Baystar Confirms Microsoft Behind SCO Investment

Bruce Perens writes "Business Week has confirmed that Microsoft arranged the Baystar investment in SCO. A managing partner of Baystar says the call wasn't from Gates or Ballmer. But it wouldn't have to be, would it? Obviously, there's more investigation to do." Reader skreuzer writes "Yahoo Finance is reporting that SCO announced that the company's board of directors has authorized management, in its discretion, to purchase up to 1.5 million shares of SCO's common stock over the next 24 months. SCO has approximately 14.4 million shares of common stock issued and outstanding. Any repurchased shares will be held as treasury stock and will be available for general corporate purposes." Newsforge (which is also part of OSDN) is also following the story.

Tell the truth, dammit

Well, this certainly flies in the face of at least one previous report [eweek.com], doesn't it? From that linked article:

Blake Stowell, SCO's director of communications, acknowledged that the leaked memo is real.

But, Stowell claimed, pundits had mischaracterized the memo's context. "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. Contrary to the speculation of Eric Raymond, Microsoft did not orchestrate or participate in the BayStar transaction."

Responding to the allegations, a Microsoft spokesman 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."

(Emphasis mine.)

Golly gee, I wonder what they're trying to hide? Anyone?

Re:Tell the truth, dammit

In the state of underhanded tactics that MS has been known to use (I mean, they are a large corp, you don't get THAT big without playing dirty, or being free), I am not at all surprised. Next thing you know, they are gonna give free copies of Office to people who influence buying for their companies....

/Obvious tag needed

Re:Tell the truth, dammit

"Next thing you know, they are gonna give free copies of Office to people who influence buying for their companies"

OH PLEASE! No you've gone too far... they would never go that...

D'OH!
-m

Re:Tell the truth, dammit

D'OH!

No.... DOD!

Re:Tell the truth, dammit

As long as the Bush Administration is in [O]ffice

No no no, that's Clippy. Although I can see where you could get confused...

Re:Tell the truth, dammit

"It looks like you're trying to funnel money to your corporate buddies and turn the country into a police state by 'liberating' the shit out of some foreign country. Would you like any help?"

Re:Tell the truth, dammit

Contrary to the speculation of Eric Raymond, Microsoft did not orchestrate or participate in the BayStar transaction.

Well, if a Microsoft representative called Baystar from his private phone during a holiday, then it was technically not Microsoft who orchestated this.

I wonder if Microsoft could be sued at all for unfair competition if Bill Gates chose to openly fund SCO shares from his private money?

Re:Tell the truth, dammit

Well, if a Microsoft representative called Baystar from his private phone during a holiday, then it was technically not Microsoft who orchestated this.

Nonsense. If a Microsoft representative calls up SCO on Christmas eve from pup someplace in Christchurch while wearing a pink tutu, and that person has their cell phone signal bounced off of the solar reflectors on the Mars rover, relayed through several satellites and sketchy third world telephone exchanges, bounced through sever P2P nodes and then piped into the PBX of the Mormon church, if that person is representing the interest of Microsoft at the request of superiors, then yes, technically Microsoft "orchestrated this."

MOD PARENT UP...here's why.

The Microsoft "representative" was an executive...and executives are empowered to make decisions for the company they are an executive of, no matter the time of day or whether or not they're in the office. Think about how many deals get made on golf courses, etc, and that'll give you an idea about when executives are able to conduct business.

Re:Tell the truth, dammit

Lets pose a hypothetical situation:

SCO starts wins over IBM, Linux becomes illegal.

Microsoft, who is now apparently backing SCO, aquires SCO in a take-over. Microsoft now owns the rights to UNIX and a significant portion of Linux.

How can it be a monopoly, if there is no competition?

Re:Tell the truth, dammit

Well, if a Microsoft representative called Baystar from his private phone during a holiday, then it was technically not Microsoft who orchestated this.

Wrong. If an employee, in the preformance of assigned duties or at the direction of their employer - or even just with the knowledge of the employer, or if the employer SHOULD HAVE KNOWN - performs an illegal act, the company is responsible. In addition, the company does not lose their liability if the employee is told to wait until a non-working day and use a phone other than their office phone.

If the employee, on their own, with no knowledge or approval, or expectation of approval of their employer did whatever evil and nefarious act, then the employer is not responsible or liable.

In this case, if a person identified themselves as a Microsoft representative to BayStar and in some way gave BayStar the idea that Microsoft was interested in BayStar doing a deal with TSG, and BayStar, acting on the belief that it was in fact a Microsoft representative and a Microsoft request, entered in to the deal with TSG, then Microsoft IS technically "orchestrating this."

