MWD , REV ,,, Perelman Lawyer: Morgan Stanley Hid Fraud
Friday May 13, 12:11 am ET
Perelman Attorney: Morgan Stanley Hid Fraud at Sunbeam to Collect on Its $33M in Fees
WEST PALM BEACH, Fla. (AP) -- Financier Ronald Perelman's counsel told jurors Thursday that Morgan Stanley deliberately hid a fraud at its client, appliance-maker Sunbeam Corp., in order to collect on its $33 million in fees.
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Perelman, chairman of cosmetics giant Revlon Inc., is suing Morgan Stanley in Florida state court for some $2.7 billion in damages, alleging that he relied on the investment bank when he sold his camping gear company Coleman Inc. to Sunbeam in 1998 for $1.5 billion, including Sunbeam stock.
Shortly after the transaction, Sunbeam's problems were exposed and the value of Perelman's investment plummeted. Sunbeam sought bankruptcy protection in February 2001.
Jurors were expected to begin deliberations on Friday.
In his closing argument, Perelman attorney Jack Scarola said Morgan Stanley knew that Sunbeam's successful turnaround was an illusion, its earnings fraudulently inflated and projections unachievable, but hid these facts from Perelman in order to get the deal done.
"Morgan Stanley knew the truth about Sunbeam but lied to (Perelman) ... and had an almost $33 million motive to get (Perelman) to rely on its lies," he said.
The investment bank earned $10.28 million on the deal, and an additional $22.5 million as sole underwriters on a $750 million debenture offering used by Sunbeam to help finance the deal, Scarola said.
Morgan Stanley counsel Mark Hansen countered that Perelman deliberately ignored warnings about the crumbling finances of Sunbeam Corp. because he wanted to sell his struggling camping-gear company as quickly and profitably as possible.
"Perelman couldn't care less ... he didn't want to know about the reasons ... all Perelman was concerned about was price and getting the deal done," he said.
Hansen noted a number of red flags which would have alerted Perelman and his army of advisors to the appliance-maker's financial circumstances before the deal was done.
A 1997 article in Barron's magazine highlighted inflated reserves and inventory stuffing which Sunbeam could have been using to manipulate figures.
Sunbeam's own press releases in January and March 1998 referred to the possibility of not meeting sales projections.
These warnings were deliberately ignored by Perelman in his impatience to offload Coleman, Hansen said.
Hansen said Perelman didn't rely on Morgan Stanley and painted a picture of him as an impatient risk-taker who never had a boss and doesn't listen to anyone.
"Perelman is a man who makes his own decisions and he rushed into (the transaction) for his own reasons," he said.
Those reasons, Hansen told jurors, had a lot to do with Coleman's shaky position.
In contrast to Perelman's picture of Coleman as a financially healthy company, Hansen referred to testimony given by Jerry Levin who said there were serious problems at Coleman when he was hired as chief executive in 1997. Levin described a company with enormous morale problems, in violation of bank debt obligations and seriously off Wall Street projections.
Perelman's team is considerably helped by a so-called default judgment, which means the jury must accept as fact that Morgan Stanley helped Sunbeam defraud investors. It remained for them to show that Perelman relied on Morgan Stanley's information.
Presiding Judge Elizabeth Maass made the ruling March 23, following Morgan Stanley's continued failure to provide information and documents relevant to the case.
"It's pretty strong medicine, but not unheard of when a party continuously flouts discovery orders," Lawrence A. Hamermesh, a professor at the Widener University School of Law in Wilmington, Del. said.
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