The New York Times reports that the deal, the $580m sale of a highflying technology company, Dragon Systems, had just been approved by its board and congratulations were being exchanged. But even then, at that moment of celebration, there was a sense that something was amiss.
The Chief Executive of Dragon had received a congratulatory bottle from the investment bankers representing the acquiring company, a Belgian competitor called Lernout & Hauspie. But he hadn’t heard from Dragon’s own bankers at Goldman Sachs.
'I still have not received anything from Goldman', the executive wrote in an e-mail to the other bank. 'Do they know something I should know ?'
More than a decade later, that question is still reverberating in a brutal legal battle between Goldman and the founders of Dragon Systems - along with a host of other questions that go to the heart of how financial giants like Goldman operate and what exactly they owe their clients.
James and Janet Baker spent nearly two decades building Dragon, a voice technology company, into a successful, multimillion-dollar enterprise. It was, they say, their 'third child'. So in late 1999, when offers to buy Dragon began rolling in, the couple made what seemed a smart decision: they turned to Goldman Sachs for advice. And why not ? Goldman, after all, was the leading dealmaker on Wall Street. The Bakers wanted the best.
And yet, even today what happened next to the Bakers seems remarkable. With Goldman Sachs on the job, the corporate takeover of Dragon Systems in an all-stock deal went terribly wrong. Goldman collected millions of dollars in fees - and the Bakers lost everything when Lernout & Hauspie was revealed to be a spectacular fraud. L.& H. had been founded by Jo Lernout and Pol Hauspie, who had once been hailed as stars of the 1990s tech boom. Only later did the Bakers learn that Goldman Sachs itself had at one point considered investing in L.& H. but had walked away after some digging into the company.
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image: © Steven Duong