I wonder if Microsoft could be sued at all for unfair competition if Bill Gates chose to openly fund SCO shares from his private money?

Interesting thought. The answer is "No, to a point."

If B.G. buys stock on the open market, he is buying from some other individual that owned the stock. D.McB. might like that - especially if he is buying the stock from D.McB. - but TSG (the company) would derive no benefit from the transactions.

Up to a certain point he doesn't even have to declare his stock ownership (I believe it is around 5% of outstanding shares) - and it would take a much larger number of shares to actually be able to manipulate the actions of the company.

The BayStar transactions, on the other hand, directly funded the further operations of TSG - including the attacks on Linux (and Linus) which seen to be in line with (and possible intended to further?) Microsofts' interests.

Remember that there are things that a free marke company CAN do that a MONOPOLIST CAN'T do. This would seem, in my opinion, to be one of those things...

The litmus test of this

I have a litmus test to propose. but first some analsis. Why would a tanited recommendation from Microsoft be useful to baystar? I can understand from baystars position why they might invest in SCO for their own selfish reasons: if they are a company that specializes in high-risk high-reward investments then the SCO investment can be argued logically as a win for SCo would have a huge payback. You might disagree on the odds but well that's their bussiness and the odds*payoff actually is not so bad looking.

But why would microsoft recommending SCO be a useful thing to baystar? Microsoft supposedly has no financial dealing with baystar so there's not "favor" to be granted here. And Microsoft obviously had a vested interest in giving the advice and I'm sure baystar was smart enough to see through that--so the advice would have no tangible use.

KEY point: The most benign explanation is that they were merely bringing it to baystars attention and presumbaly did so to many other companies. The key test is then: did they or did they not call hundreds of other speculative investment houses in hopes of convincing one with this long shot advice?

If they did not do so with many other companies then why did they think they had any standing to cold call baystar and give tainted advice? If they just called baystar alone then its very fishy. they must have promised other tangibles. Such as investing in companies baystar recommended back or promising cash influxes and supprt for the lawsuit.

It's ALWAYS a quid pro quo

E.g.: Hey Baystar, go invest in this loser trog company to fight our battles, and when we need to do some investment banking transaction or investment, we'll make sure you can get a sweet part of the deal with a really big commission.

Or, Steve and Bill said they'd put alot of money in your hedge funds if you work on this little problem of ours.

Nothing written of course.

it doesn't take too much imagination to think of plenty of reasons.

Re:The litmus test of this

It doesn't matter which, or how many, investors they contacted. MS is not in the investment analysis business, they're in the software business. The only real question is why is MS seeking investors for SCO? SCO is a competitor after all. Is MS also seeking investors for Apple and Red Hat?

Re:Tell the truth, dammit

Spake Blake Stowell:
"Contrary to the speculation of Eric Raymond, Microsoft did not orchestrate or participate in the BayStar transaction."

This if I understand correctly is commercial speech. I wonder how the judges in the many instances of barratry that SCO has indulged in will like the fact that SCO is trying this in the court of public opinion, influencing juries, and all of that with bare lies. Not clear either how the so-called business channels that get all indignant and prissy over Martha Stewart can barely get themselves worked up to even report this. C'mon folks, this is a good and evil story like no movie ever seen.

Re:Tell the truth, dammit

C'mon folks, this is a good and evil story like no movie ever seen.

No it isn't. To most business-minded folks, MS isn't evil - it's the pinnacle of corporate success. This is just how the game gets played. If it's illegal then sure it might get press, but just being dirty scoundrals isn't enough to get anyone interested.

Re:Tell the truth, dammit

"Contrary to the speculation of Eric Raymond, Microsoft did not orchestrate or participate in the BayStar transaction."

"Microsoft has no direct or indirect financial relationship with BayStar."

Those two statements are very close to lies but may just be deceptive statements that omit very important facts. I say this because it actually appears that Paul Allen orchestrated the SCO investment. I say this because:

1. Paul Allen is a former member of the board of directors of MS and the second largest shareholder. Paul Allen now serves as a senior strategy advisor to top Microsoft executives [microsoft.com].
2. Paul Allen is one of the largest investors in BayStar Capital [wired.com].

So Paul Allen is in a position to advise and influence both MS and Baystar. He also has significant financial holdings in both companies. There is no tinfoil hat necessary to draw this connection.

Holy smoking gun batman!

