A federal jury on Wednesday gave Goldman Sachs Group Inc a sweeping legal victory in the $580 million sale of Dragon Systems Inc to Lernout & Hauspie, saying the Wall Street bank was not negligent in arranging a deal that ultimately collapsed 13 years ago.
The jury cleared Goldman of claims of negligence, intentional misrepresentation and breach of fiduciary duty, and others, in the civil case, according to the verdict announced in U.S. District Court in Boston.
Dragon founders Jim and Janet Baker, pioneers in the field of speech recognition software, accused Goldman investment bankers of being negligent in the 2000 sale of their company to Belgium-based Lernout & Hauspie, which collapsed in a massive accounting fraud. The Bakers and two early Dragon employees sought several hundred million dollars in damages.
"We are pleased the jury rejected these claims. We fulfilled all our advisory duties to Dragon Systems," Goldman Sachs spokeswoman Tiffany Galvin said.
John Donovan, Goldman's lead lawyer on the case, declined to comment. But on a frigid day outside the federal courthouse, Donovan joined his legal team and smiled for a group picture.
The Bakers were not available for comment. Before the verdict was read, the couple sat closely together, as they had throughout the 23-day trial.
Their lawyers portrayed Goldman's investment bankers as a "bottom of the barrel" team that didn't properly vet concerns about Lernout & Hauspie's claims of skyrocketing sales in Asia.
But lawyers for Goldman said it wasn't the investment bank's job to sniff out the accounting fraud that ultimately doomed Lernout & Hauspie and made the remaining stock held by the Bakers worthless. In fact, Goldman said Dragon rushed into the sale and brushed aside advice that outside accountants be hired to further examine Lernout & Hauspie's books.
The Bakers owned 51 percent of the company, but only were able to sell a few million dollars worth of L&H stock before the collapse.
In counter claims brought by Goldman, the jury found that Janet Baker had made negligent misrepresentations to Paul Bamberg and Robert Roth, Dragon employees who held 5.54 percent and 2.75 percent, respectively, of the company's stock. The jury said Baker caused damages, but no figure was given in the verdict.
The jury also said Goldman proved that Janet Baker breached her fiduciary duty to Bamberg and Roth. The jury said Jim Baker breached his fiduciary duty to Bamberg, but not to Roth, according to the verdict.
During the trial, jurors heard testimony, largely by video, from a lineup of Goldman Sachs executives, including Gene "Tiger" Sykes, who today runs the bank's mergers and acquisition business and denied any role in the Dragon deal.
Dragon's attorneys said the bank had assigned "D-team" investment bankers to advise Dragon, which they argued the bank made because the software company was one of its smaller clients.
"It is regrettable that the plaintiffs went to such lengths to unfairly and publicly attack the reputations of the Goldman Sachs bankers who advised Dragon Systems," said Goldman's Galvin on Wednesday. "Those bankers have our full support."
Alan Cotler, a lawyer for the Bakers, told the jury the couple lost their life's work when Lernout & Hauspie collapsed and went into bankruptcy. The Bakers tried to get their technology back, but were unsuccessful.
The Dragon software is now owned by Nuance Communications Inc.
(Reporting by Tim McLaughlin; Additional reporting by Aaron Pressman and Scott Malone in Boston; Editing by Phil Berlowitz, Nick Zieminski and Leslie Adler)