Goldman Says Due Diligence 'Not Our Job' in $580m Disaster

Goldman Sachs Blink

Goldman Sachs' lawyer said it wasn’t the firm’s job to do financial due diligence for its client, Dragon Systems Inc., in the company’s 2000 sale to a Belgian competitor that collapsed in an accounting scandal.

Bloomberg reports that John Donovan Jr., a lawyer for the New York-based bank, told a jury in federal court in Boston Tuesday that Goldman Sachs was hired to negotiate the terms of the transaction for Dragon, not to uncover the fraud at the acquirer, Lernout & Hauspie Speech Products NV.

The founders of Dragon sued Goldman Sachs claiming its bad advice led to a disastrous $580m all-stock transaction.

'Financial accounting diligence was not Goldman’s job', Donovan, a partner in the Boston law firm Ropes & Gray LLP, told six jurors and six alternates Tuesday in his opening statement. 'You turn to auditors and accountants to ask questions about auditing and accounting'.

Jim and Janet Baker, pioneers in computer speech recognition, claim Goldman Sachs’s failure to pursue red flags cost them their company and access to technology they spent their professional lives creating, including the rights to Dragon NaturallySpeaking, the company’s popular dictation software.

Within months of the sale’s June 2000 close, Lernout & Hauspie, based in Ieper, Belgium, filed for bankruptcy after an investigation found the firm fabricated customers and reported phony revenue. Several executives were prosecuted and jailed.

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Goldman Says Due Diligence ‘Not Our Job’ in Dragon Sale

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