SCO Investor Changing the Deal

Kurt Wall writes "According to this story, recent SCO investor Royal Bank of Canada appears to be changing its tune. RBC, along with BayStar Capital, invested $50 million in SCO, but now has changed the deal to give it veto power over the payment of the 20% contingency fees SCO's IP lawyers will get. As to the wisdom of the investment itself, an RBC spokesman would only say that the 'investment in SCO is passive, made to hedge an economic exposure resulting from client transactions.' Such as the SCO case collapsing, perhaps?"

obligatory Star Wars reference

[jvbunte]

I'm sure SCO's lawyers are going to be upset about this.

SCO's lawyers: "That wasn't part of the bargain!"

RBC: "We're altering the deal, pray we do not alter it further..."

They aren't altering the deal.

[Ungrounded Lightning]

SCO's lawyers: "That wasn't part of the bargain!"

RBC: "We're altering the deal, pray we do not alter it further...

They aren't altering SCO's deal with the lawyers.

What they're doing is getting agreement from SCO that SCO will not take an additional unilateral action (such as selling the company) that will trigger the CYA part of the deal (giving 20% of the company to the lawyers) - unless SCO first gets investor approval.

"You promised them 20% of the company if you sold it. That would dilute our investment. So don't do that without asking us first."

NO change to the deal with the lawyers. Just don't push the red button (and give away a fifth of the store) without asking the owners first.

way to cash in on the joke there Pedanto

[Anonymous Coward]

I bet you're a huge hit at parties.

Do you correct all the "chicken crossed the road" jokes too?

"Actually, though very few people know this, biologically speaking, chickens lack the cognitive processes necessary to cross the road under the aforementioned circumstances. See the research done by Smoot and Hawley, 1934.... blaw blaw mumble mumble..."

Re:They aren't altering the deal.

[Brandybuck]

NO change to the deal with the lawyers. Just don't push the red button (and give away a fifth of the store) without asking the owners first.

Which brings up an interesting question in my mind. If the deal with the lawyers was made by the executives and not the board, is this deal even legal? Was the right to give away a "fifth of the store" even theirs?

If I were an investor in SCO, and this prior deal wasn't disclosed to me, or made subsequent to my investment without my knowledge, I would immediately be on the phone to the SEC.

Re:They aren't altering the deal.

[Elwood P Dowd]

While this particular arrangement is uncommon, your objections to it would apply in any case of a stock issuance. Whether SCO's lawyers are paid in cash or in stock makes no difference to the shareholders.

Yes, of course the CEO can do this. If it is obviously not in the best interest of the shareholders they can sue him, but it could easily be in the best interest of the shareholders.

This deal was disclosed in exactly the fashion that it should have been as far as I can tell. And it was a judgment call on the part of the CEO. Exactly the type of thing he's paid for.

Re:They aren't altering the deal.

[Rich0]

NO change to the deal with the lawyers. Just don't push the red button (and give away a fifth of the store) without asking the owners first.

Of course, this could turn into a change of deal with the lawyers. Picture this scenario:

1. IBM says "ok, we give up, we'll buy you out at a 30% premium."
2. Lawyers say - "ok, we want 6% of the market cap of the new company."
3. SCO says "please, investors, let us do this".
4. Big investor says to lawyer "settle for 1% or we'll call off the whole deal".
5. Lawyer

Re:obligatory Star Wars reference

[BabyDave]

If you think that's good, just wait until next week, when the Vice President of RBC will reveal that he's the father of Darl Mcbride, shortly after slicing his hand off.

Actually, let's not pursue this analogy any further, in case SCO somehow manage to destroy the Death Star^W^WIBM ...

Re:obligatory Star Wars reference

[Anonymous Coward]

"in case SCO somehow manage to destroy the Death Star^W^WIBM ..."

SCO = Alderon

Re:obligatory Star Wars reference

[AKAImBatman]

Actually, let's not pursue this analogy any further, in case SCO somehow manage to destroy the Death Star^W^WIBM ...

IBM is "Big Blue". Everyone knows that the REAL Death Star is elsewhere [att.com]...

Re:obligatory Star Wars reference

[NanoGator]

"If you think that's good, just wait until next week, when the Vice President of RBC will reveal that he's the father of Darl Mcbride, shortly after slicing his hand off."

I hear Darl's sister is kinda cute.

Re:obligatory Star Wars reference

[tomhudson]

SCO was originally sayig that Boies would get 1 million in cash, and 9 million in stock stuff

That the investors have forced SCO and Boies to agree to changing the deal might indicate that they (the investors) either:

1. learned something that gave them the leverage needed to force/blackmail SCO et al to accept the changes
2. threatened SCO et al with a lawsuit to recover their investment because they were misled as to where the money was ultimately going

Either way, not good news for SCO and Boies, and it explains the delay in their filings.

Re:obligatory Star Wars reference

[beacher]

Yeah.. They should have seen it coming... It's not as if Emporer Palpatine's image [canoe.ca] is on the Canadian 5 dollar bill [canoe.ca]....

Darl's Brother....

[Tmack]

Was evidently the lawyer that represented SCO last friday.

