January 15, 2013 / 7:35 PM / in 5 years

Jury deliberations on Goldman-Dragon case could begin this week

BOSTON, Jan 15 (Reuters) - A federal jury in Boston could begin deliberations as early as Thursday on whether Wall Street banking giant Goldman Sachs Group Inc was liable for the botched acquisition of speech recognition software company Dragon Systems in 2000.

Dragon’s founders have accused Goldman of being negligent after Belgium-based Lernout & Hauspie paid $580 million in stock for Dragon and then went bankrupt.

It wasn’t the job of Goldman bankers to sniff out the accounting fraud that ultimately doomed Lernout & Hauspie and made the stock received by Dragon founders Jim and Janet Baker worthless, defense attorneys have argued.

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.

U.S. District Judge Patti Saris on Tuesday told jurors they could begin their deliberations as early as Thursday after hearing closing arguments and getting her instructions on the law in the case. Tuesday marked the trial’s 18th day of testimony.

Meanwhile, in a videotape shown to jurors, Ellen Chamberlain, who was Dragon’s chief financial officer, recalled how the company was on the verge of insolvency before the deal with Lernout & Hauspie closed. Dragon was making payroll, but the company was going to have to borrow money to continue to do so, she said.

Chamberlain also said Dragon had to restate its 1999 financial results after the discovery of “channel stuffing.” The term refers to flooding vendors with excess products so the company can book higher revenue.

Before the deal closed, Dragon executives also were concerned that they did not have Lernout & Hauspie’s most recent audited financial statements. But Dragon was told that Lernout & Hauspie had no open issues with the U.S. Securities and Exchange Commission over accounting issues. Dragon questioned L&H’s spike in Asian revenue.

Had there been issues, Dragon would have pushed for the deal to be restructured as a cash sale rather than an all-stock transaction, Chamberlain said.

The case is Baker v. Goldman Sachs & Co., 09-cv-10053, U.S. District Court.

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