Citigroupās $900 Million Blunder Sparks Legal Chaos and $400M Fine
Citigroup (Citi) faced a major setback in 2020 when it mistakenly sent $900 million instead of $7.8 million in interest payments, leading to a significant legal battle. The Federal Reserve and Office of the Comptroller of the Currency (OCC) subsequently fined the bank $400 million for risk management failures.
The error, one of the biggest blunders in banking history according to Judge Jesse Furman, occurred in August 2020. Citi intended to pay $7.8 million but sent $900 million, representing a full payoff of a loan due in 2023. This led to a two-year legal battle between Citi and Revlon creditors.
Initially, Furman ruled in favor of the creditors in 2021. However, his ruling was later vacated by the 2nd U.S. Circuit Court of Appeals in 2022. Ten creditors refused to return the excess payment, leading to a standoff. However, ten creditors eventually settled with Citi, returning a collective $504 million. Some asset managers returned about $385 million. The remaining $149 million was not returned.
In October 2020, the Federal Reserve and OCC fined Citi $400 million for significant shortcomings in risk management, data quality, and internal controls. The regulators ordered Citi to improve its risk management practices. Additionally, the Fed and FDIC demanded Citi address a shortcoming in its living will and submit a mapping document by January 31, 2023.
The case was dismissed by Judge Furman on Monday, following the settlement with the creditors. Parties have 60 days to reopen legal action if the settlement isn't consummated. Citi's mistake in 2020 highlighted significant issues in the bank's risk management practices, leading to substantial fines and regulatory demands for improvement.
