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Morgan Stanley told to pay $850 million

Investment bank Morgan Stanley said on Wednesday it would appeal the verdict in a suit brought against it by billionaire investor Ronald Perelman as well as an order to pay punitive damages of $850 million.
/ Source: The Associated Press

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.

Perelman, the Revlon cosmetics chief, had sought $1.8 billion in punitive damages. Florida law limited jurors to that amount, or triple the amount of compensatory damages.

“This award should send a clear message to Morgan Stanley about what constitutes professional and ethical behavior,” Perelman’s company said in a statement.

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 Sunbeam stock he received in the deal plunged in value.

U.S. District Judge Elizabeth Maass ruled before the trial began that Morgan Stanley helped Sunbeam, an investment banking client, defraud investors. As a result, Perelman had to prove only that he relied on the fraudulent statements when deciding to sell Coleman.

“Morgan Stanley hid evidence, Morgan Stanley destroyed evidence, Morgan Stanley filed false certifications, Morgan Stanley lied to the court and Morgan Stanley sought in every way possible to cover up its wrongdoing,” Perelman’s attorney, Jack Scarola, said in closing arguments.

Perelman accepted 14.1 million shares of Sunbeam stock in the buyout.

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 also cast itself as a victim of the Sunbeam fraud, saying it lost $300 million when the company collapsed.

“Chain Saw” Al Dunlap, once the fiery Sunbeam chairman, was accused of leading an accounting fraud. He agreed in 2002 to never again hold a leadership role in a public company and paid $500,000 to settle an SEC lawsuit charging him with inflating income and other improper accounting practices.