David Boies and his fellow Boies, Schiller & Flexner LLP lawyer Mark Heise are SCO's attorneys in this case, but the software company was represented in a court skirmish last week in Utah between SCO and IBM Corp. byDarl McBride's brother Kevin. Kevin McBride, according to West Legal Directory, has a private practice in nearby Park City, Utah, where he specializes in litigation and appeals, not corporate-contract or intellectual-property law.

Makes things even more fishy. Looks like the McBride family is going to make out nicely either way, SCO wins Darl gets a big payout, Kevin gets a cut of attorney fees, SCO looses and Kevin still gets a cut from the contingency plan.

Also to reference Linux as being a derivitave of the "older operating system" Unix is wrong on a couple points. First has already been pointed out, Linux is designed to work like Unix but was not in any way derived directly from its source, which is actually what SCO is trying to claim in the first place. Also, the article fails to mention that the "older operating system" Unix is what SCO's primary buisness was based on originally.

Tm

Stock Charts

[Davak]

Why aren't people selling their SCOX stocks! They are going to crump. Sell now...

Charts...

Going down over the last 5 days [google.com]

About the same over the last 3 months [google.com]

Re:Stock Charts

[Steve B]

When you "short" a stock, you're (to simplify a bit) borrowing shares, selling them at their current price, and buying replacement shares later (at a lower price, if your speculation pans out) to return the loan.

Thus, when everybody and his brother is shorting a given stock, the short-term effect is to increase demand for that stock, because brokers can profit by obtaining shares to lend out to short-sellers. This generates a "short-squeeze" bubble that has the counterintuitive effect of temporarily increasing the target stock's price.

Groklaw has a good story ..

[leerpm]

going on here [groklaw.net].

One user states:

I've always thought there was something fishy about RBC's rold in this. I can tell you such speculative investments are way out of character for a Canadian bank. Even if the money comes from the New York office of their brokerage/investment bank arm. When the deal was first announced, RBC refused comment saying they never comment on client affairs. That cryptic response caused some questions as the relationship with SCO didn't look like a bank/client relationship. An SEC filing in November indicated that the $30 million was RBC's money and did not belong to anyone else. It also indicated that RBC did not intend to sell its shares and had no prior arrangement to sell them.

Now another cryptic statement. I've felt (with no evidence) that RBC was indeed up to something. But what? My best guess is that they have used their own money, and are not holding the shares for anyone else. And that they have an agreement with a third party about the disposition of any profit or loss from the deal. The logical arrangement would be that RBC puts up the money and gets to keep any profits. But the third party would compensate them for any loss. Thus the investment is clean, and the third party gets to funnel cash to SCO without disclosing their involvement.

For the record, I have no idea who such a third party might be. I don't think it would be Microsoft. They have lots of money marching in the front door. Why would they need to sneak money in the back? But that doesn't leave any other likely suspects. Its possible that one of the other big propriatory software companies, like Adobe, could be behind it. We may never know.

Re:Groklaw has a good story ..

[incom]

I don't think it would be Microsoft. They have lots of money marching in the front door. Why would they need to sneak money in the back? They could be trying to add legitimacy to investment in SCO, by using a seeming unbiased party. After all, if most of the recent investments in SCO all had a whiff of microcash, it wouldn't be the best for legitimacy.

Re:Stock Charts

[Otter]

Err, your links aren't showing the graphs you claim they do, but here's a linear plot of one year performance [google.com]. Yeah, shorting it is going to make someone rich sometime -- but you want to short into this?

yahoo finance SCO chart /.ed

[mm0mm]

... since this article came on. it was fine until 5mins ago. (was $14.??, some 5% down from yesterday, if my memory serves)

The insiders are!

[Russ Nelson]

The insiders *are* selling their shares. Darl isn't ... because he's already sold them. However, he's got another 600K options coming due soon. If ... he ... can ... just ... keep the stock up, he'll have "earned" a few million more for himself. And in any case he can always vote himself a 2M bonus for having attracted so much new investment.
-russ

Re:Stock Charts

[Citizen of Earth]

Why aren't people selling their SCOX stocks! They are going to crump. Sell now...

The pattern is that after SCO has gone down a certain amount, they make some new outrageous announcement and it goes roaring back up. They should be doing this in the next day or two. Investors are kind of dumb.

Re:Stock Charts

[Anonymous Coward]

What a great idea! Everyone should have at least one short int sco; someplace.

Re:Stock Charts

[steveha]

From earlier discussions on Slashdot, I gathered that there isn't much SCO stock available on the terms that let you short-sell it; and what is available was already grabbed by other short-sellers.

But there is one big problem with short-selling SCO stock:

Short-selling doesn't work unless you can predict when the stock will go down. Given that no rational and well-informed person would buy SCO stock, I'm stumped to guess why it's as high as it is, and twice as stumped to say exactly when it will go down.

You might be all set to short-sell SCO stock, and then Darl McBride might announce that SCO actually owns UNIX, BSD, Windows, MacOS, and CP/M; SCO stock doubles overnight and your short-sale, instead of making you money, loses you a lot of money.

steveha

Re:Stock Charts

[Valar]

Just watch the court dates. Put in the short sell order to end maybe a day after the court sesssion ends. Then when the stock goes from $16 to $4...

