WEST PALM BEACH, Fla. — Billionaire financier Ron Perelman accused Morgan Stanley of defrauding him when he took the stand Tuesday as a witness in the $2.7 billion lawsuit he filed against the investment banking firm.

Perelman contends Morgan Stanley intentionally misled him when he sold his controlling stake in camping-equipment maker Coleman to Sunbeam for $1.5 billion. The deal included Sunbeam stock worth between $450 million and $680 million. Shortly after the deal closed in March 1998, accounting irregularities at the small-appliance maker surfaced, and its stock price plunged.

Perelman alleges Morgan Stanley knew of the accounting irregularities - which included inflating sales figures by booking sales in the wrong quarter - and misrepresented Sunbeam's financial state in numerous financial documents and discussions.

"We expected [Morgan Stanley] to negotiate the best deal for Sunbeam," Perelman said. "We did not expect them to lie to us, to tell us non truths or to misdirect us."

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As Perelman's empire has grown, so has his celebrity. Perelman's third wife, Patricia Duff, infamously sought $100,000 a month in child support for the couple's daughter. After the high-profile divorce, Perelman married actress Ellen Barkin.

Perelman, who heads Revlon Cosmetics, is worth an estimated $4.9 billion.

After requesting a taller chair at the start of his testimony, the diminutive Perelman testified that much of the Sunbeam deal hinged on his belief in Morgan Stanley's credibility. After dealing with Morgan Stanley in just fewer than 30 transactions, Perelman said he held the firm and its executives in the highest regard.

Morgan Stanley acted as Perelman's sole investment banker when his company purchased Revlon for $2.5 billion in 1986. The firm also represented Coleman in its 1992 initial public offering.

At the heart of the suit is whether Perelman relied on information provided by Morgan Stanley.

As a result of an earlier ruling by Judge Elizabeth Maass, who instructed the jury to accept, as fact, that Morgan Stanley helped Sunbeam defraud investors, Perelman need only prove that he relied on information provided by Morgan Stanley and that he suffered financial losses because of it to win the case. 

'Pivotal' importance

Perelman testified that a 1998 Morgan Stanley presentation on Sunbeam was of "pivotal" importance. Because of the presentation, he believed Sunbeam had "undergone a profound transformation" from years earlier, when it was operating at a loss. Perelman said he believed Sunbeam had "tremendous intrinsic value" partly because of Morgan Stanley's endorsement.

"[Sunbeam's] financial condition was strong," Perelman said he believed at the time of deal. "The future for growth was positive."

Perelman testified that, after Morgan Stanley approached him to sell Coleman to Sunbeam, the firm's involvement lent "enormous" credibility to the deal.

Even after a now-infamous meeting with former Sunbeam CEO Al Dunlap, during which Dunlap stormed out, Perelman reconsidered selling Coleman to Sunbeam following a call from Morgan Stanley managing director Bill Reid, who indicated Sunbeam was still interested in the deal.

When asked how he felt after the meeting with Dunlap, Perelman said he found Dunlap's behavior "somewhat amusing" and said he knew Dunlap "liked to create the image of being a very tough business manager."

Independent thinking

Morgan Stanley's defense centers on the notion that Perelman, who also owns a controlling stake in AM General (maker of Humvee) and Panavision, is a skilled and savvy investor who relied on the information provided by his own team of lawyers and investment bankers, not information supplied by Morgan Stanley.

In an irreverent and sometimes joking manner, Perelman deflected questions posed by Morgan Stanley attorney Mark Hansen concerning how he runs his companies.

When Hansen asked Perelman whether he acts independently or relies on others, Perelman responded, "My wife doesn't think I'm an independent thinker."

Attorneys for Morgan Stanley also point to the firm's own losses in the deal as proof it would not have knowingly defrauded Coleman and Perelman. Morgan Stanley, who underwrote a debenture that helped seal the deal, lost an estimated $300 million in the transaction.

A key press release

Perelman's testimony Tuesday covered in detail several of the documents that Perelman and his army of advisers evaluated before making a deal with Sunbeam.

At issue in the case is a 1998 press release that Morgan Stanley helped draft stating that first-quarter sales would fall below analyst forecasts but would outperform the same period in 1997. When the sales figures were eventually released, they fell far below even the most conservative estimates.

According to Perelman's complaint, Morgan Stanley executives were well aware Sunbeam would not come close to meeting target sales or earnings, yet they chose not to disclose this information because they were just days away from closing the deal with Coleman. According to the complaint, if the deal had collapsed, Morgan Stanley would not have been paid the reported $32 million in fees it later received for negotiating and underwriting the deal.

Perelman said he found the press release to be "very bullish" and said he had no reason to believe the information in it was false or misleading.

"My understanding of federal law is, if you have an outstanding projection that you know to be false, you are required at that moment to give the correct information," Perelman said. "You must immediately notify the public of that fact."

Moran Stanley did not retract the press release before the deal closed 12 days later.

Lawyers for Morgan Stanley claim any lapses in due diligence were the fault of Perelman's team not Morgan Stanley.

The case is being tried in the 15th Judicial Circuit Court in Palm Beach County. Perelman is no stranger to the area. He sold his home here for $70 million in 2004.

The trial is being streamed live on Court TV Extra.