Perelman Wins $604M from Morgan Stanley

Jurors will begin hearing arguments today on punitive damages that could triple the award, to nearly $2.5 billion.
Stephen TaubMay 17, 2005

Morgan Stanley suffered another body blow last yesterday when a Florida jury awarded $604.3 million in damages to Revlon Inc. chairman Ronald Perelman.

Perelman had claimed that when he sold his 82 percent stake in Coleman Co. to Sunbeam Corp. in 1998, for $1.5 billion in stock and cash, he had been defrauded by Morgan Stanley, his adviser in the deal. Shortly afterward, Sunbeam became embroiled in a massive accounting scandal, which sunk its stock as well as Perelman’s investment. Sunbeam eventually filed for bankruptcy protection.

The nine jurors will begin hearing arguments today on punitive damages that could triple Perelman’s award, to nearly $2.5 billion. Morgan Stanley has reserved $360 million against this litigation, reported The New York Times, which added that the bank earned $4.5 billion last year and could sustain even treble damages. The Wall Street Journal, however, also noted that the bank rejected Perelman’s 2003 offer to settle for $20 million.

“It’s an embarrassment to Morgan Stanley and to Phil Purcell,” said John Kichula, who helps manage about $14 billion at Glenmede Trust Co., according to Bloomberg. Purcell, Morgan Stanley’s chief executive officer, has been trying to fend off an ouster amid a controversial management shakeup.

“The verdict, while disappointing, is not surprising, given the unprecedented and highly prejudicial rulings imposed by the trial judge,” the company said in a statement. “Morgan Stanley was not permitted to defend itself on the merits. As a result, the jury heard allegations, instead of true facts, and Morgan Stanley was denied a fair trial. 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.”

Florida State Judge Elizabeth T. Maass, who is presiding over the case, ruled in March that because Morgan Stanley failed to turn over e-mails related to the Coleman deal, jurors should assume that Morgan Stanley helped Sunbeam inflate its earnings. As a result of this ruling — intended to help right the wrongs done to Perelman, which the Times noted is a discretion afforded to judges under Florida law — Perelman needed to prove only that he relied on Morgan Stanley’s advice and not that the bank was complicit in any fraud.

After a five-week trial, jurors needed less than two days to reach their verdict, noted the Journal. The bank has stated that it will appeal.

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