Re:Stock Charts

[worm eater]

Given that no rational and well-informed person would buy SCO stock, I'm stumped to guess why it's as high as it is, and twice as stumped to say exactly when it will go down.

The fact is, despite what /. would have you think, no one is 'well-informed' about this case. It is a huge tangle of intellectual property law, contract law, and source code. No single person really knows what SCO can prove, what IBM can prove, where the code came from, where it is now or who owns what. There's plenty of speculation, and I personally wouldn't buy into SCO, but investors like to gamble -- and given the fact that SCO (David) is taking taking on IBM (Goliath) I guess the conclusion is they must have some kind of case. Darl's putting up a BIG front, and that's what investors look for.

Re:Stock Charts

[Rimbo]

The fact is, despite what /. would have you think, no one is 'well-informed' about this case. It is a huge tangle of intellectual property law, contract law, and source code. No single person really knows what SCO can prove, what IBM can prove, where the code came from, where it is now or who owns what. There's plenty of speculation, and I personally wouldn't buy into SCO, but investors like to gamble -- and given the fact that SCO (David) is taking taking on IBM (Goliath) I guess the conclusion is they mus

Only plays a tangle on TV

[IBitOBear]

The thing is, it really *isn't* a "tangle" of anything but the outgoing PR. While nobody can tell what SCO is going to CLAIM they own, there is a good record of what they CANNOT POSSIBLY own. Once you subtract what they CANNOT POSSIBLY OWN, the remainder is the sum total of what they COULD POSSIBLY own.

THEN they would have to prove that ownership.

The thing is, Linus (And hence the Linux kernel effort) has detailed records of what came from whom (and therefore from where). SCO has no such records except the vague statement that "whatever we (sco) have we own."

If there is common code, and Linus can prove who provided it to him (e.g. who wrote it), and SCO cannot prove even the first records of who provided the code to *them*, then guess who legally possessess "proof of ownership."

See the word Provenance [m-w.com] (which usually applies to "fine art"). Lets say I walked up to you with a genuine Picasso, proveably genuine, if I can't provide the chain of ownership that demonstrates that it is mine to sell to you, you would be a fool to buy it.

The same basic features apply to the (mis-named) intellectual property issues. If SCO demonstrates that there is code in common between something they claim to own and the Linux kernel, they will need to be able to make a stronger claim of ownership than that made by the OS community.

This is the basis of the ATT vs BSD settlement. In that case BSD was more pursuasive in their ownership of the disputed text because they had the original copyright notices that included the names of the authors, and they had the authors right there saying "yep" I wrote that under X cirsumstances. ATT was in the SCO position of just having some program text in a bunch of files, no attributable authors and no copyright notices.

The point is, SCO has produced no proof because they have none. They are (probably) hoping to release whatever confluence of code they may have as close to closing arguments as possible, on the grounds that such material would apear to stand on merrit. They *cannot* release that data because the very presence of submission and aproval-for-inclusion records kept in the linux project system (BitKeeper et al) is, by definition, "more pursuasive" than any straight claim.

We saw how fast the one example that got out was debunked. By this time SCO is hoping to do a drive-by submission-of-evidence. That never works. 8-)

Guessing that they have some kind of case is very bad. The simple fact that they havn't produced a single spesific instance of (provenanced) code in the process of pursuing thier case, is rather indicitive.

Remember that in civil cases there is no "beyond a reasonable doubt" standard. It is purely "proponderance of evidence." In a civl matter it is *ONLY* a question of who has "more and more credible" evidence.

"incredible" evidence and clames are, by definition, useless.

How short-selling works

[steveha]

It loses you no money

I don't understand what you wrote. But you seem to be saying that short-selling is low-risk, which is totally wrong.

Here's how short-selling works:

You expect a stock to go down in price. You borrow some shares of the stock, and sell them. Then at a predetermined date, you must buy the stocks back, and return the shares to whomever loaned them to you. If you sell at $16 per share, and buy back at $10 per share, you get to keep $6 per share, less any fees (you need to pay whomever loaned you the shares).

But if you buy at $16, then Darl announces that SCO actually owns South America and the stock price goes up to $26, when it's time to buy back the stock shares you need to pay $10 per share.

If you simply buy some stock, the worst thing that can happen is that the stock devalues to zero, and you lost all the money you spent on the stock. With short-selling, if the stock price unexpectedly soars, you can lose vast sums of money in a hurry. Buy-and-hold is much safer than short-selling.

steveha

Re:Stock Charts

[Smallpond]

From finance.yahoo.com

Shares Outstanding:13.85M
Float:7.50M
% Held by Insiders:45.83%
% Held by Institutions:31.82%
Shares Short (as of 10-Nov-03):1.62M

Since the insiders better not be shorting the stock (or uh-oh, SEC) that means over 20% of the available stock IS being shorted.

Re:Stock Charts

[Davak]

The Vice-President is selling...

OLSON, MICHAEL P Vice President sold 10,000 shares on November 11, 2003.

