Judge muzzles Goldman, lawyers at Dragon speech recognition trial


A U.S. federal judge on Monday ordered Goldman Sachs Group Inc to take down statements from its website related to its representation of Dragon Systems in a 2000 sale that blew up when acquirer Lernout & Hauspie went bankrupt after accounting irregularities emerged.

A two-month jury trial in the civil case is expected to begin Monday afternoon in U.S. District Court in Boston. Lawyers for Dragon's founders are expected to accuse the iconic Wall Street bank of negligent misrepresentation and malpractice in their opening arguments.

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U.S. District Judge Patti Saris began Monday's proceedings by chastising attorney Alan Cotler for talking to a Boston Globe reporter on the eve of the trial. Cotler is representing Janet and James Baker, speech recognition pioneers who agreed to sell Dragon to Lernout & Hauspie in the $580 million all-stock deal that ultimately fell apart.

"You cannot talk to the press," Saris told Cotler, who made an apology to the court. "I don't know why you did."

The judge also expressed concern that Goldman Sachs' public relations team had been making comments to the press on deep background. "That seems to be the case," the judge said.

In addition, Saris ordered Goldman Sachs attorneys to take down the bank's response on its website to a July 15 New York Times story about the case.

"Right now, there's a complete block on talking about the case," Saris told several lawyers assembled in her courtroom in U.S. District Court in Boston.

In 1999, Dragon Systems hired Goldman as its financial adviser. The company was struggling and a potential acquirer opted not to pursue a deal, according to Goldman's defense in the case. The bank says the claims brought by the Bakers are without merit.

Belgium-based Lernout & Hauspie later offered to buy the suburban Boston company for cash and stock. But without seeking Goldman's advice or consulting with her board, Janet Baker, a founder of the company, agreed instead to an all-stock deal, according to Goldman.

Goldman says it recommended to Dragon that it hire professionals to do an extensive review of Lernout & Hauspie's accounting procedures. Dragon chose not to do that, Goldman says.

In May 2001, U.S. Marshals arrested Gaston Bastiaens, a key figure at L&H, at his home in suburban Boston. He was picked up on a Belgian warrant that accused him of fraud, insider trading, stock market manipulation and accounting law violations.

Bastiaens was CEO of Lernout & Hauspie when the 2000 fraud allegations sent the company's stock into a tailspin, erasing nearly $10 billion in shareholder value while forcing the company into bankruptcy protection.

(this story has been corrected to change regularities to irregularities in the lead)

(Reporting By Tim McLaughlin; Editing by Nick Zieminski)