Perelman Wins $604 Million

Billionaire financier Ron Perelman won $604.3 million in compensatory damages Monday in his lawsuit accusing investment firm Morgan Stanley of duping him into believing a company was financially successful.

The state court jury in West Palm Beach, Fla., said it found clear and convincing evidence that Revlon Inc. Chairman Perelman relied on false statements that Sunbeam Corp., which later changed its name to Sunbeam Products Inc., was a turnaround success and could afford to acquire his camping equipment company, Coleman Co.

Sunbeam filed for bankruptcy protection in 2001 after its financial troubles were discovered, and Perelman alleged that he had millions in losses because stock he received in the deal plunged in value. His lawsuit also seeks $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 Maass for issuing a default judgment before the trial began 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 Morgan Stanley’s advice swayed him into making his decisions regarding the Coleman sale.

“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.

Perelman’s lawsuit claimed that 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 company’s stock.

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. That amount is not nearly enough to cover even the compensatory damages. Wall Street analysts said it was highly unlikely that the case would survive an appeal.

“It was really a foregone conclusion once the judge basically ruled that Morgan Stanley was guilty of helping Sunbeam,” said Fox-Pitt Kelton analyst David Trone. “What will likely end up happening is that, throughout the appeals process, Perelman and the Morgan Stanley camp will reengage in settlement talks that’ll trim this a lot closer to what Morgan Stanley has reserved.”

Shares of Morgan Stanley rose 58 cents to $48.80 on the New York Stock Exchange.