Tuesday, May 17, 2005
A jury awarded financier Ronald Perelman $604.3 million in damages against Morgan Stanley related to its faulty advice regarding the sale of his interest in the Coleman Company to Sunbeam in 1998 (AP story here). Morgan Stanley advised Sunbeam in the acquisition, and Perelman accused the firm of failing to disclose Sunbeam's fraudulent financials. Perelman case was aided enormously by Morgan Stanley's pratfalls during discovery, in which the trial judge found the firm purposely refused to provide discovery of e-mails and gave misleading responses to the court. The judge finally entered a default on the fraud claim against Morgan Stanley, requiring Perelman to show only his damages from the firm's complicity in Sunbeam's false financial statements. It is not easy to make Perelman out to be the good guy in a case, but this is the rare instance in which a firm's (overly?) aggressive discovery tactics caused it significant harm. The SEC has also taken an interest in Morgan Stanley's discovery conduct in the case. A thorough Wall Street Journal article (here) discusses the e-mail problems at the firm. Morgan Stanley issued a press release (here) which states:
"The verdict, while disappointing, is not surprising, given the unprecedented and highly prejudicial rulings imposed by the trial judge," the company said in a statement. "Morgan Stanley was not permitted to defend itself on the merits. As a result, the jury heard allegations, instead of true facts, and Morgan Stanley was denied a fair trial. 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."
Funny how e-mails have a way of making (and breaking) so many cases these days. Now, Morgan Stanley faces the punitive damages phase of the trial, which may result in a further award to Perelman. (ph)