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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."
I thought Goldman Sachs were the good guys?
billions! It's so much money even the singular takes an "s"!
Mostly random stuff.
Goldman Sachs and the $580 Million Black Hole
Lesson 1: Just because you paid someone 5 million dollars doesn't mean they have your best interests at heart.
Lesson 2: If a deal involves putting all your eggs in one basket, you should assume that the basket is faulty, and that everyone knows it but you.
Fraud is GS middle name. They will bet for you and bet against you out of both sides of their wallet.
More power to them. I don't know much in the area of finance and the like, but stories like this continue to give me the impression large financial institutions like to play fast and loose with other people's (read: little guy's) money. Too big to fail? More like too big to be allowed continued operation.
My blood hurts...
Yes, out of the tens of thousands of emoyees everyone is supposed to know what everyone is doing
And a few there found that l&h was a fraud before it blew up
If corporations are people, then they're responsible for the relationships between the different thoughts in their heads.
I think the icing on the cake is the fee of 5 mil to point them to a known fraudster.
Talk about the ultimate troll move. That surpasses being Rick Rolled.
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 read this story when it was published, the the guy that owned the company and lost his technology on top of all that money had a phd and was making huge advancements in the technology much faster than predicted, he's probably the reason Siri can exist. The saddest part is that he still had many improvements he was working on and now he just can't, the tech has been sold, he can't touch it anymore without getting sued. In the end humanity loses.
If corporations are people, then they're responsible for the relationships between the different thoughts in their heads.
Couldn't they claim diminished responsibility due to multiple personality disorder?
Blank until
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?
Who owns Scansoft, who apart from GS are the other big winners from this transaction? They got the world's best speech rec software for a fraction of its true value - I wonder who they were advised by?
Korma: Good
Yes, out of the tens of thousands of emoyees everyone is supposed to know what everyone is doing
And a few there found that l&h was a fraud before it blew up
If corporations are people, then they're responsible for the relationships between the different thoughts in their heads.
When a corporation makes a huge profit, the top execs are always willing to accept reponsibilty and accept an obscene bonus. When the corporation does something bad, shouldn't they be responsible for that, too?
"After consultations with Goldman Sachs,..."
That's your problem right there.
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."
There is no hell.
The only way to torture these criminals is while they're alive. Get to it.
http://www.nytimes.com/2012/07/15/business/goldman-sachs-and-a-sale-gone-horribly-awry.html?pagewanted=1&_r=2&hpw
There is no hell.
The only way to torture these criminals is while they're alive. Get to it.
Indeed. The whole idea of "heaven" and "hell" was invented by the dominant classes, to keep the little guys at bay: "yeah, we're kinda rich now, and your life sucks monkeyballs, but one day ye shall inherit the earth, the eternal life in heaven awaits you, while we are at grave risk of going to hell".
"The agriculture ministry is not in charge of Gundam" - Japanese ministry official.
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.
I lean left on local standards (those of European social democracy) so I'd probably be something like "extreme left" on American standards (if we consider Democrats a left-wing party). I have no love for either Goldman Sachs or the whole sector they operate in... that said, you can hardly call what they did "stealing".
Are they unethical? Sure. Have they broken some laws by deceiving regulators? Probably. Misleading advertising? Might be. Fraud? Depends on the contracts they've used... but stealing? No. They've simply not cared about the fate of their clients - or the society - except where they had the economic incentive to do so. That kind of stuff happens when you have free markets.
For any given amount of freedom in the markets, you get some good and some bad sides. You thus choose a level where the good sides outweigh the bad ones... and acknowledge that the decision also leads to some undesired results. What doesn't work is choosing one level, at first ignoring undesired results and then, when they become too apparent, call them stealing, etc. without making an argument for choosing another level of freedom in general.
... and everyone in the industry knew that they were full of shit with their finances. The two founders - Lernout and Hauspie - were accountants, not technologists. The company had significant investment from the Belgian government, and L&H were politically well-connected enough to keep milking that funding source as they rode the tech frenzy of the 90's. In every instance where we competed against them, they always bid at ridiculously low prices that couldn't possibly be economically sensible. They had some decent technology, but their business practices were always suspect. It was very likely the taxpayer financing which kept their bubble from bursting before it did.
