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In Citibank Wire Transfer Case Money Does Not Have To Be Returned Judge Furman Rules

By Matthew Russell Lee, Patreon Song Podcast
BBC - Guardian UK - Honduras - ESPN

SDNY COURTHOUSE, Feb 16 – As Citibank tries to recoup the money it wired out on August 11, 2020, the virtual / Zoom trial began on December 9 before U.S. District Court for the Southern District of New York Judge Jesse M. Furman. Inner City Press reported daily on the trial, below.

Now on February 16, Judge Furman has ruled that the Defendants can keep the money: "Defendants in this case — ten investment advisory firms managing entities that, collectively, received more than $500 million of the mistaken August 11th wire transfers from Citibank — contend that this exception to the general rule, known as the “discharge-for-value defense,” applies here and that Citibank is therefore not entitled to the return of its money. In December 2020, the Court held a bench trial to decide whether Defendants are correct. For the reasons that follow, the Court concludes that Defendants are indeed correct. As the Court will explain, application of the discharge-for-value defense ultimately turns on whether Defendants (or, more precisely, their clients) were on constructive notice of Citibank’s mistake at the moment they received the August 11th wire transfers. Based on the credible testimony of Defendants’ employees and the documentary record, the Court concludes that they were not. Taken together, the evidence shows that the entities believed — in good faith and with ample justification — that the payments they received were prepayments in full of the Revlon loan. The real explanation for the payments — a banking error of perhaps unprecedented nature and  magnitude — understandably did not occur to them until, nearly a day later, Citibank itself realized the error and sent notices demanding the money back. Because the discharge-for-value defense applies, the Court holds that Citibank is not entitled to its money back. Instead, Defendants’ clients are entitled to keep the money. Accordingly, and for the reasons that follow, judgment will be entered in favor of Defendants." Full order on Inner City Press' DocumentCloud, here. Podcast here

 Here for now some of the Day 1 blow by blow.

And Day 2 documents / Defendants exhibits zipped on Patreon here, one on DocumentCloud here, saying "Please retain the funds received 8/11 into Battalion CLO VIII Ltd. on account of the Revlon Term Loan 2016 pending further instruction. Please do not book, and carry the funds as a cash break for the time being."

 Hear, for now, this song.

On Day 6 and last, there were closing arguments and questions, and this: Judge Furman begin with questions about the Banque Worms decision. There's some talk about getting a phone charger. Counsel classily presses on. It's not easy being a court reporter. Judge Furman: Page 47 of Plaintiff's brief argues the District Court erred...

 Closing arguments still going. Lot of talk of imputed knowledge; Judge Furman asks if there's any excited utterance showing the defendants knew something was wrong, even before Citibank notified them. Judge Furman also asks why Citibank didn't get a grace period

 OK - it's over. Judge Furman: It was a well-tried case, but I hope the industry finds a better way of dealing with this, even if it was a black swan event. I will get you a decision as quickly as I can.

Note: the defendants, after Saturday December 12, stopped sending any of their exhibits. Watch this site.

  Day 5, the evidence wrapped up - but again exhibits were withheld despite request(s). Some of it:

Q: the official books of those investors would be in one place, and what Symphony had was the shadow books, correct? A: You could say that, yeah. Q: Is there any specific segregation you could identify?

A: State Street, P zero. Bromton, P zero. CLO, T plus one.

 Judge Furman: Could you explain? A: T plus zero, same day. T plus one, we can do it from the day prior. Now, questions about exhibits still withheld from Press.

 After long re-direct of Vaughan, now on the stand is Eric Lee of Symphony. Citibank's lawyer: You're on West Coast time, so thanks for getting up early. Are you familiar with pre-payment notices? A: Yes.

Judge Furman tells the lawyers he has gotten a letter on subject matter jurisdiction issues but not reviewed it yet; he'll tell them if he gets any thoughts from it. Also, he's gone back to look at transcript of final pre-trial conference & will allow Citi experts

And that's it - the evidence is over Citibank closed with an hour and two minutes left; defendants with an hour and 15 minutes left. Closing arguments tomorrow morning.

Now Judge Furman is telling counsel what he'd like to hearing about tomorrow, on "the timing question" -- he cites a Judge Patterson decision, Banque Worms' commentary on finality - when each defendant found out about the payments.

  Inner City Press will have more on this.

  Here's a document from Day 3, stating "It looks like they erroneously released paydown payment and are asking for it back. Do you agree?" Here on DocumentCloud, full Zip on Patreon here.

From Day 4: Continued cross, delayed by tech issues: Q: Did he make any comment about the Revlon payments after 9 am Aug 12?

"Objection- leading." Judge Furman: I'll allow it. But watch out, with your questions. "Let's turn to Defendants' exhibits"

Judge Furman: What is the relationship between Mr. Davis saying to book it, then telling US Bancorp to apply it? And where are the books and records on the outstanding principal on the loan? Citibank follows up: You were unaware on Aug 12 that Mr. Davis did that?

 This witness who only appeared by phone due to technology problems is excused. Defendants call Mr. Scott Crocombe. "Flip to page 6 of your declaration - is that your signature?" Yes.

Judge Furman: The objection with respect to para 12 is sustained, para 17 too.

 "May I publish this exhibit, a Bloomberg chat message?" Judge Furman: There's no jury, so you can put it on the screen. "This chat is dated Aug 12 --"

Objection. Not a business record kept in the ordinary course. Judge Furman: Sustained, for the moment.

 Q: Do you see the message, "I feel bad for the person who fat-fingered a $900 million payment... Not a good career move." Do you see, "How was work today honey? Fine, except I sent $900 million to people who weren't supposed to get it."

OK - now up for cross examination is Catherine McCoy of Allstate. She's not sure what the parent is. She has been sent the exhibits she'll be asked about in a zip file. Citibank lawyer is on mute. "You'd think by Day 4, I'd know how it works," he says. Disarming

 Michael Josephson has been testifying from an empty room. Judge Furman asks him about CLO 4.  Now Jeremy Phipps. Judge Furman: "Can you turn your camera on?" Defense counsel's name is lagging, amid transition. #TrialByZoom

Now up, Eric Warren, purple suit, purple tie, trees in side yard behind him. Topic is, once again, springing maturity of Revlon loan. 

Judge Furman: Can you give me the gave of the August re-purchases? Inner City Press @innercitypress · 1h Still on the stand: Eric Warren of Revlon, being asked about cross-defaults and bankruptcy. Q: Was Revlon prepared to defend the lawsuit on the merits if necessary? Warren: Yes.

 Now at 4:57 pm, witness John Vaughan takes the stand. Lawyer asks, How much longer will we be going? Judge Furman: 3 minutes. Vaughan signed his declaration on Nov 12 in SF.

 Judge Furman asks about exhibits.  Inner City Press is awaiting the exhibits since Friday. Judge Furman: Mr. Vaughan, I'm going to ask you to be in the Zoom room tomorrow morning. Lawyer: Is he under cross examination? Judge Furman: Any objection I tell him not to speak with you? Lawyer: no objection - as much as he might want to.

Judge Furman: Are you going to use all of your time? Citi: I think so. Defendants: Much of the time will be used. Judge Furman: Defendants have only 4 more witnesses. Maybe a rebuttal case? Now it arises: Mister Vinella must be rebutted

Judge Furman: The letters due at 7 pm, you can have until tomorrow morning if both sides want. Lawyer: At the collective groan of our associates, we'll take you up on that. So closing arguments / summations will be Wednesday.

The case is In re Citibank August 11, 2020 Wire Transfers, 20-cv-6539 (Furman)


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