Dragon Systems Fights Back Against Goldman Sachs
August 14, 2012
The New York Times has published an extensive account of the natural-language tragedy, “Goldman Sachs and the $580 Million Black Hole.” The five page article is a very interesting read. The gist, though, is simple enough: Goldman Sachs failed to look out for their client’s best interests. What a surprise.
You have probably heard of the natural language software NaturallySpeaking, developed by Dragon Systems. Dragon Systems is, at heart, the enterprising Jim and Janet Baker, who spent almost twenty years building their innovative software and their company. In fact, their work is considered to have advanced speech technology much faster than anyone expected. Some of it might even have made its way into Apple’s Siri.
When it came time to reap their rewards, the pair turned to Goldman Sachs for advice on the over-half-billion-dollar deal. Back in 1999, it still seemed like a good idea to trust the prominent investment firm. It wasn’t. Reporter Loren Feldman summarizes the trouble:
“With Goldman Sachs on the job, the corporate takeover of Dragon Systems in an all-stock deal went terribly wrong. Goldman collected millions of dollars in fees — and the Bakers lost everything when Lernout & Hauspie was revealed to be a spectacular fraud. . . . Only later did the Bakers learn that Goldman Sachs itself had at one point considered investing in L.& H. but had walked away after some digging into the company.
“This being Wall Street, a lot of money is now at stake. In federal court in Boston, the Bakers are demanding damages, including interest and legal fees, that could top $1 billion.”
Not only did Goldman direct their own dollars away from L.& H., the suit alleges, they also failed to scrutinize L.& H. for their client when Dragon’s CFO pointed out troubling signs. I turns out that the person in charge of such investigations had left Goldman and not been replaced. Oops. That didn’t keep Goldman from keeping the $5 million consultation fee. Naturally.
Meanwhile, companies who picked up pieces of the Bakers’ technology at auction after L.& H. fell have gone on to develop them into lucrative commodities. The couple was left with neither their invention nor any fraction of the money it was worth.
The case is expected to be decided sometime this November. Feldman burrowed into the wealth of legal filings surrounding the case to craft this article. He has found eye-opening insights into Goldman Sachs’ culture and practices. The piece is worth reading for that reason alone.
It is also a moving tale about a tech- and language-savvy couple who put in the time, effort, passion, and smarts to build their business, and who are now fighting to regain what is rightfully theirs. I wish them luck.
Cynthia Murrell, August 14, 2012