To be fair, Dragon was primarily involved in desktop ASR, whereas L&H (and my company - Voice Control Systems), were focusing on telephony applications. So, the Bakers may not have been fully acquainted with L&H's reputation. But, really, they should have been extremely suspicious of this deal, especially when the offer was changed to 100% stock. TFA didn't say what the value of some of the competing offers were, but I'm guessing they were substantially less than $580M. If it sounds too good to be true ....
None of this is to excuse Goldman, which apparently was hired to do something that they did not do. And clearly, the Bakers were done an injustice. But, something tells me that they were willfully blind to the possibility that this offer was unjustified. And for that, they should blame themselves.
If humans are mostly water, and beer is mostly water, then humans must be mostly beer.
High finance is NOT hard. They purposefully obfuscate everything.
Good-bye
....we have the comfort of knowing Goldman Sachs is still less evil than Electronic Arts.
You're dead wrong, EA only really screws its employees, goldman sachs will screw anyone who gets close enough, which unfortunately happens to include everyone with a stake in the world economy. Every unemployed person on earth currently owes a partial debt of gratitude for their state of employment to goldman sachs.
-=Geoskd
I wish I had a good sig, but all the good ones are copyrighted
For example, a bank should not be allowed to combine with another bank. Mergers should only take place between different types of financial institutions as God intended.
Insightful? Almost every purported author of the Bible was at the lowest strung of society, many having been martyred. Exceptions include David, Solomon and Moses. The first two have some not so flattering things written about them and Moses was leader of a bunch of desert dwellers.
They will bet for you and bet against you out of both sides of your wallet.
fixed that for you
Is that the same "ethical wall" the investment banks were supposed to use when bidding in the LIBOR scandal?
There are plenty of rules prohibiting many ethical and criminal violations in the banking industry. Of course, we're finding out more and more that the banks are more in the "rules are made to be broken" mentality these days (and probably all days)...
If you have a good business that generates revenues, it is better to rely on it, rather than hope that 419 scams and "get rich quick" schemes will work for you.
The differences between GS and that Nigerian scammer are the better writing talent and the better government protection that one of them is using.
"We guided them to a completed transaction."
As the lion said of the zebra.
You are not a brain: http://books.google.com/books?id=2oV61CeDx-YC
And sadly its worked for thousands of years, see Jim Crow and how blacks would go to their little churches and be told that they'd get nicer things in heaven for being treated like shit here, hell you go throughout history and you see case after case of those at the top using religion to keep the peasants in line with threats of hell and promises of heaven. that is why i truly believe we won't get a better world until we put away such beliefs, because it is too easy to keep large numbers of the downtrodden in line with religion, the opiate of the masses.
ACs don't waste your time replying, your posts are never seen by me.
http://www.wired.com/wired/archive/11.02/code_pr.html
As that older article points out, the Bakers also spent some time early on at IBM Research doing speech stuff (and from when I was working at the IBM Speech group myself much later, it did not seem completely clear what way most of the knowledge was flowing). My undergrad adviser at Princeton, George A. Miller, who did a lot in the psychology of natural language and knew the Bakers (I think from when he was at Rockefeller with them), told me about this loss more than a decade ago, as a cautionary tale. More than the money, what really hurt most for the couple was not being able to work on their project anymore. For anyone who really cares about what they are working on, this is a good argument for working in the free and open source software realm rather than trying to finance proprietary software somehow, even when you think you are the "owner" of the software. Imagine if the Bakers had released Dragon as FOSS back then and built a consultancy around it -- at least they would not be alienated from their 20+ year labor of love (or "third child" as they called the software). In general, you also can't expect the same people who put their love into creating great things for the world to be fully prepared to deal with business sharks (even business sharks like GS being supposedly hired to "help" them). I'm glad my wife and I released our own labors of love (like our Garden Simulator and PlantStudio software) as FOSS instead of taking on investors and making it proprietary, since at least we can always still work with the source code. Of course, the flip side of that is often not having the time to do that because of a need to do other things for money. We ideally need a "basic income" and similar social changes to solve that problem and to minimize a software industry based around "artificial scarcity".
http://www.basicincome.org/bien/
http://www.artificialscarcity.com/
A 21st century issue: the irony of technologies of abundance in the hands of those still thinking in terms of scarcity.
Insightful? Almost every purported author of the Bible was at the lowest strung of society, many having been martyred. Exceptions include David, Solomon and Moses. The first two have some not so flattering things written about them and Moses was leader of a bunch of desert dwellers.
