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Citi made a $500 million mistake. Here's how that would play out for regular people

February 18, 2021. Summarized by summa-bot.

Compression ratio: 66.2%. 2 min read.

NEW YORK, NY - NOVEMBER 14: A view of the Citibank building, which will house new Amazon employees starting in the first half of 2019, in the Long Island City neighborhood on November 14, 2018 in the Queens borough of New York City. Amazon announced on Tuesday that it has chosen Long Island City in Queens and Crystal City in Arlington, Virginia as the two locations which will serve as additional headquarters for the company. Amazon says each location will create 25,000 jobs. (Photo by Drew Angerer/Getty Images)

Citigroup lost a court battle Tuesday to claw back $504 million it mistakenly wired to Revlon's lenders in August. But don't get your hopes up that you could keep a chunk of change accidentally placed in your bank account.

New York (CNN Business)Citigroup lost a court battle Tuesday to claw back $504 million it mistakenly wired to Revlon's lenders in August.

A federal judge ruled that the wire transfers made by Citi (C), who was acting as Revlon's loan agent, were "final and complete transactions, not subject to revocation. " However, in most instances of mistakenly receiving wired transfers, that's not the case.

But there is an exception that applied in Citigroup's case under a New York law.

This law was brought forward by precedent in a 1991 case where New York's Court of Appeals ruled that if a third party mistakenly sends money to a creditor, the creditor can keep the funds.

That exception, called the discharge-for-value rule, allows the recipient to keep funds accidentally wired to them if the mistakenly transferred money was unprompted, relieves a valid debt, and the recipient wasn't aware the payment was made in error.

This was deemed to be the case with Revlon's (REV) lenders.

"The discharge-for-value defense ultimately turns on whether Defendants (or, more precisely, their clients) were on constructive notice of Citibank's mistake at the moment they received the August 11th wire transfers," said US District Court Judge Jesse Furman in his decision.

Revlon lenders stated they believed the transfers from Citibank were prepayments for an outstanding loan — which wasn't due to be paid off until 2023.

Therefore, the court ruled it was reasonable for Revlon lenders to believe the payments were not made in error.

Thus, Defendants and their clients could assume — and did, in fact, assume — that the bank had effective internal controls to avoid significant mistakes," the decision reads.

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