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Friday May 20, 09:58
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Morgan has to pay Perelman $1.45 billion
(by Julia Jenson)
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Morgan Stanley yesterday was ordered by a Florida jury to pay $850 million in punitive damages to Ronald O. Perelman in addition to $604 million in compensatory damages awarded to the plaintiff on Monday. The decision ups the total sum Morgan Stanley has to pay to $1.45 billion, although the jury stopped short of awarding the triple size in punitive damages that could amount to $1.8 billion.
This legal setback adds to the negative information about the investment bank that is fighting off a fight from its eight dissident executives who wish to take over the company in a fight for the ouster of the chief executive Philip Purcell.
On Monday the jury ruled that Morgan Stanley will pay $604 million in damages to Ronald Perelman, chairman of cosmetics group Revlon Inc. who previously sought $2.7 billion from the investment bank, that, in his words, deceived him on the sale of his business Coleman Co. to appliance maker Sunbeam Corp. In 1998.
Morgan Stanley received about $30 million in advisory fees for the transaction. The stake in Sunbeam Corp. Perelman quickly lost its value after the buyer filed for bankruptcy protection in 2001 amid a massive accounting scandal. Perelman claims that the investment bank was aware of the problems with Sunbeam’s balances but covered them up so as to receive advisory fees.
The compensation the billionaire will receive is lower than what he initially sought. Punitive damages can according to the Florida law three times greater than the actual damages. Perelman is unlikely to seek an increase in payouts, jeopardizing the verdict of the court.
Morgan Stanley has promised to appeal claiming that the trial from Circuit Court Judge Elizabeth Maass in West Palm Beach, Florida was not fair. The judge was exasperated by the failure of the company to deliver e-mail evidence and ordered it to prove its innocence. The default judgement issued by Maass is a logical development of the recent measures taken by courts to step up corporations’ efforts to retrieve documentation in time to show compliance with the court proceedings. After the default judgement was issued, Perelman was able to win the case merely by proving that he relied on Morgan in evaluating the sale and that he lost money.
Mr. Purcell reiterated yesterday that Morgan Stanley would appeal.
"This court has done a great injustice to the employees and shareholders of Morgan Stanley," he said "We will fight to have this decision overturned and we fully expect to prevail."
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