due diligence

I find the story of Dragon Systems hilarious and horrifying so I’m never going to miss an opportunity to tell you about it and one occurred today. The story, quickly, is (1) Dragon Systems, a closely held speech-recognition company, hired Goldman to advise it on a merger with Lernout & Hauspie, (2) Goldman assigned Dragon an extremely JV team of bankers, (3) Dragon sold itself to L&H in June 2000 in an all-stock deal, (4) L&H soon turned out to be a massive fraud, and (5) L&H filed for bankruptcy in November 2000 and Dragon’s shareholders lost $300 million. Dragon sued, Goldman won a trial in January, and today they won some more, for reasons I’m not clear on. That is, I’m not sure why they had to win again – the judge issued an opinion finding in favor of Goldman, even though a jury did the same thing in January. Also it’s not much of a stirring win: Read more »

This Dragon Systems lawsuit that’s bopping along in a Boston court gives me the absolute heebie-jeebies; it is the investment banking version of the dream where you show up to school and there’s a test that you forgot to study for. One day the youngish team of Goldman bankers is patting themselves on the back for guiding their client, family-owned speech-recognition software maker Dragon Systems, to a $580 million sale to a Belgian acquirer. The next:

the 2000 all-stock deal was quickly followed by an accounting scandal that led to the collapse of suitor Lernout & Hauspie Speech Products NV. Goldman Sachs, which advised Dragon on the deal, called witnesses to counter allegations by Dragon founders Jim and Janet Baker that its negligence cost them their life’s work. … Dragon’s founders, who are seeking hundreds of millions of dollars in damages, claim that four Goldman Sachs bankers assigned to the transaction committed gross negligence by failing to pursue questions about Belgium-based Lernout & Hauspie’s finances that should have led them to avoid the deal.

Oops! I really do feel for the bankers here. It’s Friday afternoon and nobody’s reading so I feel comfortable making this confession: when I was a banker I once underwrote some convertible bonds for a company that we’ll call Company X, and later when I was a blogger Company X went bankrupt and those bonds are … those bonds are not doing so hot, these days. That keeps me up at night, sometimes.1 But in my defense it took like a year! And Company X wasn’t a giant fraud, either, it just turned out to suck at making money. The Dragon team doesn’t have those excuses: Read more »

Jessica Mang, who traded material non-public information based on tips obtained by her Mizuho investment banker boyfriend, Thomas Ammann, because he promised to take her on vacation afterward and also because she thought his entrusting her with such a high level task was a sign he wanted to get serious, was cleared by a jury today, as was Christina Weckwerth, Thomas Ammann’s other girlfriend/execution trader. Read more »

In the summer of 2009, Jessica Mang, far left, met an investment banker named Thomas Ammann at a nightclub in London. Both liked what they saw and started seeing each other “at least once a week,” on days he wasn’t with his other girlfriend, Christina Weckwerth. Things were going well, but by November, Mang wanted more. So when Ammann said he was going to take her on a romantic getaway to Seychelles, and all she had to do first was use her own money to trade on material non-public information he’d obtained from his job at Mizuho International about Canon’s purchase of OCE NV and then give him half the profits, she jumped at the chance. Not only did he want to go away with her (huge!) but he was entrusting her with such an important project (huger!); Mang had read all the dating books and knew that if a guy asked you to violate securities laws, it meant things were getting serious. Read more »

If anyone out there is considering starting a hedge fund, there’s a few things you should know. Don’t want to scare anyone but…okay we’re just going to come out and say it- according to reports, “gone are the days when a trader could leave some Wall Street firm with a few of his buddies, snap his fingers and raise several hundred million dollars overnight.” Now, you might have to spend six months to a year raising money and not only that? You’re going to have to make it through several rounds of due diligence by potential investors. You may also have to come face to face with a guy named Neil Chelo who some people (Neil) like to call The Enforcer. Read more »

As you may recall, a couple months back, a managing director at UBS was pulled over in Connecticut and charged with a DUI (he also had an unlicensed firearm on him, for good measure). At the time, the man for some reason felt compelled to tell the cops that a) he worked in the financial services industry and b) he was coming from Beamers Cafe, Stamford’s premier strip club. As I read the story, a coupla things became clear to me: 1) that guy likes to party and 2) that the cultural relevance of this institution to Wall Street North could no longer be ignored. You may also recall that I proceeded to announce a DealBreaker Field Trip to said establishment, and invited some people from CNBC to come with. The field trip is still on. However, I decided I couldn’t just take you a strip club without scouting the location first and having an idea as to what we could expect, you know? Rather, performing some on-site due diligence ahead of time was necessary. Last night, I did just that. Read more »

Picture 158.pngReason number one that Steven Mandala not only helped himself to $780,000 from the firm, but lied to get the job in the first place: he’d obviously tasked himself with testing MER’s due diligence and background checks on prospective employees, which he rightly assumed were not up to snuff:

Mandala, who earned about $100,000 annually at Maxim, last year applied for a job at Merrill Lynch, falsely claiming he was a partner at Maxim, that he managed $300 million in client assets and earned $765,000 in compensation against $1.5 million in revenue he generated, the Manhattan DA’s Office said. After Mandala produced fake pay stubs and tax forms to substantiate his bogus claims about his Maxim work, Merrill hired him on April 24, the DA said.

Over the next few months, after Mandala had his new boss loan him the 780 grand as “an incentive,” deposited the money into his parents’ bank account, and withdrew $245,589 to buy a red Ferrari, Mandala “frequently” failed to show up to work and only brought in two or three clients, which was undoubtedly part of his undercover work to see if management was keeping tabs on people. Determining he’d seen enough, SM the “resigned via e-mail” and “asked Merrill Lynch to throw out his personal effects,” so he could focus on other projects, like scamming his woman’s father, which required a bit more attention than taking ML for a ride.

Among [his personal affects] were credit cards obtained in the name of Carlos Gomes — the dad of Mandala’s girlfriend — which the broker had allegedly used to rack up tens of thousands of dollars in debt. Mandala’s lawyer, Franklin Rothman, said Gomes’ ID had been stolen by his daughter, “who had a bone to pick with her own father.”