West Palm Beach, Fla., is not a likely venue for tales of billion-dollar Wall Street intrigue. Nor is it a place where financial titans typically come for a dressing-down.

Yet that's what has happened so far in a relatively simple fraud suit brought by one of the nation's most astute investors against a group of equally astute investment bankers.

The plaintiff is Ronald Perelman, 62. Worth an estimated $4.9 billion, Perelman controls an empire that includes Revlon, AM General, (the manufacturer of the Humvee) and Panavision. As much a fixture on the society pages as on the business pages, Perelman is married to the actress Ellen Barkin, his fourth wife. His bitter divorce battle with third wife Patricia Duff was notorious for its acrimony and litigiousness, as well as the glimpse it gave the public into the family's ostentatious lifestyle. Duff unsuccessfully sought $100,000 a month in child support for the couple's daughter, who was then 8.

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The defendant in the current suit is Morgan Stanley & Co. Once one of the most venerated names in finance, Morgan Stanley is now torn by strife. Its stock price lags behind its competitors, and its CEO, Philip Purcell, is embattled. Eight former Morgan Stanley executives are openly campaigning for his resignation — in part because of Morgan Stanley's handling of Perelman's suit.

Morgan Stanley has already been stung in the trial. Twice last month Judge Elizabeth Maass rebuked the firm for not handing over e-mails regarding its dealings with Perelman. To correct the "prejudice" to Perelman because of Morgan Stanley's conduct, Maass has told the jurors to accept as fact that the investment bank assisted in a fraud. "Morgan Stanley participated in a scheme to mislead ... and cover up ..." the jurors were instructed. All Perelman has to do is show that he relied on Morgan Stanley's representations and that he lost money.

Morgan Stanley is clearly bracing for the worst. Last week the firm announced that it had increased its reserve for damages by $100 million to $360 million. Then The Wall Street Journal published a story in which Morgan Stanley publicly proclaimed its appeal strategy. And finally, on Tuesday, Morgan Stanley filed a 26-page motion asking Maass to recuse herself because of alleged bias against the firm. She declined.

Sunbeam up, Sunbeam down

At the heart of the litigation are two relatively small, but well-known companies, Sunbeam Corp. and Coleman Inc. Sunbeam, now owned by Jarden Corp., makes appliances such as toasters, irons, and Oster kitchen blenders.

Coleman, as any camper knows, makes lanterns, portable stoves and other outdoor equipment. Perelman, who controlled Coleman, sold it to Sunbeam in 1998 for $1.5 billion, including $680 million in Sunbeam stock. Morgan Stanley acted as Sunbeam's investment bankers, negotiating the deal with Perelman.

Back then, Sunbeam appeared to be in the midst of a remarkable turnaround. Two years earlier, Sunbeam had hired Albert Dunlap as its CEO. In an era when chief executives became cult figures, Dunlap was an icon. In his 19 months as CEO of Scott Paper, Dunlap mounted a relentless drive to slash costs, closing factories and cutting 12,000 jobs. Scott's previously stagnant stock soared more than 200 percent. Dunlap's remarkable run ended when he merged Scott with Kimberly-Clark in a $9 billion deal.

As the business press fawned, Dunlap, irascible and profane, fully embraced his nickname, "Chainsaw Al." On the day Sunbeam announced Dunlap's hire, its stock jumped 50 percent. His memoir, "Mean Business: How I Save Bad Companies and Make Good Companies Great," hit the bestseller lists the next month. The expectation was that Dunlap would perform the same financial magic at ailing Sunbeam that he had at Scott. For a while, everything went according to plan.

True to form, Dunlap axed thousands of Sunbeam workers and cut the number of factories from 26 to eight. Six months into his tenure, Sunbeam was reporting record income. Sunbeam's stock, which traded at $12.50 the day before Dunlap was hired, was selling at $49.81. The stock hit $52 a few months later.

But the sales and profit numbers justifying Sunbeam's stock price were a sham. It turned out that Dunlap and other Sunbeam executives were fiddling with the company's books to inflate Sunbeam's sales. Sales that were supposed to take place in a subsequent quarter were booked into the current one, for example. Sunbeam's manipulations were, in the words of the Securities and Exchange Commission, "a primer in the techniques of financial fraud."

Sunbeam started unraveling on April 3, 1998, when the company announced that it would not hit its sales targets. Sunbeam's stock tumbled 25 percent.

The last resort

No one may have been more dismayed that day than Perelman. The Coleman deal had closed just four days before. Suddenly, his 14.1 million Sunbeam shares were worth far less.

The news continued to get worse that spring. Sunbeam's sales sagged, and promised profits turned into actual losses. By the time Sunbeam's board of directors sacked Dunlap in June, the company's stock was down to $15.75. Ultimately, Sunbeam filed for bankruptcy. At the time of the 2001 filing, Perelman's shares were trading for 51 cents.

As is typical of such corporate flameouts, much litigation ensued. Perelman settled with Sunbeam, as well as with its accountants, Arthur Andersen. There were even some tentative talks earlier this year to settle with Morgan Stanley, according to one person familiar with the discussions. Perelman is seeking $2.7 billion in damages.

Morgan Stanley — a firm whose livelihood depends on making deals — may regret never forging that accord.

Given the findings by Judge Maass, Morgan Stanley does not have wide latitude for a defense. The firm has argued Perelman had his own lawyers and investment bankers advising him on Sunbeam. He did not rely solely on what Morgan Stanley told him.

Perelman is expected to testify, perhaps as soon as Thursday. He should have little trouble finding the courthouse. He once owned an estate, Casa Apava, in Palm Beach. When he sold it last year for $70 million, it was the highest sale ever recorded for a U.S. residential property.

Casa Apava was also the site of a memorable meeting between Dunlap and Perelman. Dunlap had come to persuade Perelman to sell Coleman. When Perelman rejected Dunlap's offer of an all-stock deal, Dunlap threw a tantrum and stormed out, according to the complaint. Morgan Stanley, no doubt to its lasting regret, was able to revive the discussions with the pledge that Dunlap would be barred from the negotiating table.