On August 11, 2020, Citibank had a routine job to do. It was the administrative agent for a $1.8 billion loan to Revlon, which meant it collected Revlon’s payments and passed them on to the lenders. That day Revlon was paying about $7.8 million in interest.
On Flexcube, the software Citi used for these payments, the easiest way to process this one, and perhaps the only way, was to book it as if Revlon were paying off the entire loan. The interest would go to the lenders. The principal, about $894 million, would go to a “wash account,” an internal account used, as the court’s findings describe it, “to help ensure that money does not leave the bank.”
The payment went through Citi’s “six-eye” approval: a maker who entered it, a checker who verified it and an approver who gave final sign-off. The maker and checker worked for Wipro, a subcontractor in India; the approver was a Citibank senior manager in Delaware.
Flexcube sent any payment out as a wire unless the default was overridden. Citi’s own manual said that to keep the principal inside the bank, three fields had to point to the wash account: FRONT, FUND and PRINCIPAL. All three people believed that setting PRINCIPAL alone would do it. The maker checked that one box.
“Looks good, please proceed. Principal is going to wash,” the approver wrote back. When the checker took the final steps, a warning appeared on the screen: “Account used is Wire Account and Funds will be sent out of the bank. Do you want to continue?” It didn’t say how much. The checker meant to release the interest payment and clicked yes.
Around 9:00 the next morning, the checker was reviewing the previous day’s discrepancies and found enormous ones. Each of Revlon’s 315 lenders had received its share of the full principal. At 9:52, the approver messaged his boss: “[P]rincipal to wash, wires look[] like they went out the door.”
That afternoon Citi began sending notices asking for the money back. Some lenders returned it. Lenders holding about $504 million refused.
Citi sued. In February 2021, Judge Jesse Furman of the Southern District of New York called the mistake “one of the biggest blunders in banking history,” and ruled against the bank. Under a New York exception known as the discharge-for-value rule, a lender that is owed money and has no notice of the mistake may keep it. As the state’s highest court had put it, such a lender “should be able to consider the transfer of funds as a final and complete transaction, not subject to revocation.”
Citi appealed. On September 8, 2022, more than two years after the wire, the Second Circuit reversed and held that Citi was entitled to the return of the mistakenly transferred funds.