(Bloomberg) — Citigroup Inc. won a temporary court order freezing $175 million that Brigade Capital Management LP is refusing to return after the bank accidentally transferred more than $900 million to Revlon Inc. lenders.
U.S. District Judge Jesse Furman will hold a conference Wednesday to determine the next steps in the case, including whether to hold a hearing on Citigroup’s request for a preliminary injunction forcing Brigade to return the $175 million.
Brigade told Furman in a hearing on Tuesday that it can’t return the money because it went to other funds, while the bank says Brigade is the only one of dozens that has “flat out” refused to return the money. The bank sued Brigade on Monday, asking the court to order the hedge fund to return Citigroup’s share of the money.
Citigroup wired payments to about 40 funds that use Brigade as their investment or collateral manager, and knows Brigade itself isn’t one of the lenders and doesn’t have the money it’s seeking, Brigade said in a legal filing Tuesday.
Citigroup has recouped less than half of the money, which it blamed on a clerical error, and some lenders are refusing to pay, saying Revlon was in default on a loan and should have repaid them anyway, according to people with knowledge of the matter. But at the hearing on Tuesday before Furman, a lawyer for the bank said Brigade is the only lender that has declined outright, while others have given the payments back and Citigroup is in talks with still others.
“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 said.
Read More: Citigroup Sues Brigade Capital Over Mistaken Revlon Transfer
Citigroup, the administrative agent for the loan, 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.
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 .
“To sort of target Brigade as if they were the lender here doesn’t make sense and doesn’t work,” Loigman said.
The judge said he would rule later on Tuesday on Citigroup’s request for a temporary restraining order blocking Brigade from doing anything with the funds pending resolution of the lawsuit.
Furman has sat on the bench for his share of creditor brawls. He oversaw the case of Windstream v. Aurelius Capital Management LP, ruling in the hedge fund’s favor over an asset transfer.
The case is Citibank NA v. Brigade Capital Management, 20-cv-6539, U.S. District Court, Southern District of New York (Manhattan).
(Updates with court order)
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