The founders of the Dragon speech recognition software company got an invisible handslap:
And yet, even today what happened next to the Bakers seems remarkable. 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. L.& H. had been founded by Jo Lernout and Pol Hauspie, who had once been hailed as stars of the 1990s tech boom. 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.
Remember this story the next time someone tries to tell you that Wall Street encourages entrepreneurs. This smart couple started a company in their kitchen, built it into an industry leader, turned to Goldman for financial advice, and Goldman sold them off to a company they knew had serious problems.
Hillary Rettig
I’m glad you posted this because this story can’t be told enough. The Bakers were authentic innovators and entrepreneurs who built their company around a valuable technology over decades; and they got totally shafted. The fact that GS was involved is news to me, and just makes the whole awful story even more awful.
Linnaeus
You may have to work with them in some capacity, but you can’t trust the money men. Ever.
Halcyan
Aha! The invisible pick pocket hand!
pseudonymous in nc
“‘Once the rockets are up, who cares where they come down?
That’s not my department,’ says Wernher von Braun.”
schrodinger's cat
Some investors (hedge funds) are more equal than the others, check out NYT this morning
d0n camillo
I really hope that Golman Sachs refuse to settle and let this go to trial in front of a jury. The so called masters of the universe need to find out what the rest of us think of them.
jrg
You’re just a leftist hippie, MM. If you knew anything about biddness, you’d understand the value Wall Street provides.
Besides, Silicon Valley is right next to San Fransisco, and real ‘muricans know that their chief export is actually buttsecks.
thalarctos
And made millions for themselves in the process.
Once again (and as todays story in the NYTimes attests), the big boys play by different rules than you and I.
AA+ Bonds
I read that as
and I’m sticking to it
Really, though, “entrepreneur” as a method for invention or improvement of existing technology, social or otherwise, materially demands something like Wall Street that will necessarily command everything within that system through money power; it was in London before it was here.
Capital is the Hydra of myth. Fire must be applied.
SquareSquid
I bet you they weren’t real Merkins. You had to talk awfully liberal into those microphone thingies to get that software to work.
Maude
@d0n camillo:
They are also being looked at in the UK.
Steve
Whoa, I worked on a closely related lawsuit involving Lernout & Hauspie a long long time ago – over a decade. How is it possible this case hasn’t gone to trial yet? Wow.
By the way, since Goldman wasn’t hired to provide a fairness opinion, they might actually have a valid defense here.
Steeplejack
@pseudonymous in nc:
Okay, I have to trot out one of my all-time favorite jokes, that Wernher von Braun’s (mythical) autobiography was titled I Aim for the Stars (but Sometimes Hit London).
Culture of Truth
“You fucked up. You trusted us.”
Villago Delenda Est
@Culture of Truth:
My thought, CoT, exactly.
Prison is too good for these maggots.
Public hangings.
Nemo_N
Too early to play “What Would the Libertarian Opinion Be”?
Rathskeller
Hi, I was all set to get my Goldman hate on (again), but the story didn’t lead me to that conclusion. These people let themselves be led into a terrible deal. Their complaint about Goldman is accurate — they weren’t given good or complete advice, and their IB team was laughably junior — but the Dragon owners also pushed ahead with a deal. They are responsible.
Specifically, the CFO at Dragon sounds headstrong and foolish. Why did Dragon go from a mixed stock/cash deal to a all-stock deal when there were open questions about the value of the stock? Why were the due diligence items barely questioned?
I am not neutral here; I worked for Goldman for half a decade (pre-IPO). But actually, my feelings are biased against Goldman. I’m generally ashamed of the things that they have done. This story is more of a joint fuck-up, with one party biased by personal greed, the other biased by indifference (as this was a small deal) and junior analysts. The Dragon team should have slowed way down, but instead it looks like they accelerated at several points.
Elizabelle
Heartbreaking.
I hope the Bakers nail Goldman Sachs to the wall, and come away with the hundreds of millions they’re suing for.
Fleeced.
d0n camillo
@Steve: If it goes to trial, jurors are going to wonder what exactly the Bakers did get for their $5 Million. Your average juror is unlikely to think of that as chump change the way Goldman Sachs clearly did.
different-church-lady
If they had gotten real jobs this wouldn’t have happened.
/wingnut ironic voice
comrade scott's agenda of rage
@Culture of Truth:
Kudos for the Animal House reference. One of my favorite, and often-used pieces of conversational shorthand.
Culture of Truth
If you read to the end of the article, Goldman retroactively determines they did a good job.
Villago Delenda Est
@Steeplejack:
The widows and orphans of old London town
Who owe their large pensions to Werner von Braun!
kindness
Well the Masters of the Right would say this just shows current law works! Yea, you and I might think this shows the opposite but in their defense, the Masters of the Right think all money should flow to them and since it did here, success!
chopper
@Culture of Truth:
“look, bitch, you knew i was a snake”
Culture of Truth
It sounds like a joint fuck up, but we don’t know what happened, as detailed as the article is.
But my first impression is that these people did not get $5 million worth of good advice.
Culture of Truth
Some say their attitude should be one of gratitude
Steve
@d0n camillo: Goldman will probably explain what services they provided for the $5 million, instead of just sitting there looking stupid. Whether the jury buys their explanation will depend on what they say.
By the way, even if Goldman had done due diligence, it’s debatable whether they would have discovered the fraud, considering Lernout & Hauspie got clean audit opinions from KPMG year after year. (KPMG also wound up paying a pretty penny for its incompetence.) Due diligence doesn’t necessarily involve redoing the auditor’s work.
rumpole
Missing tags…
“show me on the doll where the market touched you” “free markets solve everything”
(wow I spend too much time here)
someofparts
I hope those people get their billion dollars and then some.
pseudonymous in nc
@Culture of Truth:
The article hints at the idea that at Goldman Sachs, $5m buys you the partial attention of a few coked-up boy bankers, and that’s all. If you want them to work on your behalf, you need to pay them real money.
valency
WRathskeller
Specifically, the CFO at Dragon sounds headstrong and foolish. Why did Dragon go from a mixed stock/cash deal to a all-stock deal when there were open questions about the value of the stock? Why were the due diligence items barely questioned?
Yeah, I have to agree with this. It takes two to con, the conner and the connee — and 90 percent of the time, the con works on the conee’s greed and lack of good sense.
Xenos
@valency: “You can’t cheat an honest man.”
Actually, you can, but it is a lot harder to do so. Having a crooked or indifferent intermediary that will help you front can make the difference. alternately, maybe there is something hidden in the Dragon business that made them want quickly grab a poorly considered deal. This will take a while to sort out.
Steve
@Xenos: It’s been 12 years since the transaction…