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Matt Levine

Citi Won’t Misplace $500 Million Again

Also Hertz, the SEC and Gamestop, SPAC names, SPAC sponsors, SPAC newsletters, Fidelity, BUZZ and Clubhouse Media Group. 

Last August, Citigroup Inc. accidentally wired $900 million to some hedge funds to pay off a syndicated loan for Revlon Inc. The money did not come from Revlon, the loan had not come due, and neither Revlon nor Citi intended to pay it off. Citi was the administrative agent on the loan, handling payments from Revlon to the lenders; some people in Citi’s back office just checked the wrong boxes on their computer, oops, and the money went out. They noticed the problem the next day and contacted the hedge funds to ask for their money back. Unfortunately many of the hedge funds were in a bitter, somewhat unrelated dispute with Revlon, and they decided that they’d rather keep the money. About $500 million was not returned. So Citi sued. Last month Citi lost, in a somewhat shocking decision; a federal judge ruled that the “discharge-for-value defense” under New York law allowed the hedge funds to keep the money. We talked about this last month. It was pretty weird.

One thing that happens in financial markets is that, when there is a shocking court decision upending people’s expectations of how financial contracts work, typically lawyers will add a clause to their boilerplate financial contracts, for use in all future deals, saying “but that shocking court decision does not apply to this deal.” Much financial law consists of default rules, and if you don’t like a particular legal rule, you can usually opt out of it by contract.