Goldman Sachs won a $580 million negligence suit over its role as adviser to speech-recognition pioneer Dragon Systems in a doomed merger, one of its biggest victories in a string of claims by dissatisfied clients since the financial crisis.
A federal jury in Boston yesterday rejected the claims of Dragon’s founders Jim and Janet Baker and two other shareholders that Goldman Sachs failed to properly vet Belgium-based Lernout & Hauspie Speech Products. The all-stock deal in June 2000 was rendered worthless months later when the fraud at Lernout & Hauspie was exposed and the company filed for bankruptcy.
The verdict relieves Goldman Sachs of responsibility for a sale that left its clients with worthless shares in a failed company. The four Dragon founders sold a portion of their Lernout & Hauspie shares for $11 million before the stock collapsed, and the Bakers lost the technology they spent decades developing.
As she left the courthouse yesterday, Janet Baker said “we’re disappointed. I’d like to know what the jury saw that we didn’t.” Several members of the jury declined to comment as they left the courthouse.
The jury found Goldman Sachs proved that the Bakers mishandled their roles in the negotiation. The jury said the Bakers breached their fiduciary duty to Dragon co-founders Paul G. Bamberg and Robert Roth and made negligent representations about the deal that went before Dragon’s board of directors. The jury wasn’t asked to assess damage on those claims.