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Posted on 03/08/2004 1:46:21 PM PST by amigatec
Analysis: Microsoft, SCO have a lot more explaining to do Monday March 08, 2004 - [ 03:40 PM GMT ] Topics: Legal , News and Trends By: Chris Preimesberger
Whether or not Microsoft is secretly bankrolling the SCO Group for more than $100 million to attack Linux and the general open source community through questionable intellectual property lawsuits, NewsForge has learned that U.S. federal regulators may have begun investigating the relationship between the two companies -- and may also be looking closely at a number of other people and companies connected to them through stock or other business transactions.
Although the Securities and Exchange Commission (SEC) never officially makes public when it investigates an organization, an SEC staff member told NewsForge that complaints and tips about suspected under-the-table funding, stock-kiting, illegal insider trading, and money-laundering involving Microsoft or Microsoft-connected individuals to the financially struggling SCO Group have been coming into the agency with regularity since last August. The SEC "does not take such complaints lightly," the source said.
Most of the complaints have been registered by telephone and by using the SEC's Web site. "We've gotten a lot of them," the SEC source said. An SEC investigation would look into alleged backtracking and charting fund transfers, suspicious timing of certain stock transactions, possible instances of stock-kiting and insider trading, and other potentially serious infractions.
Other individuals may be far ahead of the SEC in this investigation. Several open source advocates have been conducting their own, private investigations of SCO's financial dealings for many months.
If and when this all gets into court and becomes public record one day, the following allegations may be among those included in the litigation: That Microsoft used Lindon, Utah-based SCO Group as a puppet to create havoc in the courts against the open source software movement, which is the most serious current challenge to the Redmond, Wash., company's longtime stranglehold on the personal computer software industry; That Microsoft apparently paid for influence among key software industry analysts; That insider trading was common among heavily invested people and companies; That conflicts of interest occurred, in particular one involving a stockbroker/analyst who appeared on a cable television show and gave a positive recommendation to SCO stock while he owned a substantial number of SCO shares and stood to profit personally from an increase in their value. That money was laundered involving two international banks and several key outside business people with close ties to both Microsoft and SCO Group.
And this might not be the half of it. A story like this has numerous threads; much more information is bound to come out as time goes by.
In case you haven't seen the IT news the past few days, here's a little background:
This story began last summer, intensified last October when SCO received a $50 million investment from BayStar Capital, a venture capital firm in California, and moved into the fever-pitch realm with the release last Wednesday of "Halloween X," the latest in a series of documents published on OpenSource.org by Open Source Initiative founder Eric S. Raymond about Microsoft's campaign against Linux.
"Halloween X" includes an October 12, 2003, email memo reputedly leaked from an internal SCO Group source to Raymond that outlines in detail the Microsoft-SCO Group financial deal and speculates about other future deals. Prior to the $50 million infusion of cash from the BayStar transaction, SCO Group was in a cash crisis, despite the fact that its stock price had been slowly climbing for months. Its primary market, Unix products and services, has been down for several months, and without additional income, the company might well have been teetering on the verge of bankruptcy.
The email memo from SCO Group consultant Mike Anderer (CEO of S2 Group) to SCO executive Chris Sontag says, in part, "Microsoft will have brought in $86 million for us including Baystar," and that the "next deal we should be able to get from $16-20 (million)" for SCO's bank accounts. SCO Group is currently suing IBM for $5 billion, contending that Big Blue has illegally copied Unix code fragments into its Linux products. SCO Group also is suing Novell, DaimlerChrysler, and AutoZone in separate actions and says it intends to file more lawsuits in the future against companies that it believes violate its intellectual property licenses. SCO, in turn, is being sued by Red Hat, who calls SCO's claims of copyright infringement "unfair and deceptive actions."
SCO's response
The response from both SCO Group and Microsoft has been very interesting, to say the least. Neither one has debunked the email's information outright. The key words used in the responses are "misunderstanding" (SCO) and "not accurate" (Microsoft) -- about the softest terms you can use in a denial.
SCO Group did not question the authenticity of the leaked e-mail, saying instead that the message is a "misunderstanding."
"We believe the e-mail was simply a misunderstanding of the facts by an outside consultant who was working on a specific unrelated project to the BayStar transaction, and he was told at the time of his misunderstanding," said SCO spokesman Blake Stowell. "Contrary to the speculation of Eric Raymond, Microsoft did not orchestrate or participate in the BayStar transaction."
