They accidentally repaid their loan early, which was explicitly allowed in the contract. The hedge funds were under no obligation to pay them back, since the money was now rightfully theirs.

Yes, exactly. They sent the money to their creditors. Had they accidentally sent it to someone who they didn't owe money to, the courts would order the money to be returned.

And everything done in this case was in a smart contract. That’s the idea.

I don't think the smart contract explicitly said "there's this arbitrage opportunity available", but it's definitely a fine line.

This kind of automated index fund seems pretty suggestive of arbitrage to me.

And flash loan contracts are a bright neon sign saying "arbitrage opportunity!"

They repaid someone else's loan early.

Yeah like the other guy replied, they intended internally to send it to a wash fund but mistakenly (due to a UI glitch) paid the debt back to the lenders. Now that UI glitch was their fault too, so...the courts said, cry all you want.

And they're a gigantic bank, it's the original digital business, every banker knows a single arithmetic error is dangerous.

Just bankers being inept.

I agree that this case was obviously ruled on incorrectly. The institutions broke the law (stole) by not returning the money, and the judge wanted to give a hot take instead of a legitimate ruling. Not allowing someone to retrieve money or property which was clearly given to you by mistake is theft. The end.

They sent their lender the exact sum of the loan. It's kind of a different case.

A single judge ruled against Citi. It's under appeal.