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A multibillion-dollar lawsuit sparked by the stormy tenure of former Sunbeam chief Albert J. Dunlap and pressed by Wall Street wheeler-dealer Ron Perelman is heading for trial in Florida. Jury selection is scheduled to begin Feb. 22 in West Palm Beach in the case before Judge Elizabeth T. Maass in Palm Beach County Circuit Court. The case, which was filed May 8, 2003, fills 47 volumes in the court clerk’s files. Perelman, a famously litigious New York financier, is seeking roughly $2 billion in compensatory and punitive damages from Morgan Stanley & Co. Inc., Sunbeam’s investment banker. Perelman alleges “a massive fraud” perpetrated against Coleman (Parent) Holdings, a company he controlled that owned 82 percent of Coleman Co., maker of camping equipment. Coleman was purchased by Sunbeam in March 1998, during Dunlap’s tenure as chief executive, for what the suit alleges was Sunbeam stock with a fraudulently inflated market price. Morgan Stanley concedes that it arranged the $600 million purchase of Coleman by Sunbeam but denies that the investment banking firm had any knowledge of fraudulently inflated Sunbeam stock prices. Morgan Stanley, according to the firm’s response to the suit, “specifically disclaimed any independent evaluation of Sunbeam’s financial records and … relied solely on documentation and information provided by Sunbeam.” Morgan Stanley also said that Coleman (Parent) Holdings, referred to in court papers as CPH, had access during acquisition negotiations to precisely the information possessed by Morgan Stanley. The suit is only one of a wealth of legal actions generated by Dunlap’s two-year tenure as chief executive officer of Sunbeam, a small-appliance manufacturer based in Delray Beach, Fla. Dunlap, who lives in Boca Raton, was sued both by investors in the company who bought stock during his time as head of the firm and by the Securities and Exchange Commission. Dunlap was fired by Sunbeam in June 1998, shortly before Sunbeam restated its financial results and filed for Chapter 11 bankruptcy, saying it was overwhelmed by $2.6 billion in debt inherited from Dunlap. The initial complaint in the suit alleges in minute detail allegedly fraudulent conduct by Dunlap, who’d earned a reputation as a “turnaround specialist” whose ruthless cost-cutting at Scott Paper and other financially troubled companies had earned him a nickname he seemed to sport with pride — Chainsaw Al. Immediately after joining Sunbeam, the suit alleges, Dunlap hired Russell Kersh, who had worked with Dunlap for 15 years, as the company’s chief financial officer, and a number of other hand-picked executives who stood to make many millions if financially ailing Sunbeam could be made more profitable and then sold to “another company at a premium.” To accomplish this goal, the suit alleges, Dunlap engaged in what SEC officials characterized as a “case study in financial fraud.” Specifically, the suit alleges: � Dunlap first overstated Sunbeam’s financial problems to make the company appear to be in worse shape than it really was. � Dunlap then inflated revenue figures with improper accounting techniques that overstated sales and the transfer of “cookie jar” reserve funds into revenue figures. � Unfortunately, the suit alleges, Dunlap, working through Morgan Stanley, still couldn’t find a buyer for the company and needed to make an acquisition “to conceal Sunbeam’s phony turnaround until a buyer could be found. … Morgan Stanley knew that its failure to find a buyer could prove fatal to the relationship it had worked so hard to establish with Dunlap. As the pressure on Dunlap increased, the pressure on Morgan Stanley increased as well … Morgan Stanley recommended that Sunbeam acquire other companies. Using Sunbeam’s stock, which was fraudulently inflated, as the ‘currency’ that would be used to pay for the acquisitions … Morgan Stanley identified Coleman as one of the key acquisition targets.” The deal, the suit alleges, was nearly derailed by a “tantrum” Dunlap threw during negotiations. Morgan Stanley, the suit alleges, kept the negotiations going by promising that Dunlap would be kept away from the negotiating table and provided Coleman with “false financial and business information about Sunbeam designed to create the appearance that Sunbeam was prospering and that Sunbeam’s stock had great value. … Before the truth was revealed, Morgan Stanley persuaded CPH to sell its shares in Coleman to Sunbeam and to accept 14.1 million shares of Sunbeam stock as part of the consideration.” At the time, the suit alleges, the Sunbeam shares were trading for a total of $600 million. The suit alleges that Morgan Stanley continued to maintain that Sunbeam was in solid financial health until Sunbeam’s directors launched an internal investigation that led to the firings of Dunlap and Kersh, to a restatement of the company’s finances and to its Chapter 11 bankruptcy. CPH alleges its losses in the deal totaled $485 million and asks also for a punitive award of “in excess of $1.5 billion” as permitted by Florida statute. Morgan Stanley, the suit alleges, made $10.8 million on Sunbeam’s acquisition of Coleman on March 30, 1998, and another $22.5 million for underwriting a debenture offering in connection with the fraud. The Sunbeam debacle has had far-reaching effects. The company was essentially given to creditors as a bankruptcy remedy. Dunlap and Arthur Andersen, the Sunbeam auditing firm that went belly-up after it became part of the Enron scandal a few years later, participated in a $142 million settlement with investors, who ended up realizing only about 15 cents on the dollar in their suit against Sunbeam, its auditor and the company’s disgraced chief executive. “Ours was the last big settlement against Andersen,” said Merrill Davidoff, the Philadelphia lawyer who represented the investors. “They paid $110 million of that settlement. Dunlap was largely protected by Florida law.” Perelman, with a net worth of approximately $2.6 billion, is in frequent litigation with business associates and ex-wives, of which he has three. For the past four years, he has been married to actress Ellen Barkin. He started out managing his family’s Philadelphia sheet metal business. By the mid-1990s, his conglomerate, MacAndrews & Forbes, owned more than 40 companies, including Revlon, Technicolor, Panasonic, Marvel Comics and Consolidated Cigar. Coleman Holdings is represented in South Florida by John Scarola, a partner in Searcy Denney Scarola Barnhardt & Shipley of West Palm Beach. Morgan Stanley is represented by Joseph Ianno Jr. of Carlton Fields of West Palm Beach.

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