Perelman hammers Morgan Stanley

MorganStanley.gifBased on the developments related in this previous post, it’s not particularly surprising that a Florida jury awarded billionaire financier and Revlon, Inc. chairman Ronald Perelman $604.3 million against Morgan Stanley on his claims that Morgan defrauded him when he sold about an 80% stake in camping-gear maker Coleman Inc. to Sunbeam Corp. in 1998. Shortly thereafter, Sunbeam went into chapter 11, undercutting the value of much of the $1.5 billion consideration that Mr. Perelman received under the deal.
To make matters worse, the $604 million award is for compensatory damages only. Inasmuch as Mr. Perelman is also claiming entitlement to punitive damages, Morgan’s damages in the case could rise to almost $2.5 billion. Finally, all of this carnage comes after Morgan Stanley had rejected a $20 million settlement offer from Mr. Perelman during early stages of the case.
As noted in the earlier post, Mr. Perelman’s case was helped by the earlier default judgment that the state court judge approved as a sanction for Morgan Stanley’s discovery abuse in failing to turn over documents (mostly emails) to Mr. Perelman’s legal team. Accordingly, the judge instructed the jury during the trial that it must accept as fact that Morgan Stanley helped Sunbeam defraud investors. As a result, Mr. Perelman only had to persuade the jury that he relied on representations made by Morgan Stanley or Sunbeam and that he lost money.
The judgment comes during a troubled time for Morgan Stanley, which is currently undergoing a management revolt in which former executives are attempting to persuade the Morgan board to replace Morgan CEO Philip Purcell over how he is running the company. Morgan is in the “trust” business and, at some point, troubles such as those Morgan is experiencing can undermine customers’ trust in Morgan’s financial integrity. That lack of trust is what brought Enron down, and Morgan’s board needs to be concerned with that same dynamic.

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