On Monday, Citibank filed a lawsuit in the Southern District of New York, seeking the return of funds that it said were transferred in an “operational mistake.
The US banking giant stated in court documents that it meant to send Brigade Capital around $1.
5 million in interest payments on a loan the hedge fund made to a distressed cosmetics company Revlon.Instead, it wired around 100 times that amount of its own funds to the hedge fund. Other Revlon creditors also received incorrect payments adding up to $900 million.
Citibank, which acts as an administrative agent on the Revlon loan, claims in court documents that Brigade Capital is refusing to return the money.
“Brigade has taken the baseless position that Citibank’s overpayment … served to pay off Revlon’s entire principal balance as well,” the bank wrote in its complaint.
To support that claim, the bank includes a message reportedly sent by Brigade Capital that says it’s “not at all clear that the funds were sent as a result of ‘clerical mistake.’ “
On Tuesday, the court placed a preliminary injunction against Brigade Capital ordering it to either return the money back or to not withdraw or dispose of it until a court appearance on August 31st.
Citibank said Brigade Capital’s actions are “unconscionable” and asked the court to force the return of the money. “Any other outcome would threaten the stability of the banking system [and] reward bad actors that try to capitalize on operational mistakes,” the bank said in its complaint.
Citibank also added that Brigade Capital had no reason to expect a large payment from Revlon.
“Virtually no company, let alone a distressed retail and consumer company such as Revlon, would ever make such a substantial prepayment while dealing with the significant financial consequences caused by the ongoing pandemic,” the complaint reads.
“We quickly caught our payment error and are taking the appropriate actions to recover those funds,” a spokesperson told CNN.
Last 2016, Revlon acquired Elizabeth Arden, another American cosmetics brand, in a deal financed by a $1.8 billion loan of which Brigade Capital holds a piece. Under the credit agreement, Citibank collects payments from Revlon to give to the lenders.
Makeup brands have taken a hit during the pandemic because people are spending more time at home. Revlon shares are trading at $7.71 a share, down from recent high above $27 posted in October 2019.