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How the Inventors of Dragon Speech Recognition Technology Lost Everything
First time accepted submitter cjsm writes "James and Janet Baker were the inventors of Dragon Systems' speech recognition software, and after years of work, they created a multimillion dollar company. At the height of the tech boom, with investment offers rolling in, they turned to Goldman Sachs for financial advice. For a five million dollar fee, Goldman hooked them up with Lernout & Hauspie, the Belgium speech recognition company. After consultations with Goldman Sachs, the Bakers traded their company for $580 million in Lernout & Hauspie stock. But it turned out Lernout & Hauspie was involved in cooking their books and went bankrupt. Dragon was sold in a bankruptcy auction to Scansoft, and the Bakers lost everything. Goldman and Sachs itself had decided against investing in Lernout & Hauspie two years previous to this because they were lying about their Asian sales. The Bakers are suing for one billion dollars."
IN BIZARRO WORLD
Mr. Berzofsky ... was asked one more time — the fact that the Bakers and Dragon’s shareholders lost everything doesn’t affect your opinion?
“Correct,” Mr. Berzofsky responded. “We guided them to a completed transaction.”
Bizarro World in full force
When the foot seeks the place of the head, the line is crossed. Know your place. Keep your place. Be a shoe.
I don't like GS (have had multiple experiences). But I'm still skeptical. Something seems off here. Given lack of good counsel, why did the Bakers go out on a limb, change course, and agree to an all-stock sale at the last minute? Why not walk away, or hire better advisors to get you what you need, and challenge GS fees in parallel? $580 mil was at stake. $5 mil is 1% of the pie. Seems like the only reason to sell is to get liquid. Why go to all that trouble just to swap shares of one stock for even higher risk and reward?
Yes, when a company agrees to take a large fee to advise on an M&A advisory, it's completely unreasonable to expect the people they put on the deal to do such challenging things like due diligence, which might include asking around if anyone knows about this company, or doing any research on their own.
Or if, as is apparently their stated position in this lawsuit, they believe that doing due diligence isn't part of their job, pointing out to their client that no due diligence has been done, and calling that a risk to the long-term value of the deal is apparently ALSO not their jobs.
Look - high finance is hard. People routinely make lots of bets with lots of money. Sometimes those bets go badly. And having good advisors isn't a magic bullet for avoiding a bad bet - sometimes the best info you have at the time is wrong, and only with the benefit of hindsight might you realize something might not turn out.
But there's a difference between "The best info we had was wrong" and "We didn't really bother getting any info." And also between "We advised you that we weren't going to research this, and you agreed to take on that risk" and "we gave you reason to believe we'd done enough homework that you should feel confident, even though we hadn't."
Back in 1997-99, my colocation space at Level 3 was right next to Dragon Systems' cabinets. As such, I was able to chat with their IT team on several occasions and met the Bakers on at least one occurrence where we discussed the futures of digital speech recognition (Dragon 2000 was being developed for Win2k at the time). Their insights and knowledge of speech recognition were unmatched by anyone else in the industry, not even IBM (who was working on it at the time too) was as advanced and I have no doubt that we would not have Siri or other similar technologies today if not for the Baker's research from in and out of Carnegie Mellon University.
The Baker bunch are not stupid people, they made a remarkable company last for almost 30 years, but it is obvious that they made a big mistake by putting everything in one "basket" as others here have stated. While I wish them luck, white collar crimes such as these are rarely won.
There's an "Ethical Wall" between the consulting and investing arms. You'll hear complaining on every transaction, 50% of the time it's too high, 50% of the time it's too low. The consultants shouldn't know what the investors are trading on, and the traders shouldn't know what the consultants are advising on. As bad as it looks, this is how this should have happened, from GS's perspective.
The funny part is that originally the investment banks (Goldman Sachs, Bear Sterns) were not part of the FDIC and thus could not receive money from the Federal Reserve because they were not real banks. They had to be re-classified as normal banks to make it legal to give them money. But that wasn't a problem because The Secretary of the Treasury at the time was a former CEO of Goldman Sachs.
The sad part is they won't win, and GS will NEVER go away. look at their history, they've been knee deep in dirty dealing for over a century now and have learned how to slime their way through the halls of power. its no coincidence that so many in the Fed are tied into GS, hell they are practically Wolfram and Hart on the evil scale. If they had demons in suits waltzing through their halls like on Angel frankly i wouldn't be surprised, any truly nasty corporate dealing that has made a lot of money while fucking people over? GS is there.
ACs don't waste your time replying, your posts are never seen by me.
If you want gold so badly, just buy goddamn gold already, and stop bothering the rest of us who understand that there is way too much money circulating (or way too little gold) to move away from fiat money. There's absolutely no reason to back things with gold. If you're so set on a fixed amount of currency, just argue for a fixed amount of currency. There's no need to get some metal involved who's only real values are 1. Shiny and 2. Doesn't corrode.
-- Let us endeavor so to live that when we pass even the undertaker shall be sorry. -- M. Twain
Methinks the only way we geeks can survive the world out there is to turn ourselves into the baddest kind of critters - even more badder than the critters of Wall Street, critters in the Capital Hill and/or the White House
I think that's a) impossible, as it requires a denial of what makes one a geek; b) destructive, as it requires one to become what one hates. I have a relative, who always talks about how much more successful she might have been if she had become a lying, thieving charlatan like some of those she's dealt with in the past, and made her life more difficult. But that would have required her to become someone she isn't, and wouldn't have wanted to be.
I would just say the following: I never read Nietzche, but from my understanding Nietzche asserted that there were two types of people, masters and slaves. Masters (at least as far as those who adopted and distorted the ideas of Nietzche and Weber after WWI, to a great extent leading to WWII) were basically what we would now call sociopaths or psychopaths - capable of lying, cheating, enslaving and murder to achieve the ideal world. Slaves, in their view, were the other 90% of the world.
And, in at least one sense this was and is true. A few people (at much higher percentages in higher leadership positions, according to recent research) are that type of 'master', and many, many people - probably the great majority IMHO - just want to not think, not worry, just do what they are told and watch sports on TV. (Yes, I'm generalizing).
But IMHO there is a third group, that Nietzche never talked about to my (poor) knowledge - I'll call them creatives. These are the explorers, the artists, the engineers, the 'geeks' of all stripes - and about 1/2 of the entrpreneurs. The creatives don't want to be masters, and refuse to be slaves. They will always be the disruptors, will never be accepted by either of the other groups, and will always be a thorn in the side to the 'system'. And I will assert that they are the ones that largely prevent the 'masters' from taking over completely - as long as information and movement are free, and the system can continue to expand. (Thus my promotion of commercial space development - the ultimate 'free frontier', that never ends. Not to digress TOO far.)
It's easier to be a result of the past, but more fun to be a cause of the future! http://www.spacefinancegroup.com/
Either be outraged about the wall, or outraged about the lack of a wall.
Except it's not that simple. There was a "wall" in both cases. The outrage is when the banks ignore it to profit in one case, and try to use it to defend themselves from lawsuits in another.
And if you RTFA, the lawsuit is not really about this, anyway. It's about negligence to do any due diligence by the bankers handling the deal, not whether they shared information among departments. Again if you RTFA, both GS investment bankers and the Wall Street Journal were able to trivially find evidence of massive lies about the customer base, which is a pretty strong case due diligence was not performed. So, no, this is NOT "how this should have happened, from GS's perspective", unless their perspective was to take the customer's money and not actually do their job...