Lernout & Hauspie

» see lhsl.com as it lived, on the wayback machine

~ the obit ~

Ypres is a small town in West Flanders that most of the world knows, if it knows it at all, for what happened in the fields around it between 1914 and 1918. In 1987 two Belgian salesmen named Jo Lernout and Pol Hauspie started a speech technology company there, and for about thirteen years they were winning. The local nickname for the corridor of startups that grew up around them was Flanders Language Valley, and that was not entirely a joke.

What the company actually made was the layer nobody sees. Speech recognition engines and synthesized voices, licensed out to whoever needed a machine that could hear or talk, with a translation and proofing business alongside them. If you ever heard a synthesized voice named Michael or Michelle come out of an Office install, or used the speech features buried in Windows XP, you were touching Lernout & Hauspie work without any reason to know the name. That is the closest this company ever came to me, and it came through a Microsoft installer.

By early 2000 the market value was approaching ten billion dollars and the buying started. Dictaphone went for close to a billion in the spring. On 7 June 2000 they closed on Dragon Systems, the Massachusetts company behind DragonDictate and NaturallySpeaking, for around 580 million dollars paid entirely in newly issued L&H stock. James and Janet Baker, who had built Dragon over eighteen years, took their roughly 300 million dollar share in that same stock.

Two months later the Wall Street Journal published the first piece questioning the numbers coming out of the Korean subsidiary. Fourteen months after that there was no company left, and the Bakers had nothing.

~ the rap sheet ~

~ the cracks ~

The reporting started on 8 August 2000 and it kept getting worse every time somebody looked. Revenue had been booked against customers that could not be found. An audit committee eventually concluded that roughly 277 million dollars was improperly recorded between the first quarter of 1998 and the second quarter of 2000, and recommended reversing all 182 million in Korean revenue outright. The final restatement admitted the company had overstated itself by about 377 million dollars, roughly 65 percent.

Korea was the engine of it. Sales were attributed to entities that existed on paper for the purpose of receiving them, in a market far enough from Ypres that nobody in Belgium was going to walk over and check, and the auditors had signed off on all of it.

~ the postmortem ~

Chapter 11 protection was filed in Delaware on 29 November 2000, followed by a Belgian insolvency petition on 27 December. The reorganization never had anywhere to go, and on 25 October 2001 a Belgian court declared the company bankrupt. The stock went to zero and stayed there.

The technology survived the corpse. ScanSoft, which would later rename itself Nuance, bought the speech assets and spent the next twenty years as the default speech company, right up until Microsoft acquired it in 2021. Vantage Learning took the proofing and linguistic search work. Dragon lived on as a product line under an owner its founders never chose.

~ what got buried with it ~

On 20 September 2010, nine years after the bankruptcy, a Belgian court handed Lernout, Hauspie, Nico Willaert and former chief executive Gaston Bastiaens five year sentences with three years effective. Lernout began house arrest with electronic monitoring in September 2012. The Bakers sued Goldman Sachs, who had advised them on the sale, for failing to see what the acquirer actually was. A Boston jury cleared the bank in January 2013.

What went into the ground with it is harder to price. Flanders had built a real technology cluster around one company, and when the center collapsed the cluster did too. Belgium got its Silicon Valley for about a decade and then got a fraud trial instead, and the country's tech ambitions carried that shadow for years afterward.

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