The above poster is totally correct. Here is a link to the PDF file [baystarcapital.com] from Baystar's own website. On page 3 of this there is a chart showing the top ten investors in Baystar. Number one on this chart is Vulcan Ventures which has 1.8 billion dollars invested in Baystar!!!!

Jumping to Conclusions

If you actually read the PDF, you will see that you (and Wired, for that matter) are jumping to conclusions. The chart showing Vulcan Ventures (and Microsoft, for that matter) is a chart of data from PlacementTracker showing the overall number of PIPE deals. The vast majority of which have nothing to do with Baystar. This paper is Baystar's way of convincing people that PIPE transactions are a good thing.

None of which is to say that Vulcan and/or Microsoft don't invest through Baystar -- just that this PDF says nothing about it.

-Steve

Re:Tell the truth, dammit

As far as I know is Microsoft obliged not to enter the UNIX market due to earlier agreements. The downward spiral of SCo may affect Microsoft as well. When Sco's management would go to jail because of license fraud it will probably affect Microsoft managers too.

Scosource Gregory Blepp (hired from SuSe) was many times very close to break the injunctions on the German market. If SCO tried to sell licenses or spread FUD at CeBIT, Hanover the rapid response would be to report the offence to the police and let them put the managers in jail.

BayStar and M$

Actually, the second item, Microsoft has no direct or indirect financial relationship with BayStar, is probibly technically true. At this point.

If I "suggest" to someone that they invest in something that I have no finantial interest in (SCO), that "suggestion" does not create a finantial interest. At this time.

I speculate that M$ "suggested" to BayStar that sometime in the future, perhaps, maybe, the software giant might possibly make some kind of investment in BayStar, of course totally unrelated to any investments BayStar might have made in SCO, hint-hint-wink-wink...

What's funny is that a few months ago when all us paranoid tin-foil hat folks where saying M$ had their fingers all over this, people said "go back in your basement, way too much illuminati, blaw, blaw, blaw..."

This part is not unusual.

A managing partner of Baystar says the call wasn't from Gates or Ballmer. But it wouldn't have to be, would it?

Nope, it would not have to be a "tip-top" person, just has to be a Principal or someone with delegated authority from a company officer to be valid. This is not anything uncommon at all.

Yahoo Finance is reporting that SCO announced that the company's board of directors has authorized management, in its discretion, to purchase up to 1.5 million shares of SCO's common stock over the next 24 months. SCO has approximately 14.4 million shares of common stock issued and outstanding. Any repurchased shares will be held as treasury stock and will be available for general corporate purposes.

This is nothing new, odd, illegal, unethical or strange either. It is a common business practice of publicly traded firms.

Now, the underlying story is where the problem sits, not with the scenery.

Re:This part is not unusual.

This is nothing new, odd, illegal, unethical or strange either. It is a common business practice of publicly traded firms

Not when they're a couple of quarters away from insolvency. Stock buyback usually occurs when a company with low stock price have too much money on hand and no viable avanue of investement available.

SCO qualified 2 out of 3 catagory, but they most definately do not have too much cash on hand.

Re:This part is not unusual.

Not when they're a couple of quarters away from insolvency. Stock buyback usually occurs when a company with low stock price have too much money on hand and no viable avanue of investement available.

SCO has $50 million from the BayStar deal, with a redemption condition if the stock goes below ~$8.50 for 25 consecutive trading days.

In light of that, initiating a buyback-scheme when the stock started dipping close to this mark is completely expected. Losing the BayStar investment is a much bigger loss than what it'd cost SCO to keep the stock price inflated.

Re:This part is not unusual.

They say that they are initiating a buyback because the stock is a good value.

This confilicts with the fact that ALL recent insider trades are sells.(after exercising options)

Re:This part is not unusual.

Well, it makes complete sense. Use SCO capital (from MS) to buy SCO stock. Increase SCO stock price. Sell your own shares. You couldnt have MS pay money DIRECTLY to the SCO principles could you? I mean, really, running SCO into the ground with this obviously un-winnable ANTI-GNU/Linux crusade would mean that the SCO board would be purposefully destroying SCO -- they'd end up in Jail for not properly administering SCO.

This is a perfect method of actually paying SCO directors to destroy SCO* for the benefit of M$.

*not that SCO really had a chance w/ x86 unix -- GNU/Linux is going to dominate ALL Unix in short order.

Re:This part is not unusual.

Yahoo Finance is reporting that SCO announced that the company's board of directors has authorized management, in its discretion, to purchase up to 1.5 million shares of SCO's common stock over the next 24 months. SCO has approximately 14.4 million shares of common stock issued and outstanding. Any repurchased shares will be held as treasury stock and will be available for general corporate purposes.