Davak

Re:Stock Charts

[mattdm]

And announced the intention to sell 30,000 more. In addition to the tens of thousands he's sold over the last months. [smartmoney.com]

Hmm.. maybe from the recent court's judgment.

[junkymailbox]

Looks like the banks realize their "investment in SCO is passive, made to hedge an economic exposure resulting from client transactions." "The court gave SCO 30 days to provide IBM with information and source code to prove its allegations. SCO, the ruling stated, must give IBM "all source code and other material in Linux ... to which [SCO] has rights; and the nature of plaintiff's rights." Take a dump or get off the pot!

It'll be really funny...

[TWX]

...when SCO's lawyers turn around and sue them next. It'll go from being "SCO Sues World" to "World Sues SCO"...

Re:It'll be really funny...

[SubtleNuance]

The question is, will the US Justice system stand up to Corporate Criminals and toss these thieves in jail for their fraud.

Isnt filing obviously bogus suits, to pump and dump a stock just a little illegal?

I'm not sure that there is even a story here...

[Osrin]

... banks calculate risk and gamble on the outcome just like any business does.

Darl's Goin' Down!

[Ridgelift]

Critics have speculated that the high contingency fee suggests that SCO, in suing Linux users, is trying to pump up its stock prior to selling it, an action that would reward its lawyers handsomely.

Of course they're trying to pump up the stock! Without Darl's henchmen..uh..lawyers guaranteed a huge payment for the sale of the company, they're sunk.

Play in the sty, smell like a pig

[joelwest]

Subject says it all.

Gives an entirely new reason to...

[maroberts]

Blame Canada!

Re:Gives an entirely new reason to...

[xutopia]

LOL Joke is on you! People don't know what RBC did by investing into SCO they got close enough to pull the plug on them.

Reminds me of a story

[Reminiscent Troll]

Sometime late last fall I received a call from a local business. They had a Unix box that was on the fritz, but unfortunately only had MCSE's on their support staff.

After meeting up with my contact at the site, I tried to get a little more information about what kind of problem it was having. As we walked to the elevators he explained that no one really knew exactly what the box did, or if it was even in use anymore, but it was obvious that the machine was rebooting itself for no apparent reason.

We got out of the elevator at the basement level of the building. The server was sitting alone in a damp room with a concrete floor and concrete walls. I was already pretty sure it was going to be a hardware problem, since Unix boxes don't tend to reboot for absolutely no reason. I pointed out that the damp environment was undoubtedly bad for the machine.

He said, "The honest truth is, no one wants anything to do with this box. It's sitting down here because we're out of space in our server room, and the only guy that knew anything about this box quit three years ago, so we don't even know if it's doing anything useful." With that he turned and left me to figure out the problem.

The machine was plugged in, the power switch was on, but the console was blank and mashing on the keyboard didn't seem to have any affect.

As I was unscrewing the side panel from the case I started to notice that there was a really rank stench in the room. When I first entered the room I figured it was just mildew from the dampness or something, but it was really strong now. I really just wanted to get out of that dimly lit room and out into the sunlight and fresh air.

It was hard to see anything in the case, so I fumbled around inside it with my hands making sure all the internal cables were securely attached to their respective components. Suddenly I felt something squishy and slimy on my hand and jerked it out of the box.

At that instant the machine came on and began to POST. As the memory counted up, I turned the box so I could see into it by the light of the screen. Now I could see the cause of the problem. A rat had crawled into the case via an open drive bay and made a nest near one of the power supplies. She and several hairless newborns had died in there a week or two previous, and I had just stuck my hand in the middle of it all.

As I was wiping my hands off on my pants, I noticed the machine had finished booting. I was like "Ugh, gross! This thing is running SCO Unix!"

Needless to say, I marched right up to the IT offices and told them that the machine was undoubtedly no longer relevant to their business and that they should just throw the whole mess in the dumpster.

Re:Reminds me of a story

[Kunta Kinte]

Good show ol' chap!

This is truly a remarkable troll. You sir, are an inspiration to us all.

Re:Reminds me of a story

[reality-bytes]

Pretty funny, the way you reacted to not the rotting carcasses, but to the fact that it was running SCO Unix... :-)

Has someone been stealing the IQ round here?

Missing text in article

[RobertB-DC]

SCO has admitted that its action is designed to shore up sagging sales by wringing revenue out of its rights to Unix, an older operating system from which [something is missing here] Linux was derived.

Shouldn't the blank be filled in by the words "SCO contends"? As in, "Unix, an older operating system from which SCO contends Linux was derived."

I thought the whole point of the defense against SCO is that Linux is Unix-like, but *not* "derived" from Unix. Unless I'm wrong (a frequent situation), the newspaper article has swallowed a little too much FUD today.

Re:Missing text in article

[tuffy]

I don't think we need to read it quite that literally. "Derived", in this instance, can simply mean that Linux as an OS is a descendent of Unix, not necessarily that it derives any source code from Unix.

Re:Missing text in article

[Otter]

1) Linux is certainly "derived" from Unix for the purposes of journalism, whether or not it is derived from Unix source code.

2) It _is_ partially derived from Unix source code, as in the Symbol font non-example.

3) The question is whether Linux contains illegally used Unix source.

