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Angered by the defendant’s failure to produce discovery documents, a judge in Florida granted partial summary judgment Wednesday in favor of financier Ronald Perelman in his multibillion-dollar lawsuit against Morgan Stanley & Co. Palm Beach County Circuit Judge Elizabeth T. Maass found that Morgan Stanley helped Sunbeam Corp. falsely inflate its finances as the company sought to buy camping equipment maker Coleman Co. from Perelman. The lawsuit claims that the financial services giant aided Sunbeam management in fraudulently inflating the price of the company’s stock. A jury now must determine damages. Perelman is seeking about $2 billion in compensatory and punitive damages from Morgan Stanley. Maass’ order castigated Morgan Stanley for “deliberately” violating orders to produce documents in the case. That refusal, she wrote, harmed Perelman’s case in a way “that cannot be cured. The judicial system cannot function this way.” Coleman Holdings is represented in South Florida by John Scarola, a partner at Searcy Denney Scarola Barnhardt & Shipley in West Palm Beach. Morgan Stanley is represented by Joseph Ianno Jr., of Carlton Fields in West Palm Beach. Neither attorney could be reached for comment before deadline Wednesday. Earlier this month, Judge Maass ruled that the second-largest U.S. securities firm was “grossly negligent” in responding to orders to produce documents and that Morgan Stanley would have to prove affirmatively that it played no role in defrauding Perelman. That shifted the burden of proof from the plaintiff to the defendant. Later on Wednesday, Morgan Stanley filed for a continuance to substitute new trial counsel in place of lawyers from Kirkland & Ellis, which has represented the investment banker in the courtroom. In a pleading, Morgan Stanley said it has “put Kirkland & Ellis on notice of a potential malpractice claim.” Perelman’s suit is one of many sparked by the stormy two-year tenure of ex-Sunbeam chief Al Dunlap, who was later fired. Perelman alleged “a massive fraud” perpetrated against Coleman Holdings, a company controlled by Perelman that owned 82 percent of the Coleman Co. Coleman was purchased by Delray Beach-based Sunbeam during Dunlap’s tenure as chief executive. On Wednesday, Maass held that Sunbeam made the purchase with stock that had a fraudulently inflated market price. Morgan Stanley denied that it had any knowledge of fraudulently inflated Sunbeam share prices. Dunlap, of Boca Raton, also was sued by investors in the company who bought stock during his time as head of the firm and by the U.S. 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. The company claimed that it was overwhelmed by $2.6 million in debt inherited from Dunlap. Perelman had contended that prior to the company’s collapse, Morgan Stanley had identified Coleman as a key acquisition target and had persuaded Perelman to sell his shares in Coleman to Sunbeam for 14.1 million shares of Sunbeam stock. At the time, the Sunbeam shares had a market value of $600 million. The suit alleged that Morgan Stanley continued to maintain that Sunbeam was in solid financial health until Sunbeam’s directors launched an internal investigation that led to Dunlap’s firing, a restatement of the company’s finances, and its Chapter 11 bankruptcy. Perelman calculated his losses in the deal at $485 million and also asked for a punitive award in excess of $1.5 billion. The suit alleged Morgan Stanley made $10.8 million on Sunbeam’s acquisition of Coleman in March 1998, and another $22.5 million for underwriting a debenture offering in connection with the fraud.

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