assuming the user has a basic brain and knows how to use it.
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The problem is, lots of stuff in Windows pops up "are you sure", to the point where it is simply an annoyance, and for most a reflex click.
Add to that bad design, and you do indeed have a rather high risk of something bad happening.
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Years ago we had a fairly large FileMaker Pro database that was accessed by 5-6 people. One of our employees was probably the most technophobic person I have ever met (it seemed as if she ever even looked at a computer, the magic blue smoke would start spontaneously coming out).
Anyway, there was a menu option, separated from others, that said something like "Delete All Records."
If you clicked this, a modal dialog popped up and the entire screen flashed a time or two. The warnings were dire.
Being a Mac, IIRC
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My favourite Windows context menu trivium was the Spanish version of Win10 which for quite a while offered to convert any file into a digital version (Digitalizar con Windows Defender). The first time I saw it I was briefly confused until I translated into English and realised that it had been translated from English by someone or some program which didn't grok the context, so it was using the verb for "scan" which corresponds to making an image from a physical item (what a scanner/fax machine does) rather
A billion dollar payment and nobody noticed (Score:2)
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Just open this article [arstechnica.com], the screenshot of the Oracle software they were using and the short description of what they did wrong that passed 3 human checks (including notes) will make it obvious how nobody noticed.
Re: A billion dollar payment and nobody noticed (Score:2)
It wasn't "a billion dollar payment" it was dozens and dozens of payments that added up to a billion dollars.
Good (Score:2)
People have lost their homes after a bank error.
Now that a bank got a taste of a massive loss...how does it feel? :>
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There was no error to check - the bank owed the money to the recipients, it paid each exactly what was owed. The error was not at the wire transfer level.
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