A federal jury determined Wednesday that Goldman Sachs was not to blame for the multimillion-dollar loss the owners of Dragon Systems Inc. incurred after selling their Boston-area speech recognition company to a company that collapsed in a massive fraud soon after the acquisition.
The verdict came in a three-week trial in US District Court in Boston that capped off years of litigation over the sale of Dragon Systems in 2000 to Belgium-based Lernout & Hauspie Speech Products for $580 million in stock. Goldman had acted as adviser to Dragon and its executives.
The jury cleared Goldman Sachs of accusations from Dragon founders James and Janet Baker that its bankers were negligent for not warning them against going through with the deal. The jury cleared Goldman of multiple claims related to negligence, breach of contract, and misrepresentation.
Several months after Lernout & Hauspie closed on the Dragon sale, the company went bankrupt after reports surfaced that it was making up customers and inflating revenue and sales figures. Top Lernout & Hauspie executives were eventually jailed over the fraud.
The stock that the Bakers, the majority owners of Dragon, and other shareholders received in the sale became worthless when Lernout & Hauspie went out of business.
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