That’s a lot of spinach…

• By Michael Alexander
• May 17, 2005

As though Ron Perelman didn’t have enough money already, the tycoon won an award of $608 million yesterday from a jury in West Palm Beach, Fla. Like my friend Howie used to say, “That’s a lot of spinach.”

The case goes back to 1998, when Morgan Stanley talked Perelman (says Perelman) into selling Coleman, the outdoor gear company, to Sunbeam, the indoor gear company. Perelman testified he would never have sold the company to Sunbeam if he had known Sunbeam was in financial trouble. Perelman lost $485 million and did what any stand-up American would do: He sued Morgan Stanley, accusing it of conspiring with Sunbeam to scam him. Perelman wanted his pile of money back, plus an extra $2 billion for his trouble.

Circuit Judge Elizabeth Maass, the judge presiding over the case, ordered Morgan Stanley to produce all the documents it had that were relevant to the case. Nothing unusual about that. Among the documents the judge wanted turned over to Perelman’s lawyers were copies of e-mail containing keywords such as Perelman, Coleman, cook stove and digital clock with alarm carabiner. I’m not really sure about that last one, but you get the point.

Well, this turned out to be a problem for Morgan Stanley’s IT department. First, it really didn’t have a way to conduct a thorough search of every e-mail. The IT department worked that part out, however, by not bothering to do a thorough search. The judge wasn’t too happy about it when she found out. Later, Morgan Stanley went back to the judge and said, “Uh, judge, we found some more e-mail that we didn’t turn over when we should have.” The judge wasn’t too happy about that either.

And still later, after finding more than 150 backup tapes in a closet, MS was forced to go back to the judge and confess that it kind of screwed up some things. By then, the judge had had enough. She excoriated MS for deliberately disobeying the court’s order to produce the documents. She also instructed jurors that it was Morgan Stanley’s obligation to persuade them that the firm did not conspire to commit fraud. It’s usually the other way around: the plaintiff has to prove the defendant was up to no good.

I have to ask: What were Morgan Stanley’s IT honchos thinking? They’re in a closely scrutinized business with federally mandated procedures for record keeping. If anyone should know all there is to know about storing, managing and retrieving data, it has to be these people. But IT’s inability to find key data on demand, and then to discover 150 or so backup tapes in a closet, and not know what’s on them, is gonna hurt when performance reviews roll around. “Well Bob, how do you think the year went?” “Well Jack, aside from that little backup tape thing, I’d say the year went swimmingly.”