Re:Missing text in article

[John Hasler]

What is missing is what is always missing from newspaper articles: research, fact-checking and concern for accuracy.

Re:Missing text in article

[AnotherBlackHat]

Unix, an older operating system from which [something is missing here] Linux was derived.

"nothing in"

Motley Fool

[maroberts]

..doesn't appear impressed with SCO [fool.com] either!

Hedge what exactly?

[Ed Avis]

'investment in SCO is passive, made to hedge an economic exposure resulting from client transactions.'

So RBC does business with Red Hat, and needs to hedge against them going bust when SCO wins? Or they are hedging short positions they already had in SCO because of selling call options or the like to clients?

It would make some sense if they said 'we have lots of Linux boxes, and we want to get cash if SCO wins to cover the licence fees'...

Re:Hedge what exactly?

[VernonNemitz]

Maybe the bank uses Linux on their computers...and instead of wanting to pay the SCO tax, they decided to try to be on the collecting end of all the SCO taxes. Except that now they are finding out it's not going to work that way, heh heh heh!

$50MM investment

[gothamboy]

Hmmm...what do they need $50MM for? If IBM (and the rest of the planet) are about to fold and have to pay huge bux to SCO, why do they need the invesment? Even if the IBM claim goes to trial, it will go to trial within a year or two so I would only imagine that SCO needs a couple of years worth of burnrate. It just seems to me weird that a company that only is losing a few hundred thou a year needs such a big investment.

Re:$50MM investment

[!Squalus]

Actually, they are alosing at about 3 Million a quarter, last I checked. I don't know what for, but they were spending that much.

Re:$50MM investment

[gamma male]

1) while recently SCO has shown a pro forma profit for 2 (3?) quarters, SCO execs know they've cooked the books. historically they're losing a few million each quarter.

2) Boies' firm was retained, and they are billing hourly (granted, some of their billing is at 2/3 the normal rate, but that's still not cheap). This is in addition to any contingency factors that Boies' firm can also get money on. SCO had maybe $10M in the bank, and if one took about all of their accounting tricks, they're probably spen

client transactions, hmmm...

[192939495969798999]

What other transaction is there for SCO than the lawsuit? Obviously that was a protective move in case SCO discovers that in fact, some one of their coders actually did a poor man's copyright on the whole SCO UNIX source, and then died or something.

Finally investors prove they aren't idiots!

[SharpFang]

I'm just watching SCO stock quotes [yahoo.com] and FINALLY they began running in the correct direction!

Re:Finally investors prove they aren't idiots!

[Elwood P Dowd]

Sure, a -$2 week. But keep it in perspective [yahoo.com]. This has still (so far) been a profitable endeavor on their parts.

Who Owns Stock In SCO?

[Davak]

Probably you! You support SCO if you have investments with any of these companies or mutual fund holders...

Capital Guardian Trust Company 1,177,800 8.51 $16,288,974 30-Sep-03
Integral Capital Management Vi, LLC 316,600 2.29 $4,378,578 30-Sep-03
Royce & Associates, Inc. 1,441,200 10.41 $19,931,796 30-Sep-03
Integral Capital Management V, LLC 246,730 1.78 $3,412,275 30-Sep-03
Empire Capital Partners LP 205,000 1.48 $1,961,849 30-Jun-03
Barclays Bank Plc 174,686 1.26 $2,415,907 30-Sep-03
Bjurman, Barry & Associates 160,000 1.16 $2,212,800 30-Sep-03
ING Investments, LLC 143,100 1.03 $1,979,073 30-Sep-03
Oberweis Asset Management Inc. 112,000 0.81 $1,548,960 30-Sep-03
Whitney Asset Management LLC 76,967 0.56 $1,064,453 30-Sep-03

Royce Technology Value Fund 105,000 0.76 $1,004,849 30-Jun-03
Vanguard Total Stock Market Index Fund 24,713 0.18 $236,503 30-Jun-03
Vanguard Extended Market Index Fund 17,875 0.13 $171,063 30-Jun-03
Marketocracy Masters 100 Fund 3,900 0.03 $53,937 30-Sep-03
Spartan Extended Market Index Fund 3,753 0.03 $54,831 31-Aug-03
Spartan Total Market Index Fund 3,132 0.02 $45,758 31-Aug-03
Vanguard Balanced Index Fund 2,125 0.02 $20,336 30-Jun-03
Quantitative Master Series Tr-Extended Market Index Seri 1,775 0.01 $16,986 30-Jun-03
Vanguard Institutional Index-Inst Total Stock Market Ind 705 0.01 $6,746 30-Jun-03
Manufacturers Investment Trust-Total Stock Market Index 349 0 $3,339 30-Jun-03

Re:Who Owns Stock In SCO?

[Otter]

Who Owns Stock In SCO?..Probably you!

Probably. But with all the VC firms and hedge funds I keep my billions in, how am I supposed to keep track? Oberweis Asset Management? Empire Capital Partners? Hell, I probably _own_ some of them! And I'm not even an uber-rich dotcom mogul like Cowboy Neal and Timothy!

Also, you forgot to mention that KDE owns SCO!

Re:Who Owns Stock In SCO?

