Perelman Wins Round in Suit Against Morgan Stanley
Tuesday, May 17, 2005
WEST PALM BEACH, Fla. -- Billionaire financier Ronald O. Perelman won $604.3 million in compensatory damages Monday in his lawsuit accusing the investment firm Morgan Stanley of duping him into believing a company was financially successful.
The jury said it found clear and convincing evidence that Perelman, the Revlon cosmetics chief and a former Palm Beach resident, relied on false statements that Sunbeam Corp. was a turnaround success and could afford to acquire his camping equipment company, Coleman Holdings Inc., in 1998.
Sunbeam filed for bankruptcy protection in 2001 after its financial troubles were discovered, and Perelman alleged he had millions in losses because stock he received in the deal plunged in value. His lawsuit is also seeking $2 billion in punitive damages, which the jury will consider over the next few days.
"We're obviously very pleased by the jury's decision and appreciate their thoughtful attention to the facts in reaching what we believe is a just verdict," Perelman's company said in a statement.
Morgan Stanley vowed to appeal the verdict, blaming Judge Elizabeth T. Maass for issuing a default judgment in which she told the jury that Morgan Stanley helped Sunbeam, an investment banking client, defraud investors. Because of that judgment, Perelman had to prove only that he was swayed into making his decisions regarding the Coleman sale by Morgan Stanley's advice.
"Far from being part of the Sunbeam fraud, Morgan Stanley was a victim of that fraud, losing $300 million when Sunbeam collapsed, one of the many true facts that the jury was not allowed to hear," Morgan Stanley said in a statement.
Before the start of the trial, Perelman won a ruling by the judge that said jurors must accept as fact that Morgan Stanley helped Sunbeam cover up its failing finances. That meant Perelman had to show only that he relied on the Wall Street firm's advice when he accepted 14.1 million shares of Sunbeam stock in the 1998 buyout deal.
Morgan Stanley said any punitive damages would be "inappropriate and legally deficient."
Perelman's lawsuit claimed Morgan Stanley stood to earn $40 million from Sunbeam's acquisition of Coleman.
Morgan Stanley contended that Perelman benefited from the deal because Sunbeam absorbed $519 million in debt from a Perelman-controlled company. In addition, Perelman pocketed $160 million in cash from Sunbeam along with the stock shares.
In its most recent quarterly earnings report, filed April 6 with the Securities and Exchange Commission, Morgan Stanley said it had $360 million in reserve to pay out legal damages in the case. While that is not nearly enough to even cover the compensatory damages, Wall Street analysts said it was highly unlikely that the case would survive an appeal.