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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?
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.
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...
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.
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."
There is no hell.
The only way to torture these criminals is while they're alive. Get to it.
But strangely—probably the first time I've ever seen a lawsuit in the news with a huge amount of money involved and was able to say "I understand exactly how they arrived at that amount, given the circumstances, and in no way do I find it unreasonable or astronomical."
Bio questions? Ask me to start a Q&A journal. Computer analogies available for most topics!
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.
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.
"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
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.
http://www.wisegeek.com/what-is-theft-by-deception.htm
Fraud, theft by deception, con, whatever term one chooses to apply, the end result is the same. I'm promised something, which I don't ever get, in exchange for my payment or investment. And, it's theft, just as surely as a burglar commits theft when he removes property from my home.
This parsing of words, in an attempt to hide the fact that theft is indeed theft, only benefits those dishonest individuals who are committing the thefts. White collar thieves want to be distanced from common thieves, so they have created an entire vocabulary for thievery. Some words are applied to common criminals who are to stupid to steal millions. Other words apply to the smarter criminals who have the means to steal millions, or even billions.
"Windows is like the faint smell of piss in a subway: it's there, and there's nothing you can do about it." - Charlie Br
That kind of stuff happens when you have free markets.
When you have "free markets" Goldman Sachs doesn't get bailed out. You can't have it both ways - blame the free market when cronyism is the real culprit.
Do you have ESP?
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.
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...
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.