[Anonymous Coward]

It's not fair to include index funds here. They are doing their job to own all stocks in a given index. The whole point of index funds is to match the market, not gamble, and usually to have low fees (and this is why they almost always beat other funds.)

Now, if the manager of an *actively managed* fund is buying SCOX, that's a different story.

Ladies and Gentlemen

[Ridgelift]

Ladies and Gentlemen, the rush of wind you just heard was the sound of SCOX stock deflating. Please brace yourself for the wailing and knashing of teeth of the SCO Group and their investors, followed by the lynching of Darl McBride. Torches and pitchforks will be available in the main lobby.

Golgafrincham

[Barkmullz]

...that would result in a 20-per-cent contingency payment to the company's lawyers.

Where is a Golgafrincham Space Ark [bbc.co.uk] when you need one?

Two significant pieces in the 8-K

[southpolesammy]

First off, IANAL.

SCO's obligation to obtain the consent of the investors will terminate automatically if and when the aggregate number of shares of SCO's common stock issuable upon conversion of all outstanding shares of Series A Convertible Preferred Stock held by the Investors fails to equal or exceed five percent of SCO's outstanding shares of common stock as of December 8, 2003.

So did SCO just announce that intend to issue more stock? I'm confused by what they intend to gain from this statement.

SCO's agreement...provides that the law firms will receive...20 percent of the proceeds from specified events related to the protection of SCO's intellectual property rights. These events include settlements, judgments, licensing fees, subject to certain exceptions, or a sale of our company during the pendancy of litigation or through settlement...

And now, did then just announce their intent to sell the company?

Like I say, I'm not a lawyer, and this might be typical legalese, but if not, is this significant?

Goodbye, SCO....

[herrvinny]

Well, it was fun bashing SCO while it lasted, but finally some investors have gotten some brains smacked into them and are wising up to SCO's ways. As I always said, the faster SCO goes bankrupt, the faster I can get SCO stuff at the bankruptcy auction for cheap....

Wonder if SCO would sell me some of their copyrights to UNIX....

SCOX already down almost 7% today

[oddpete]

http://finance.yahoo.com/q?s=scox

Hopefully the stock keeps up this trajectory!

--
I am cool for a variety of reason, but mostly because I use Oddpost [oddpost.com]

Re:SCOX already down almost 7% today

[HiThere]

But it's still higher than any time last August...so far.

Wow

[nnnneedles]

You gotta love the corporate newspeak.

BC spokesman would only say that the 'investment in SCO is passive, made to hedge an economic exposure resulting from client transactions.'

What he really meant to say was: "we don't really give a shit about this company, and this investment was the stupidest crap we've ever done."

Hedge

[nuggz]

The investment has nothing to do with merits.
If SCO wins this case other companies who are Linux dependant will get a HUGE loss.
RBC has probaly invested in some of these companies.
They gamble a small amount of money on SCO winning.
This way they have less risk, SCO loses, their Linux investments payback - 50 million.
The SCO case wins, they lose their Linux investments (or they are damaged) They get a windfall from SCO which partially offsets this loss.

Think of gambling on a sports games against two people.
They will pay 3:1 that their team wins.
Bet $2, $1 each, and no matter who wins, you are ahead $1. Welcome to hedging.

Re:Hedge

[starseeker]

No, his scenario is you have two fans, one for each team. Each believes in his team and offers 3:1 odds that they will win. So you bet both of them, putting $1 down for their team losing. One team will win, so you lose $1, but one team will win, so you get $3. Assuming you don't get your initial $1 back from the bet you won, your total is -$2 +$3, or $1.

If you were betting on both sides of a 3:1 game against the house and wanted to come out ahead, you would need to ensure you won enough no matter what

I'm sure some if it...

[neiffer]

...is the fact that the legal charges are so high that the payback might not be worth it. The writing on the wall is that even if SCO wins, the remedy will be to remove the offending code. I want to meet the business planner that came up with this ass-dumb idea.

Re:I'm sure some if it...

[fgb]

Well! double dumb-ass on you!

www.sco.com

[Salsaman]

Strange...their site does not seem to up at present. What a pity, I was going to order 10,000 Linux licenses today.

Re:www.sco.com

[bigberk]

What a pity, I was going to order 10,000 Linux licenses today.

Maybe the guy who was maintaining their GNU/Linux servers told them to get bent, then quit... yeah, it doesn't come up off the 3 network connections I have access to.

Surprise in court?

[MonkeyDluffy]

From the article:

IBM scored a surprise legal victory in that court case when a judge ruled on Friday in favour of IBM in SCO's trade-secret violation lawsuit against the computing giant.

Huh? Even SCO wasn't surprised by what happened last friday in court.

-MDL

Re:Surprise in court?

[Michael_Burton]

Huh? Even SCO wasn't surprised by what happened last friday in court.

A judge in a U.S. courtroom ruled that SCO had to produce some sort of evidence in support of their allegations. Now, honestly... how could anyone have foreseen that happening?

Pro Sco Slant?

[toadf00t]

Is it just me or does this article seem to have a Pro-Sco slant towards it?

