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Make no mistake about it: In the matter of its sending all of the nearly $1 billion Revlon’s creditors were owed to those aggrieved creditors, instead of the rather more modest coupon payment due them, Citigroup is still the stupid one. Unfortunately for those of the aforementioned creditors who wanted to keep that money, the U.S. Second Circuit Court of Appeals—in spite of their best efforts to convince otherwisedoes not believe they could possibly be as stupid as the bank.

At a hearing last year, Neal Katyal, a lawyer for the bank, told the three-judge appeals panel that the lenders should have been skeptical of the payments because they never received formal notice that the Revlon term loan was being paid off. He noted that the loan was trading as low as 20 cents on the dollar and that some creditors thought Revlon was insolvent, and said six of the 10 lenders didn’t even know about the transfers until Citigroup notified them.

“All of these red flags” should have led them to ask “any one of the million questions that would have led to discovery of the mistake,” Katyal said….

[U.S. Circuit Judge Pierre] Leval said that he and Judge Robert Sack had originally decided to ask the New York Court of Appeals, the state’s highest court, for a ruling. He said they changed course because they became convinced by the bank’s arguments and felt the Court of Appeals route could add more than a year of delay.

Not that the third member of the panel thinks it should have even taken this long.

“In my view, this is a straightforward case that many smart people have grossly overcomplicated and that we should have decided many months ago,” Circuit Judge Michael Park said in a separate opinion agreeing with the result. “Put simply, you don’t get to keep money sent to you by mistake unless you’re entitled to it anyway.”

This means instead of the half-billion dollars they’d enjoyed for the last two years, Brigade Capital Management, et. al., will now have to fight it out with Revlon’s other creditors—collectively owed more than $3 billion by a company worth $123 million before its bankruptcy filing—in court. And, as Citi would no doubt like to add with relish: Take it from us that it will be no fun at all. Not that it’s going to enjoy a public victory lap here, what with the ongoing epidemic of digital obesity in its walls.

“Today’s ruling reaffirms our long-held belief that these mistakenly transferred funds should be returned as a matter of law, as well as ethics,” a spokesperson for Citigroup said in a statement. “While Citi has taken steps to reduce the likelihood of such an error in the future, today’s decision provides welcome stability and upholds the concept of cooperation needed for a well-functioning syndicated lending market.”

Citigroup’s $500 Million Blunder Ends in Victory for the Bank [Bloomberg]
Citigroup wins appeal over mistaken Revlon wire transfer [Reuters via CNBC]

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