This is nothing new, odd, illegal, unethical or strange either. It is a common business practice of publicly traded firms.

It would certainly be unethical if it's just the Canopy Group's way of transferring money from SCO to Canopy, in exchange for soon-to-be worthless SCOX shares. That's not unlikely, seeing what kind of deals Canopy has done with the companies they own in the past.

That might even count as inisidertrading, depending on circumstances we can't know about, so chances are it's illegal, too.

I guess they could defend themselves by saying it's been common knowledge for a long time that SCO is about to go out of bussiness. Of course, then they'd have been lying about their bussiness prospects... Oops!

Re:This part is not unusual.

Someone on groklaw.net the other day suggested they might do something like this in the very near future, as they were nearing the "support" point in their continuing stock decline.

Where's the incentive to profit?

Anyone still denying that FUD isn't an instituted marketing practice of Microsoft, even after being convicted of monopolist practices, can now bow their head in shame.

Business Week is in no way a Linux Zealot and even they confirm that Microsoft enjoys competing on a level far removed from technical innovation.

What was to happen at the end of these shenanigans? Once the lawsuit is over, where does SCO expect to get it's money? It's not like Microsoft will continue to invest in them once this crap is over.

And does this come out of the MS advertising budget? Any advertising against our competitors is good PR? There is no way MS could re-coup anything from this other than FUD points. Where's the incentive to profit?

Re:Where's the incentive to profit?

Once the lawsuit is over, where does SCO expect to get it's money?

Dude, SCO doesn't have a long term continuity plan! McBride and his cronies are all set to cash out about this time next year. Once McBride flys the roost he'll probably turn around and sue SCO himself for something like he typically does. The stockholders will be the ones left holding the bag in the end and it's why I still can't understand why SCO isn't a penny-stock.

Re:Where's the incentive to profit?

Dude, next year? Everyone but McBride has been selling their shares like nobodies business. The only thing we are waiting on is McBride to sell his. I think he had some restriction on selling, but I believe that is far gone by now.

SCO is not a penny stock because SCO is a quality marketing (FUD) machine. SCO is not a software company. Once you accept that, their situation makes sense.

As for the stock holders, the majority of them are institutions at this point. Slight majority though. The stock is so illiquid who could afford to be in it but big players.

Re:Where's the incentive to profit?

There is no way MS could re-coup anything from this other than FUD points. Where's the incentive to profit?

Are you serious? Destroy Linux, and the only current threat to the Microsoft monopoly is gone. Every time a company buys Microsoft instead of installing Linux because of fear of lawsuits, that's more profit for Microsoft. Microsoft had every incentive to fund the SCO lawsuits.

IANAL, but I'd like to see a lawyer comment on whether Microsoft could be convicted of conspiracy to violate antitrust laws.

Business week couldn't confirm it...

...but rumours abound on Wall Street, that Lucifer, LLC, may secretly be behind the entire arrangement. "We can't confirm it", said one source who wished to remain very anonymous, "but we know that with soul trading trending upward, it can only be that Lucifer, LLC is on a buying streak." He continued, cautiously, "It seems, though, that the souls Lucifer is getting aren't of the highest quality."

Ironically, a spokesperson for Lucifer, LLC, could be reached, and did indeed comment. "Oh, yes, we're snatching up all the souls we can. There's only two companies in this space right now, and being half of them, we're trying to beat out Heavenly Productions, LP. If they hadn't sunk so much capital into, and gotten so much great PR from that new movie, we might have been able to grab several more souls during the deal. We're betting, though, that soon enough, there will be promises that need to be kept, and then executives of 'certain companies' will be ready to sign their souls over."

When pressed, the spokesperson would divulge nothing further about the companies, except that one of them was in a desert\, and the other in a dreary woodland area. "All I can say is that it doesn't seem to bother these execs, since they seem to have chosen areas much like our [Patent Pending] HELL world."

Heavenly LP, privately held, had no comments. Lucifer LLC was up slightly on the day.

now...

if only microsoft would invest that time and money into their security initiative.

Countersuit potential?

Is there any potential for a counter-suit here? This really seems like unfair behavior on Microsoft's stifle competition via a proxy corporation who'll do their dirty work for them. I hope someone can mount a counter-suit on behalf of the Linux community, and somehow defeat the MSFT legal juggernaut.

Re:Countersuit potential?

I wonder if you can pierce the corporate veil here.