SCO has admitted that its action is designed to shore up sagging sales by wringing revenue out of its rights to Unix, an older operating system from which Linux was derived.

Derived is used rather loosely here. To a casual looker, it might sound like SCO is in the right.

IBM scored a surprise legal victory in that court case when a judge ruled on Friday in favour of IBM in SCO's trade-secret violation lawsuit against the computing giant.

Whoa! :-) (emphasis on surprise)

SCO had been pressuring the courts to force IBM to reveal its Unix and Linux source code so SCO could prove that IBM was using stolen code. But the judge ruled that SCO would have to present its own Unix source code first and identify which software code had been stolen.

That does'nt make sense considering just about anyone can look at Linux source.

Good story. Financial community isn't seeing it.

[Animats]

That's one of the better stories about SCO to appear in the financial press this week. They totally ignore SCO's hype and concentrate on real transactions.

Bloomberg hasn't picked this up yet. [bloomberg.com] Bloomberg is slipping. Yahoo Finance doesn't have it yet either.

This is an unusual investment for a bank. It's a pure speculative play. Their management is probably kicking themselves for buying in at the top.

Passive Aggressive bankers

[RealProgrammer]

They call the investment "passive", but they have control over SCO's biggest asset, the litigation division. They're watching this like a hawk, just as we are.

Director of Royal Bank is insane

[zymano]

Does anyone else think that gambling on SCOX stock , by a BANK nonetheless, is absolutely ludicrous ?

This just goes to show that there are rich suckers out there that never deserved to make a profit. Should change name from ROYAL BANK to ROYAL CASINO BANK.

WTF else are they going to do with

[i_r_sensitive]

All the excessive service charges?

Unix excluse result?

[ratfynk]

Just hope this fiaSCO does not does not wind up with a UNIX exclusive only to MS REDMOND!

In a way, good news

[multimed]

Taking the "RBC spokesman" at his/her word, this is pretty interesting. By saying that the SCO holding is a hedge, they're saying that they are invested/investing pretty heavily in the other side and just trying to protect themselves in the event that something crazy happens and SCO wins. It doesn't mean they believe in SCO just that they're invested deep enough into presumably companies with a large portion of Linux business that they've taken out an insurance policy just in case. Which is good news because you don't buy insurance because you think something bad is going to happen, you buy it to protect yourself in case it does, but hope it doesn't. At least that's my interpretation of "hedge."

Unfortunately as a result, they're helping prop up the stock price of an really awful company.

problem solving

[mm0mm]

"... umm, now the time has come. Finally. I have to do something about this. First I will have to fight with them in court...goddamn BayStar... what else should I, .... oh! I should write letters. A nice Christmas card to Ms. DiDio and Rob Enderle!! They can save my ass again and salvage my company. Let's write a note to PR..."

--sound from one anonymous executive office in Lindon, UT

SCO case collapsing?

[dbCooper0]

Ermm...last I checked something had to actually exist in order to collapse...

Perhaps I wax pragmatically?

Royal Bank Canada new advertising slogan

[rudy_wayne]

You can't spell Fiasco without SCO

this is making sense...

[fermion]

Investment in SCO is passive, made to hedge an economic exposure resulting from client transactions
This seems to be making sense. The investment companies are playing both sides against the middle. If SCO wins, the consequences will be likely be lower earnings for companies that must pay the licensing fees. OTOH, the investment bankers who have invested with SCO will be able to offset those losses by their earnings from SCO. If SCO loses, they lose their investment, but it is not that much money.

As far as the lawyer veto, I think this is just another hedge in case SCO loses. The bankers want to keep the money instead of paying for currently promised obligation. In any event, they will probably just go court and claim that the lawyer fees are excessive. No one likes lawyers, and even in the case where a lawyer funds a litigation, such as the tobacco case with the states, the courts seem willing to put aside contractual obligations to the detriment of the lawyers.

recently famous for Enron involvement, too

[Anonymous Coward]

did anybody else notice the other reason RBC has
been in the news

http://www.cfo.com/article/1,5309,11460,00.html? f= features

lately? To quote:

"Goldin said that Bank of America and Royal Bank
of Canada knew of fraud in Enron-related
transactions. . ."

Charming profile they're developing of late.

Boise Representation

[Camel Pilot]

I am surpised that the main stream press did not make more of the fact that David Boise et al did not appear in court last week. You would think the law firm would at least have a representive present. Oh I would love to be a fly on wall back at SCO central right now.

If I was a SCO sucker^h^h^h^h^h investor this would be a very troubling sign. In fact, Boise's presence is the only thing that really gave the lawsuit credibility - regardless of the fact that he lost the last two highly publized lawsuits.

The short percentage on this stock is huge and that can help keep the stock price, up strangely enough. As the stock drops people complete the short transaction, which is "buying back" the shares that they sold earlier.

An IBM surprise?

[99bottles]

The story notes, "IBM scored a surprise legal victory in that court case when a judge ruled on Friday in favour of IBM in SCO's trade-secret violation lawsuit against the computing giant..."

