Morgan Stanley announced yesterday that Donald Kempf will step down as its general counsel two weeks after the firm was hammered with a $1.45 billion jury verdict in Florida state court over a lawsuit brought by billionaire financier Ronald Perelman. Previous posts on the Perelman lawsuit may be reviewed here, here, and here.
Mr. Kempf joined Morgan in 1999 from the firm’s longtime counsel, Kirkland & Ellis, where he was a well-known defense lawyer in the hard-knuckled world of Chicago business litigation. Morgan began its search for a new general counsel toward the end of the Perelman trial when the firm named prominent lawyer David Heleniak as a new vice chairman with oversight of the general counsel’s office.
Mr. Perelman sued the firm in 2003 for its role in advising Sunbeam Corp. in 1998 when the billionaire sold his 82% stake in camping gear company Coleman Inc. to Sunbeam, which was a Morgan Stanley client. He claimed the firm knew or at least should have known about Sunbeam’s accounting shams and the case eventually spun out of control when Morgan’s repeated failure to produce documents prompted the judge hearing the case to sanction Morgan by entering a default judgment on the liability issue in the case.
Consequently, Mr. Kempf is clearly taking the fall for that mishap, but it’s doubtful that he really should be. Mr. Kempf recommended that Morgan settle the case for $20 million early in the litigation, but Morgan’s investment-banking division rejected the proposed settlement on two separate occasions. Sounds to me as if those investment banker types at Morgan need to listen to their main investment banker on litigation matters more carefully.
By the way, this NY Sunday Times article goes into the Perelman v. Morgan case in detail, including Morgan’s pre-litigation threat to Mr. Perelman that the firm would attack him personally if he proceeded with the lawsuit.