Emphasis mine. In fact, spreading the notion that the founders of a religion were poor and martyrs play directly into the hands of those who use religion to dominate and subjugate.
"The agriculture ministry is not in charge of Gundam" - Japanese ministry official.
I met the Bakers around 2002 at a neighborhood party and heard this story. At that time, Goldman's excuse was "L&H lied to us." However, given that a couple Wall Street Journal reporters exposed the fraud mostly by making some phone calls, it was clear that Goldman had done little work. I wish the Bakers the best of luck.
There are very specific rules regarding investing. If you are acting as an economic adviser to another entity, there is all sorts of legal language attached to that transaction that is supposed to insure that you are acting in the best interests of your client. It's similar to acting on behalf of someone else as their legal representative (in other words, lawyer)
If someone hires you as an adviser for their investments, and you tell them to invest in something that you know is dodgy, then you are in hot water. At the very least, there is the concept of due diligence, where you are supposed to do a through analysis of the investment before recommending it. It appears as though Goldman had done their due diligence before and decided against investing in L&H, which means they are in trouble if they then recommend someone else make a similar investment.
My Other Computer Is A Data General Nova III.
I do believe the phrase he was looking for is "palsy walsy"
If a job's not worth doing, it's not worth doing right.
I actually wrote a fair amount of UI code interfacing with Microsoft Agent as part of a research project, AutoTutor. While the L&H TTS engines were indeed the default for Agent, that's just because they were the default ones installed on Windows (2000 and XP) at the time. Agent allows you to load the TTS engine of your choice, so long as it supports the Speech API. Because the Speech API includes callbacks for phonemes spoken, Agent can synchronize lip movements of the character to what's being spoken by the speech engine regardless of its creator.
Ultimately, the poor quality of the L&H voices led us to SpeechWorks and AT&T's NaturalVoice products. Sadly, both the TTS and voice recognition fields went through major consolidations in the early 2000s, and now SpeechWorks is dead (acquired by Nuance). NaturalVoice is still available, more or less, from Wizzard Software.
The Freelance Wizard
It's very unfortunate that most of us geeks are not that well versed in financial thingy, and that we geeks are too trusting of others - methinks this maybe the result of we geeks, in our own geeky-universe, are generally trustworthy
Unfortunately, the world out there is filled with critters that will cheat everybody, even their own mothers !
The two inventors of Dragon Speech Recognizing System put their trusts in Goldman Sachs, which, by now, most of us geeks should know not to trust
It is even more unfortunately that the two inventors now have to rely on lawyers to sue Goldman Sachs - and lawyers are critters that are not that far removed from the kind of critters that occupies the Capital Hill / White House / Wall Street
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
Muchas Gracias, Señor Edward Snowden !
The shareholders don't get a vote.
Okay, technically, thanks to the recent financial reform, stockholders get a non-binding vote, but the execs can (an do) just ignore it and pay themselves whatever they want.
Furthermore, if you had any knowledge of how corporate votes work, you would never suggest something as moronic as democracy-through-share-purchasing. To get a significant portion of the vote, you'd need around 10 million people dropping $2000 each... except trying to buy 200M shares would send the price skyrocketing. So the people whose lives get toyed with by these companies need to pay the thieves hundreds of billions of dollars just to be able to vote on a non-binding resolution? I'd rather buy a torch and pitchfork.
Whether it was wishy-washy or palsy-walsy, the point is that there was hanky-panky going on.
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...
The corruption is far, far greater ...
http://en.wikipedia.org/wiki/Brad_Birkenfeld
In October 2001, Birkenfeld began working at UBS in Geneva, Switzerland, handling private banking, primarily for clients located in the United States. In 2005, he learned that UBS's secret dealings with American customers violated an agreement the bank had reached with the IRS.
He resigned from UBS in October 2005 and provided written whistleblower complaints to Peter Kurer, Head Counsel for UBS, and other UBS senior executives regarding the illegal practices of U.S. cross-border business.
He is the first person to expose what has become a multi-billion dollar international tax fraud scandal over Swiss private banking. Despite his unprecedented, extensive and voluntary cooperation, and registering as an IRS whistleblower, Birkenfeld is the only U.S. citizen to be sentenced to jail as a result of the scandal.
More like Hanky-Paulsy
No bailout for the Bakers', I guess.
Pain is merely failure leaving the body