The money given to SCO is probably a significant chunk of their total equity now - I don't know offhand how much ownership it purchased, but you might make the argument that SCO is a front for Baystar. Next you need to look at the contributions that Baystar got from MS and how big they are relative to the equity of that company. If you can show that SCO is acting as an indirect-front for MS, then you can probably sue MS for resulting damanges.

If give a friend $100k to "take care of somebody for me", and they give a friend $80k to "take care of this problem", and then my problem disappears from the face of the earth, the police can come after me. If I set up 12 layers of shell companies and went through them, I'm still on the hook. RICO laws and all that - the gangsters were trying to avoid getting caught with this kind of stuff since the start of the last century. The laws are there.

I would think that the best bet for prosecution would be from the state antitrust lawsuits against MS. While most have settled regarding past offences, I'm sure that this settlement doesn't cover future offences.

Not bad

"LIAR! LIAAAAAAAAAAAAAR!" -- Carol Kane, The Princess Bride

While I understand that this isn't illegal as such, isn't it an SEC violation?

The SCOundrels' Follies

With their legal proceedings floundering, they've fallen to cynical stock market games in an effort to shore up their sagging fortunes.

(Have you watched their stock making a run at zero over the course of the week?)

The Flatlander

Does this surprise us?

The evil empire will stop at nothing until it achieves world domination. But, unlike SCO, the do not want to get their hands dirty - they want to appear as the benevolent kingdom...But would stop at nothing to hire professional (or in SCO's case - unprofessional) hit men to rid the world of the evil competition...

Oh well, move along - nothing to see here..

But at least we didnt have to wait until 3:56 PM for our SCO fix..

3:56 PM - funny you should mention that...

SCO painted their stock with quite a few shares starting at 3:55 PM yesterday. Call up a chart on SCO and look very carefully at the last few minutes. The line continues on it's downward pace then all of a sudden *bang* shoots up a few points.

THAT my friends is desparation! To explain their obvious fooling around they came up with some sort of stock buyback scheme today hoping that no one will notice their tinkering.

it seems that it's not even about code

it's all a corporate powerplay. ms and sco need to get over themselves and get back to the task at hand. computing.

CYA time, Mr. Goldfarb

Mr. Goldfarb is trying to look like an honest man while distancing himself and Baystar from MS and SCO. He readily admits that "senior executives" from MS phoned him but won't name names. He's scared. Leaked documents and an unmanagable conspiracy of silence are forcing him to admit to snippets of truth which paint him and the firm in the best possible light.

I don't get it

I don't understand. SCO, crappy dying company, takes millions-to-one shot on a huge payoff (or was praying for IBM to settle). Retarded but plausible. But why would Microsoft want to back such a chancy scheme? Bad publicity when the case fails must more than make up for the FUD they've managed to spread.

Re:I don't get it

...because "the enemy of my enemy is my friend."

It doesn't take science to figure out that a company with $40bn in idle cash and nothing better to do with it would have no problems with tossing some of that dough into throwing its competition under a cloud of doubt.

Re:I don't get it

Your right.

Microsoft would gain a lot of SCO was proved right. But they must have had their legal team look at the situation and report that SCO was just wasting its time.

The best Microsoft can hope for is to spread FUD.
The worst Microsoft could see is the GPL reinforced in court, and a hell of a lot of bad PR for their company.

It's a bad deal from Microsofts point of view.
Microsoft didn't get where they are now though bad deals.

Re:I don't get it

It says a lot about just how worried the MSFT corporate entity is about competing against Free software.

Microsoft needed a stalling tactic. Two years away from the next-gen OS, security problems riddling their current offerings, and Linux is picking up steam. They absolutely needed something like this. It may have been a "bad deal," but I'd say MSFT was never looking to profit from this investment.

If SCOX had actually won a case, it would have been a bonus, but that wasn't the point of the investment. MSFT wouldn't want anything out of this but to put off adoption until they could fill the gap left by their current offerings.

Re:I don't get it

MS signaled this back with Halloween VII [opensource.org].

Interestingly enough Halloween VII was making the rounds in Sept/Nov. 2002. It was in August 2002 that SCO brought in Morgan Keegan [threenorth.com] to try to find cash for them--and it was likely Morgan Keegan who both brought Boies on board and negotiated the original "license" deals with SUN and MS.

SCO stock price

It seems obvious that SCO's announcement to buy back shares is just another way to raise their stock. But I doubt that many potential investors will trust this announcement - it is very unspecific with such a two year time span. At least during the version trading hour today, the stock didn't exactly jump too high up [yahoo.com].