Goldman Sachs Handled Dragon Sale Well, Ex-Analyst Says
A former Goldman Sachs Group Inc. (GS) analyst testified that his team did a great job in helping Dragon Systems Inc. sell itself to a Belgian firm that dissolved in an accounting scandal six months later.
Alexander Berzofsky, speaking in a videotaped deposition played yesterday for jurors in federal court in Boston, answered questions from a lawyer for Dragon Systems’ former owners, who are suing the bank over its advice on the deal.
“You’re saying Goldman did a great job for Dragon?” asked Alan K. Cotler, the attorney for Jim and Janet Baker who founded the speech recognition developer in their suburban Boston home 30 years ago.
“Yes,” Berzofsky replied.
“The fact that Jim and Janet Baker lost their life’s work doesn’t affect your opinion that Goldman did a great job for them, right?” Cotler asked.
“Correct,” said Berzofsky, who left Goldman Sachs in 2000 and is now a managing director at Warburg Pincus LLC, a private equity firm.
Dragon’s founders claim that a four-man team of Goldman Sachs bankers assigned to the transaction committed gross negligence by failing to pursue questions about Lernout & Hauspie Speech Products NV’s finances that should have led them to avoid the $580 million all-stock deal.
They say they lost their company and access to the technology they had spent their careers developing, including Dragon NaturallySpeaking dictation software, when Lernout & Hauspie filed for bankruptcy protection in November 2000. The deal closed in June of that year.
Goldman Sachs claims its team gave Dragon competent advice and says it urged company management to press their accountants, at Arthur Andersen LLP, to probe Lernout & Hauspie’s finances.
U.S. District Judge Patti Saris, who is presiding over the case, said the trial, which began Dec. 10, may last until Jan. 25.
On Dec. 13, the jury heard testimony from Richard Wayner, a senior member of the Goldman Sachs team on the Dragon deal. Wayner said Goldman Sachs had unanswered questions about Lernout & Hauspie’s suspicious surges in sales in Asia -- revenue that turned out to be fictitious -- but never sought to stop Dragon from selling.
Wayner said that after informing Dragon that Goldman Sachs didn’t received satisfactory answers from Lernout & Hauspie, it was “the client’s decision whether or not they want to do the deal.”
Berzofsky, a 1996 Harvard graduate who was 25 at the time of the Dragon sale, said due diligence was up to Dragon. His team’s job was “shepherding” the deal, he said.
Attorneys for Dragon showed him Goldman Sachs marketing materials touting the firm’s devotion to its clients and commitment to excellence.
“Did it ever cross your mind that after Lernout & Hauspie went bankrupt and was found out to be a fraud, did it ever cross your mind that maybe you and your team did not meet that principle of achieving excellence on behalf of Jim and Janet Baker?” Cotler asked.
“It never crossed my mind,” Berzofsky replied.
During the deposition, Berzofsky lounged back in his chair, ate snacks and repeatedly stroked the back of his head.
He yawned when attorneys show him a document related to Goldman Sachs’s decision to walk away from making any investments of its own in Lernout & Hauspie in the late 1990s and said he didn’t recall ever seeing the document.
Dragon paid Goldman Sachs $5 million for its work under an agreement that would have paid the bankers only $150,000 per quarter if the sale didn’t occur, according to testimony in the case.
“What did you do for $5 million?” Cotler asked.
“We gave them advice on how to sell their company,” Berzofsky replied.
The case is Baker v. Goldman Sachs & Co., 09-cv-10053, U.S. District Court, District of Massachusetts (Boston).
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