This "misunderstanding" would have been on the part of a consultant who had worked with SCO for four months (and had worked with SCO staff members previously), and who used specific names, numbers, and dates in the memo. Not only that, in this contract between S2 and SCO filed in January 2004, S2 "... agrees to indemnify, defend and hold SCO harmless from and against any and all losses, liabilities, damages, claims, demand, suits, actions and/or judgments, and all costs and expenses, including attorneys' fees, based upon, or arising out of damage to property or injury (including death) to any person or persons caused by any act or omission of IC [the "Independent Contractor," i.e. S2 - Ed] or any of IC's agents, employees, contractors or representatives or sustained in connection with the performance of Services hereunder or based upon or arising from the failure by IC to carry out its obligations hereunder or from any unauthorized disclosure of all or part of the Confidential Information by IC or any of IC's agents, employees, contractors or representatives."
Microsoft's response
Waggener Edstrom's Mark Martin, a spokesman for Microsoft, said: "The allegations in the posting are not accurate. Microsoft has purchased a license to SCO's intellectual property, to ensure interoperability and legal indemnification for our customers. The details of this agreement have been widely reported and this is the only financial relationship Microsoft has with SCO. In addition, Microsoft has no direct or indirect financial relationship with BayStar."
Microsoft did not have to have a relationship with BayStar. According to the allegations, other people, connected to Microsoft, SCO, and the two international banks mentioned above, apparently took care of that fund transfer.
Microsoft and SCO Group have a lot more explaining to do. SCO cannot just admit that "Halloween X" is legitimate, then simply write it off as a misunderstanding.
NewsForge and others are beginning to follow the money right now. We'll let you know what we find as we connect the dots.
Wanna be Penguified? Just holla!
Got root?
Oh please! Gates got spanked because he was not greasing people like Clinton. Clinton turned a blind eye to all sorts of scammers. As long as it did something for him. And that was put cash in his pockets. Or his wifes. He allowed all the stock manipulation, pumping-and-dumping, etc. to keep his fake economy rocking along.
I'm a big Linux supporter but I'm also a fan of Microsoft. Geesh, look what they have built. Look how what they built (mostly off other peoples ideas but what the heck) and how it changed this country and the world.
Hey look B2K. I'm "defending" your favorite people....
I'm usuing SUSE 9.0, and Firefox as a browser. Life is good. :)
-=BUZZ!=- Sorry, but SCO has found it quite easy to get their press releases issued via AP and Rueters without any critical analysis from the mainstream press. A tech investor who got on this ride when SCO filed against IBM probably doesn't know just how deep this rabbit hole goes.
I say when this is all done that the investors should be able to sue SCO, Microsoft, and any other guilty parties behind this scam. I'm not going to assume everyone has followed this like we have.
It takes a huge effort to make sense of the 30 years of Unix history. There are Linux guys who can do it (and IBM will be calling on them). Joe Daytrader doesn't have the history.
The funny or sad (depending on how you look at it) thing is, MS doesn't have to resort to these kinds of tactics.
While Linux, Mac/OS X, etc. are slowly making inroads, Microsoft has plenty of time to refine their products and, at the least, keep a huge share of the market for years to come.
They could take XP or Server '03, freeze any future feature additions (basically no new stuff/toys/applications bundled with or built-in to the OS), do nothing but work on stability, security, and performance over the next two years. They would end up with great platforms (XP and Server 2003 are already good platforms), and they can then add apps here and there, like Apple does with OS X, but the apps aren't a part of the OS, nor are they vital to the OS.
The problem is they got into this "we have to release something brand-new or that looks brand-new, fairly often, and we have to make it a part of the OS so people won't be tempted to remove it and use a third party" mentality. Combine that with a paranoia/fear over Linux and OS X, and they could find themselves up in front of the courts, SEC, etc. answering questions over shady deals and maneuvering, and in the long run cost themselves more money and market share, than if they had worked on improving current products.
They also end up with very bloated products. You can take Linux or Mac/OS X and remove most of the apps and get a barebones, sleek system, running only what they want, from the companies they choose. It's a lot harder for the average user to do that with Windows.
IBM got wrapped up in something along the same lines a few decades ago and they spent years and years and years in anti-trust hearings/lawsuits. MS should have known after their own AT hearings/etc. that they had better walk on eggshells.
I too have never bought the argument that just having the largest percentage of the software market makes Microsoft a "monopoly". But with this week's revelation that MS is bankrolling the SCO scum, I'm finally convinced that MS is evil. So far as I'm concerned, anybody who assists Darl McBride and his gang of thugs deserves to die as horrible a death as SCO does.
You seem pretty slow. I have a great deal on bridge in brooklyn, I think it would be a perfect fit for you.
No one. But it beats the alternative (which is continuing to use broken code).
I think it's gonna be hard not to beat that ride before too long.
I use both Windows and Linux. I find this open source stuff a bit Communistic. I mean, who wants to sit around and fix someone elses code?
I would never invest based on press releases, and I'm not even an experienced investor. I think prosecution is properly with the SEC, which is looking into it.
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