Citigroup Gets Freeze on Brigade Money in $900 Million Error

(Bloomberg) — Citigroup Inc. scored a temporary court order freezing $175 million that Brigade Capital Management LP declined to return after the bank accidentally transferred more than $900 million to Revlon Inc. lenders.



a close up of a sign: The silhouette of a pedestrian holding a mobile device is seen walking past a Citigroup Inc. bank branch in San Francisco.


© Photographer: David Paul Morris/Bloomberg
The silhouette of a pedestrian holding a mobile device is seen walking past a Citigroup Inc. bank branch in San Francisco.

The order followed a hearing Tuesday in which the bank and the hedge fund faced off over Citigroup’s expensive blunder. The two will be back in court on Wednesday as the judge determines the next steps in their legal battle, including whether to hold a hearing on the bank’s request for a preliminary injunction forcing Brigade to give the money back while the case proceeds. Citigroup sued Brigade on Monday.

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Brigade, which says it isn’t a Revlon lender itself, told U.S. District Judge Jesse Furman in the hearing that it doesn’t have the $175 million. Citigroup wired payments to about 40 funds that use Brigade as their investment or collateral manager, it says.

A lawyer for the bank told Furman it’s exactly in that capacity that Brigade is acting “in concert” with the funds, leading the charge against returning the money.

“It was Brigade, the largest lender here, who has flat out refused to return the funds on the grounds that they weren’t made in error,” attorney Matthew Ingber told the court. He said “it creates serious issues for the banking industry if players like Brigade can understand, by all accounts, that this was unintentional, that this was a mistake, and can reap a windfall from it.”

Representatives of both Citigroup and Brigade declined to comment on Tuesday’s ruling.

Read More: Citigroup Sues Brigade Capital Over Mistaken Revlon Transfer

Citigroup has recouped less than half of the money, whose transfer it blamed on a clerical error. Some lenders are balking at the bank’s demand because Revlon was in default on a loan and should have repaid them anyway, according to people with knowledge of the matter. Some of the lenders are themselves locked in a bitter fight with the struggling cosmetics company.

The bank had been acting as an agent on Revlon’s loan, collecting payments from the company to distribute to the creditors, but the accidental payments came from its own funds. Under the judge’s order, Brigade has no access to the $175 million it received last week. Furman, who has presided over his share of creditor brawls, oversaw the case of Windstream v. Aurelius Capital Management LP, ruling in the hedge fund’s favor over an asset transfer.

Citigroup — which on Tuesday resigned as lead arranger for a collateralized loan obligation managed by Brigade — said it had intended to make interest payments on Revlon’s behalf but accidentally transferred a sum more than 100 times as big. The bank has begun briefing watchdogs, including the Office of the Comptroller of the Currency and the Federal Reserve, about how it mistakenly misdirected so much money, people familiar with the matter said.

“You need a pretty big eraser on your pencil for a $900 million mistake,” said Vincent Indelicato, a partner at the law firm Proskauer Rose LLP who is a member of the restructuring and bankruptcy practice and isn’t involved in the case.

Read More: Citi’s $900 Million Blunder Raises Stakes in Revlon Showdown

Brigade was supposed to receive $1.5 million in interest on loan principal of $174.7 million, according to Citigroup’s lawsuit. Instead it got $176.2 million and has refused to repay the funds “despite crystal-clear evidence that the payments were made in error,” Citigroup said.

If Brigade chooses to “ignore the math,” the firm “should have at least wondered why the interest was paid,” Ingber told the judge at Tuesday’s hearing.

Brigade said the lenders were “lawfully owed every penny” that was transferred by Citigroup in Revlon’s name and couldn’t have known the payments were a mistake. The bank is taking aim at Brigade “for strategic reasons,” but the money at issue has already been distributed to the actual lenders, Robert Loigman, a lawyer for Brigade, said.

Revlon, controlled by Ron Perelman’s MacAndrews & Forbes, has sought to stem falling sales amid competition from Estee Lauder Cos. and a host of smaller companies that use social media to attract customers. Under almost $3 billion of debt, it has been hit hard by the coronavirus pandemic and is seeking to rework its borrowings.

The case is Citibank NA v. Brigade Capital Management, 20-cv-6539, U.S. District Court, Southern District of New York (Manhattan).

(Updates with Citigroup’s resignation in CLO deal in second section)

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