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Billionaire financier Ronald Perelman testified Tuesday in West Palm Beach, Fla., that he would never have sold a camping gear company to Sunbeam Corp. in 1998 without assurances from Morgan Stanley & Co., the investment bank that underwrote the deal, that Sunbeam had turned the corner and that “its financial future looked bright.” “We did not expect them [Morgan Stanley] to lie to us, to mislead us,” Perelman told a Palm Beach County Circuit Court jury in the second week of a damages-only trial on Perelman’s fraud lawsuit against the investment banker. Last month, Circuit Judge Elizabeth T. Maass, who’s presiding over the case, granted partial summary judgment against Morgan Stanley, castigating the defendant for “deliberately” violating orders to produce documents in the case, which she said incurably harmed Perelman’s case. Morgan Stanley quickly brought in new counsel and put its previous counsel, Chicago-based Kirkland & Ellis, on notice of a potential legal malpractice claim. Morgan Stanley is now represented by Washington, D.C.-based Kellogg Huber Hanson Todd Evans & Figel. Perelman, who controls billions in stock in a variety of companies — including cosmetics giant Revlon — through his wholly owned New York holding company MacAndrews & Forbes, is suing Morgan Stanley for $2.7 billion. He alleges that the investment bank aided and abetted now-deposed Sunbeam chief executive “Chainsaw” Al Dunlap in fraudulently inflating the value of the Delray Beach-based firm’s stock. In March 1998, Sunbeam bought camping gear maker Coleman Inc. from Perelman’s company for $1.5 billion, including $680 million in Sunbeam stock. By 2001, Sunbeam was in bankruptcy and the value of Perelman’s investment had plummeted. Sunbeam is now a unit of Jarden Corp. of Rye, N.Y. Under Maass’ default judgment, the jury must accept as fact that Morgan Stanley helped Sunbeam defraud Perelman. To win damages, she ruled, all Perelman has to do is prove that he suffered losses and that that had happened because he had trusted Morgan Stanley. Morgan Stanley has sought to remove Maass from the case, claiming that she’s biased against the company. On Tuesday, Perelman, on direct examination by his attorney, Jack Scarola, testified that Coleman hadn’t been for sale before an approach by Morgan Stanley on behalf of Sunbeam. Coleman, Perelman said, was “one of those unique assets that was almost irreplaceable. It was a good company that produced products that people loved. It was a strong brand with a quality product, and its operating profits were high.” The financier said he’d done nearly 30 deals with Morgan Stanley and enjoyed particularly strong relationships with two top Morgan Stanley executives, vice chairman Joseph Perella and managing director Bill Reed. He said he did not believe they would lie to him. Perella resigned from the firm last week. He is the latest in a group of executives to leave the embattled firm, whose chief executive officer, Phil Purcell, has been under attack by dissident shareholders over performance issues. “We believed what we were told about the Sunbeam company,” Perelman said. “We had no reason to suspect that it was a fraud.” Morgan Stanley’s position is that it also was defrauded by Sunbeam and that Perelman, who employs some of the best lawyers in America, relied on their guidance, not Morgan Stanley’s, when he agreed to sell his 82 percent holding in Coleman to Sunbeam. Perelman explained to the jury that he operates MacAndrews & Forbes with a small staff working out of a townhouse in Manhattan. He said he was not directly involved in the sale of Coleman to Sunbeam, and that his key deputies kept him informed as the deal progressed. He said he’d personally looked at every number Sunbeam and Morgan Stanley gave his firm and checked those documents against filings Sunbeam made with the Securities and Exchange Commission. But, he said, those numbers turned out to be false. He and his people “exercised due diligence,” Perelman insisted, but they relied on fraudulent figures given to them by Sunbeam and the investment banker. When asked by Scarola if he’d taken seriously statements in documents supplied him by Morgan Stanley warning that sales and profit projections for Sunbeam were fraught with “risk and uncertainty,” Perelman replied that the phrase is standard boilerplate in prospectuses and other stock-related documents. The decisive factor in his proceeding with the deal, he said, was “that Morgan Stanley’s name was on every piece of paper.” The firm, he said, had a stellar reputation for integrity on Wall Street, and Perelman said he had faith in the personal honor of the people he knew there. The year before Perelman made the deal to sell Coleman to Sunbeam, Morgan Stanley had named Purcell its chief executive. The banking firm’s conduct in connection with the Perelman suit is one of the dissident group’s complaints about Purcell. The banking house is expected to appeal any verdict in the case and already has its appeal team in place in Florida and New York, according to The Wall Street Journal. The newspaper has reported that Morgan Stanley has increased the amount it expects to spend on this case from $100 million to $360 million. Scarola, Perelman’s attorney, is a partner at Searcy Denney Scarola Barnhart & Shipley in West Palm Beach.

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