Morgan Stanley must pay billionaire financier Ron Perelman $1.45 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 in West Palm Beach, Fla., 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.
"This should send a clear message to Morgan Stanley about what constitutes professional and ethical behavior," said Perelman's company, Coleman (Parent) Holdings Inc.
Perelman had sought as much as $1.8 billion in punitive damages, the maximum allowed. Florida law limits punitive damages to triple the amount of compensatory damages.
Morgan Stanley said that it planned to appeal and that the verdict would not impede its business. The firm's attorneys contended that they were denied a fair trial because Judge Elizabeth Maass ruled that Morgan Stanley helped Sunbeam, an investment banking client, defraud investors because it failed to turn over evidence in the case.
As a result, Perelman had to prove at trial only that he relied on fraudulent statements provided by Morgan Stanley when deciding to sell his controlling stake in the camping company.
In a statement, Morgan Stanley Chief Executive 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 that he had lost millions because 14.1 million shares of Sunbeam stock he received in the deal plunged in value.
Morgan Stanley also cast itself as a victim of the Sunbeam fraud, saying it lost $300 million when the company collapsed.
Perelman said Morgan Stanley deceived him because it stood to earn $40 million from Sunbeam's acquisition of Coleman. His attorney, Jack Scarola, told jurors in closing arguments Wednesday that Morgan Stanley kept hidden as many as 60 million pages of potential evidence. That was the basis for Maass' ruling.
"Morgan Stanley hid evidence. Morgan Stanley destroyed evidence. Morgan Stanley filed false certifications. Morgan Stanley lied to the court and sought in every way possible to cover up its wrongdoing," Scarola said.
Morgan Stanley said 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 attorney Mark Hansen urged jurors against a punitive damages award. He said the $604.3 million compensatory damages verdict was already a severe blow that devastated the firm.
Hansen said Perelman was not a vulnerable victim in the case but was a sophisticated investor with "an army of advisors."