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Perelman Wins $1.4B Against Morgan Stanley
May 18, 8:47 PM EDT
By JILL BARTON
AP Business Writer
WEST PALM BEACH, Fla. (AP) -- Morgan Stanley must pay billionaire financier Ron Perelman more than $1.4 billion in damages, awarded by a jury that said it found clear evidence the investment firm acted fraudulently in Perelman's 1998 sale of his Coleman camping gear company to Sunbeam Corp.
The jury deliberated for nearly four hours Wednesday before deciding on $850 million in punitive damages. On Monday, the same jury awarded Perelman compensatory damages of $604.3 million.
"This should send a clear message to Morgan Stanley about what constitutes professional and ethical behavior," Perelman's company, Coleman (Parent) Holdings, said in a statement. Perelman had sought up to $1.8 billion in punitive damages. Florida law limited jurors to that amount, or triple the amount of compensatory damages.
Morgan Stanley plans to appeal and pledged that the verdict would not impede its business. The firm's attorneys argued they were denied a fair trial because Judge Elizabeth Maass ruled that Morgan Stanley helped Sunbeam, an investment banking client, defraud investors because it failed to turn over evidence in the case.
As a result, Perelman had to prove at trial only that he relied on the fraudulent statements when deciding to sell his controlling stake in the camping equipment company.
In a statement, Morgan Stanley CEO Philip J. Purcell said the court "has done a great injustice to the employees and shareholders of Morgan Stanley.
"We will fight to have this decision overturned and we fully expect to prevail," Purcell said. "Morgan Stanley is financially strong and this latest development, while disappointing, will not impede our ability to serve our clients and grow our business."
Sunbeam filed for bankruptcy protection in 2001 after its financial troubles were discovered, and Perelman alleged he had lost millions because 14.1 million shares of Sunbeam stock he received in the deal plunged in value.
Morgan Stanley also cast itself as a victim of the Sunbeam fraud, saying it lost $300 million when the company collapsed.
Perelman claimed Morgan Stanley deceived him because it stood to earn $40 million from Sunbeam's acquisition of Coleman. His attorney, Jack Scarola, told jurors in closing arguments on Wednesday that Morgan Stanley kept hidden up to 60 million pages of potential evidence, which was the basis for Maass' ruling.
"Morgan Stanley hid evidence. Morgan Stanley destroyed evidence. Morgan Stanley filed false certifications. Morgan Stanley lied to the court and sought in every way possible to cover up its wrongdoing," Scarola said.
Morgan Stanley contends Perelman benefited from the deal because he pocketed $160 million in cash along with the stock shares, while Sunbeam absorbed $519 million in Coleman's debt.
Morgan Stanley attorney Mark Hansen urged jurors against a punitive damages award. He said the $604.3 million compensatory damages verdict was already a "severe blow" that "devastated" the firm.
Hansen said Perelman was not a vulnerable victim in the case but was a sophisticated investor with "an army of advisers."
But Scarola argued that Morgan Stanley took advantage of Perelman because he trusted the firm after using it in previous business deals.
"He was selected because Morgan Stanley knew he would trust them. They designed this fraud to take advantage of the one vulnerability he had," Scarola said.
In its most recently quarterly earnings report, filed April 6 with the Securities and Exchange Commission, Morgan Stanley said it had $360 million in reserve to pay out any legal damages in the case. While not nearly enough to cover the judgments, Wall Street analysts say the case likely will be settled.
Scarola agreed, saying that the firm could be paying up to $250,000 a day in interest on the judgments.
"Clearly, with numbers in this range, there is a very strong interest by Morgan Stanley to get this case resolved quickly," he said.
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