The New York Times has an incredible story today about the ongoing litigation between James and Janet Baker and Goldman Sachs. The Bakers hired Goldman Sachs to sell the company they had built, Dragon Systems. Goldman did, and the sale, for $580 million in stock was closed with Lernaut & Hauspie. Just one month later, L&H was found to be a massive accounting fraud, and the Bakers were left with worthless L&H stock. Throughout the process, there were unanswered questions about L&H’s value and the suitability of the transaction. Goldman itself had previously decided not to invest in L&H.
Apparently, though, Goldman sees itself as having had no fiduciary role beyond closing a transaction, no matter how bad
If the case goes to trial in Boston, as scheduled, on Nov. 6, the final argument that Goldman can be expected to make is that the bankers, as Mr. Wayner testified, gave the Bakers “great advice.”
Mr. Berzofsky, too, testified in his deposition that the Goldman Four did a “great job.”
Even though Dragon lost everything?
“Yes,” Mr. Berzofsky said. He was given several opportunities to clarify. And then he was asked one more time — the fact that the Bakers and Dragon’s shareholders lost everything doesn’t affect your opinion?
“Correct,” Mr. Berzofsky responded. “We guided them to a completed transaction.”
So for $5 million, Goldman Sachs couldn’t be expected to do more than destroy the wealth of all of Dragon’s shareholders in just one month. A closed transaction that results in disaster for everyone was a “great job. A shocking reminder that paid advisers may not be working in your best interest. Question, question, and question some more. We’re just a bunch of muppets who have been skeptical of the vampire squid meme, but stories like this really make us wonder.
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