By Scott Malone
BOSTON, Dec 11 (Reuters) - A Goldman Sachs Group Inc
attorney argued on Tuesday that the bank cannot be liable for
the losses of a husband and wife pair who sold their company to
a Belgian software firm that collapsed in an accounting fraud,
since Goldman had not been hired to seek out a fraud.
The Wall Street giant is facing off in U.S. District Court
in Boston against the founders of speech-recognition software
company Dragon Systems, who contend they lost their life's work
and about $600 million after selling their company to Lernout &
Hauspie in an all-stock deal months before L&H collapsed.
"There is no question that Dragon and its stockholders were
also defrauded," said John Donovan, an attorney with Boston law
firm Ropes & Gray, in his opening remarks defending Goldman in
the civil suit. "Goldman's job was not to detect fraud. When you
hire a banker, you ask it to do certain things but delving into
the books, doing accounting and finding fraud is not one of
them."
A day earlier, the attorney for Janet and James Baker, who
founded Dragon in 1982 in their suburban Boston home with
$30,000, had argued that the couple relied on Goldman's advice
in agreeing to sell their firm.
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
company collapsed in an accounting fraud. The Bakers and two
other early Dragon employees are seeking several hundred million
dollars in damages.
Goldman's reputation has been tarnished in recent years amid
allegations that it has treated clients shabbily. Earlier this
year one executive leaving the bank published a resignation
letter calling the bank a "toxic" place where managing directors
referred to their clients as "muppets."
In the months leading up to Dragon's decision to sell to
L&H, Dragon management and owners were under intense financial
pressure, facing falling sales and a cash crunch, Donovan said.
He said that Goldman had urged Dragon's board to slow the
pace of negotiations with L&H and to commission more active
accounting reviews of the buyer's results. Instead, Dragon
management pushed aggressively ahead, with Janet Baker and a
counterpart at their suitor writing out a deal on a piece of
paper that changed L&H's offer from cash and stock to all stock,
Donovan said.
They pushed ahead with the deal because after a failed 1999
initial public offering, Dragon needed cash to continue, Donovan
argued.
"If Goldman had told them to walk away, as they now say
Goldman should have, they would have been left with tears in
their eyes," he said.
Goldman denied civil claims that include gross negligence
and breach of fiduciary duty. The jury trial is expected to last
two months.
The Dragon software is now owned by Nuance Communications
Inc.
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