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There were a few things that were hard for me to follow in this article:

1. If the company was worth $1B before as X before selling it to Y, wouldn't Y+X be at least worth $1B?

2. If L&H made fraudulent claims, why not make a claim against L&H to recover the software, brand, intellectual property? According to the Wikipedia page (http://en.wikipedia.org/wiki/Lernout_%26_Hauspie) their software ended up being bought by Nuance (Siri).

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Here is a better example:

X = acquiring company, worth $2B ($1B in debt, but future earnings valued at $3B) Y = acquired company, worth $1B ($0 debt, $1B future earnings)

Merger:

X+Y = $3B (+ some factor account for cost savings or new revenue streams)

Company X was lying about their sales:

X+Y = $0B ($0B from future earnings, $1B in debt + $1B from company Y)

Company declares bankruptcy and debtors come in and get every asset with any value. Shareholders value = $0.

Bankruptcy is a laundromat for assets, it's pretty much impossible to get them back.

The people holding Bernie Madoff paper had no trouble standing in line for a share of the recovery, and the people who had gotten too much out had no barrier to getting it clawed back.

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