I'm certainly no legal expert, but was this really that much of a surprise? From most legal info I've read about the case, it seem fairly accepted that SCO is really just fishing.

when all is said and done

[andih8u]

I'm gonna miss SCO and Darl McBride. They've kept me laughing and entertained on a daily basis. I mean, where else can you get a company that drags IBM to court and demands that they prove their case for them. Or contends that the GPL is unconstitutional. I mean, these guys are the comic relief of the computer industry.

Who d'yall think might be the big "client"?

[pjkundert]

So, there is/are some large investor(s) that suddenly excersised huge financial instruments, exposing the RBOC to USD$50M in potential losses, should SCOX increase in value?

This is the only rationalle that I can think of, for a big bank to buy SCOX; banks are typically not big risk takers.

I wonder if there is any way to discover who bought "Call" options on SCOX from the Royal Bank? Perhaps some investor whose name starts with M? Maybe it didn't take a rocket scientist corporate finance guy to figure out how to force an "independent" third party to buy a big chunk of SCOX, if you don't want to do it personally...

The SCO Case is NOT Collapsing

[ViolentGreen]

"The linux infadels have stolen SCO's code."

"God will roast their stumachs in hell at the hands of Darl McBride."

"Lying is forbidden at SCO. Darl McBride will tolerate nothing but truthfulness as he is a man of great honor and integrity. "

""We are winning!""

Quotes for the SCO Information Minister

SCO Experiences DDOS Attack

[gnalle]

Yahoo story [yahoo.com]
Check for yourselves [sco.com]
SCO Experiences Distributed Denial of Service Attack
Wednesday December 10, 3:19 pm ET
Syn Attack Halts Availability to SCO's Internal Operations

# LINDON, Utah, Dec. 10 /PRNewswire-FirstCall/ -- The SCO Group, Inc., (Nasdaq: SCOX - News) the owner of the UNIX operating system, today confirmed that on Wednesday, December 10, 2003 at approximately 4:20 a.m. Mountain Time, it experienced a large scale distributed denial of service (DDoS) attack. The attack caused the company's Web site (www.sco.com) and corporate operational traffic to be unavailable during the morning hours including e-mail, the company intranet, and customer support operations. The company's Web site remains unavailable while this DDoS attack continues to take place. The company is working with its Internet Service Provider to restore www.sco.com to legitimate Internet users.(Logo: http://www.newscom.com/cgi-bin/prnh/19990421/SCOLO GO )

This specific type of DDoS attack, called a "syn attack," took place when several thousand servers were compromised by an unknown person to overload SCO's Web site with illegitimate Web site requests. The flood of traffic by these illegitimate requests caused the company's ISP's Internet bandwidth to be consumed so the Web site was inaccessible to any other legitimate Web user.

"SCO is working with law enforcement officials and gathering information through mechanisms that we have in place to help us identify the origin of these attacks," said company spokesperson, Blake Stowell. "We deplore these activities by those who try to intimidate or harass legitimate businesses through cyber terrorist tactics while hiding their true identity."

Darl's Swan Song:

[pair-a-noyd]

Sheila: Time's have changed
Our kids are getting worse
They won't obey their parents
They just want to fart and curse!
Sharon: Should we blame the government?
Mrs. Cartman: Or blame society?
Dads: Or should we blame the images on TV?

Sheila: Heck NO, blame Canada
Everyone: Blame Canada
Sheila: With all their beady little eyes
And flapping heads so full of lies
Everyone: Blame Canada
Blame Canada
Sheila: We need to form a full assault
Everyone: It's Canada's fault!

where?

[jafac]

And exactly WHERE is fuckedcompany.com during all of this?

Asleep at the wheel again. . .

Re:Investment is never passive...

[leerpm]

No, you do not understand what is going on here. RBC invested in SCO on behalf of a third-party. The investment was made by RBC on behalf of a client. The client gives RBC the money plus a fee, and RBC puts their money into the deal.

No, what is going on here is someone is trying to make a wager on SCO and they don't want anyone to know about.

Re:rbc investing in SCO !

[leerpm]

No, its a pipe deal. Somebody else is pushing money to SCO through RBC.

Re:rbc investing in SCO !

[Dashing Leech]

why they must have been on blow !

What are you talking about? SCO stock would have been a great investment, it went way up. That's the point of a pump 'n' dump. As long as RBC got out just before it collapses, I think it's a good investment. Not because they think SCO is right, but because they think the stock would go up like it did.

Re:rbc investing in SCO !

[leerpm]

RBC is not in this for pump-and-dump. They are a banking institution and have way too much to lose from the consequences of taking part in such a scheme. Any gains from a pump-and-dump would be outweighed by the massive loses from being perceived as an untrustworthy entity to do business with.

We have only a handful of major banks here in Canada. When they do anything that might be conceived as remotely negative, they get severly attacked for it.

Re:clueless

[DG]

You're not the only one registering complaints with the bank.

Within 20 min of learing about RBC's SCO investment, I had fired off a nasty letter to the CEO complaining about what the RBC was doing with MY money.

I would not be suprised if a lot of other RBC customers did similar things.

Perhaps they are taking notice.

DG

Re:clueless

[Peyna]

That's like expecting a bailiff in some district court to know what the Supreme Court's decision was today on McConnell v. FEC.