The Most Dangerous Trade

Chapter 10Cohodes: Force of Nature, Market Casualty

“Gaston! Gaston!” It was November in Las Vegas, and Marc Cohodes, general partner of Rocker Partners LP, was calling across the convention floor of Comdex 1999, the giant consumer electronics show. He had just caught sight of Gaston Bastiaens, CEO of Lernout & Hauspie Speech Products, a Belgian maker of voice recognition software, switchboards, and other gear. Bastiaens was not happy to see Cohodes—and began making his way to the exits, with a posse of underlings in tow. Rocker Partners had been shorting the company's shares since July 1998, soon after Cohodes discovered its speech-to-text software didn't work—just 15 percent of the words a person spoke would be accurately transcribed. The salespeople at big box retailers agreed the stuff was junk and told him so. L&H, as people called it, would claim revenues of $344.2 million that year, but already Cohodes was having a hard time figuring out who was buying the software. Neither L&H rivals nor Wall Street analysts could figure it out either.

Bastiaens had a checkered past. He had helped preside over Apple Computer's disastrous Newton personal writing tablet, a pen-based device that that bombed spectacularly in 1993. Bastiaens went on to head Quarterdeck Office Systems, a software company that flamed out in the late 1990s. Other than his nationality—Bastiaens too was Belgian—Cohodes could see no credentials that qualified him for the top spot at L&H.

“Gaston! Gaston!” Cohodes ...