I am sending this complaint to the Securities Exchange Commission (firstname.lastname@example.org) to describe the illegal actions being taken by BayStar Capital LP, Boies Schiller & Flexner, Microsoft Corporation, Royal Bank of Canada, and The SCO Group, Inc. These entities have committed numerous crimes centered around the recent activities of The SCO Group, Inc.
My specific complaints are:
1. SCO is grossly exaggerating the value of its intellectual property by claiming ownership of operating systems actually owned by other people. This exaggerated claim is a fraud on the investing public. Among my experiences in investing I learned to understand the Vancouver Exchange gold mine fraud which seem to always be with us. Typically a Vancouver Exchange gold mine promoter finds some gold, which is easy to do, but of course the gold deposit is too small or too dilute to be profitably mined. Then the promoter forms a penny stock company which owns the gold claim and begins hyping the stock. There is actually some gold in the company's mining claim but the promotion propaganda exaggerates the claim into the greatest strike since the Comstock lode. If the promoter succeeds in creating a stock price bubble then he sells as much stock as he can until the bubble bursts leaving the current crop of gullible investors with heavy losses. I am sure that the investigators at the SEC are thoroughly familar with Vancouver Exchange gold mine stock frauds. Now comes SCO with a new twist on the Vancouver Exchange gold mine fraud. SCO has a contested claim to ownership to an obsolete computer operating system called System V which has a microscopic share of the market for operating systems. SCO has hyped this asset into a claim of ownership of several other Unix style operating systems sold by competing companies. The SCO propaganda has created a stock price bubble in SCOX stock and the SCO insiders are methodically selling SCOX stock at inflated prices. A. SCO sells a computer operating system called System V which SCO sells under the brand name of UnixWare. http://www.caldera.com/products/unixware713/ UnixWare has a small share of the operating system market. That share is has been steadily shrinking for several years because UnixWare is gradually becoming obsolete. http://www.computerworld.com/news/2000/story/0,11280,41643,00.html B. Linux is a operating system written by Linus Torvalds and an army of volunteers who donate their creativity for free. http://www.linux.org/ SCO sued IBM for contributing operating system code allegedly owned by SCO to the Linux operating system. http://news.com.com/2100-1016-991464.html IBM has contributed code to the Linux operating system. SCO claimed that the contributed code was written and owned by SCO. This claim was widely and repeatedly publicized. http://www.mozillaquest.com/Linux03/ScoSource-20-CodeReview_Story01.html quoting MozillaQuest: "Simply take a look at this excerpt from the letter Darl McBride and SCO-Caldera sent out to at least 1,500 companies, including Fortune 500 and Forbes 1000 top companies. It is that letter that precipitated the German Linux community's successful legal counterattack against SCO-Caldera. That letter, dated 12 May 2003, states in part: Linux is, in material part, an unauthorized derivative of UNIX . . . We have evidence that portions of UNIX System V software code have been copied into Linux . . . legal liability that may arise from the Linux development process may also rest with the end user . . . We intend to aggressively protect and enforce these rights . . . we are prepared to take all actions necessary to stop the ongoing violation of our intellectual property or other rights." SCO told the investing public that SCO would reap huge profits from the damages that IBM would have to pay for illegal distribution of SCO code. http://webreprints.djreprints.com/875991416323.html#top In the SCO v IBM court hearings SCO lawyers have dropped their claim that System V code was contributed to Linux after SCO was unable to produce any evidence supporting that claim. SCO now claims that the code in question was written by IBM but belongs to SCO anyway. http://www.groklaw.net/article.php?story=2003121122033016 http://www.theage.com.au/articles/2004/02/09/1076175080452.html This is in spite of clear legal precedents, most notably AT&T v BSD, which clearly state that the code written by SCO belongs to SCO and the code written by IBM belongs to IBM. http://www.groklaw.net/article.php?story=20031128153414688 So, the SCO claims to ownership of IBM operating system were deliberately exaggerated even by the standards of SCO's current legal position and were completely false by the standards of IBM's consistent legal position. So far, the court has consistently upheld IBM's position. C. SCO claims ownership of Linux. SCO's claims are partially based on their claimed ownership of the IBM code contributed to Linux. SCO also claims that 65 Linux programs were copied from SCO's version of Unix. http://lwn.net/Articles/64052/ Linus Torvalds has documentary proof that he wrote the code claimed by SCO. http://www.ussg.iu.edu/hypermail/linux/kernel/0312.2/1241.html SCO claims ownership of Linux and is demanding that corporations which use Linux pay SCO a licensing fee to use Linux. SCO sent a letter to 1500 corporations claiming ownership of Linux and threatening to bill for Linux. These threats have never been carried through because SCO would be indicted for mail fraud, billing for something that they do not own. http://lwn.net/Articles/43085/ http://www.cxotoday.com/cxo/jsp/index.jsp?file=template0.jsp&storyid=472žion=News&subsection=Business&subsection_code=1 http://www.groklaw.net/staticpages/index.php?page=20030929022014462 http://www.informationweek.com/story/showArticle.jhtml?articleID=17100017 http://www.forbes.com/forbes/2003/1124/096_print.html SCO is asking operating systems resellers to sell an "Intellectual Property License for Linux". SCO expects the threat of lawsuits to create new revenue for both the resellers and SCO. http://www.vnunet.com/News/1152257 However the investing public has been repeatedly told that SCO owns Linux and is about to bill 1500 major corporations huge amounts of money in Linux licensing fees. D. A German court ruled that SCO's claims to own Linux was a criminal offence in Germany and SCO must stop making such claims in Germany. Subsequently, SCO was fined 10,000 euros for continuing to make false claims in Germany that SCO owns Linux. http://mozillaquest.com/Linux03/ScoSource-19-Injunction_Story01.html http://www.groklaw.net/article.php?story=20040301025634926 E. Red Hat is a company whose main product is distributing Linux operating systems. Red Hat sued SCO in the United States to contest SCO's claims to own Linux. http://news.com.com/2100-7252-5059547.html?tag=nl F. Embedded Linux is a small version of Linux used in such things as mobile phones and handheld computers. http://www.linuxdevices.com/articles/AT9952405558.html SCO claims ownership of Embedded Linux and demands a $32 fee for each embedded device using Linux even though SCO has absolutely no logical or legal basis for such a claim. SCO's claim to Linux is that IBM donated SCO code to Linux. The code that IBM has contributed to Linux allows Linux to work well on extremely large computers. Such code is inappropriate for embedded devices and it is impossible for embedded devices to run the IBM code. http://www.eet.com/sys/news/OEG20030806S0025 Once again the general investing public has been told that SCO will reap huge amounts of money by selling an operating system, embedded Linux, that SCO does not own. G. BSD is an operating system that was developed at the University of California, Berkely using government grants handed out to develop the Internet. AT&T sued the University of California claiming that AT&T owned the BSD operating system. Early in the trial the court ruled that the code written by AT&T was owned by AT&T and the code written by University of California was owned by the University of California. The story is complicated because both operating systems have changed ownership. BSD is currently owned by Berkely Software Development and System V ownership is currently disputed between Novell and SCO. There is a court sanctioned 1994 agreement between (now) BSD and Novell deliniating what code is owned by each. Also the agreement states that Novell or SCO can never again sue over the BSD code. http://www.groklaw.net/article.php?story=20031128153414688 SCO claims ownership of BSD even though Novell thoroughly lost any and all claims to BSD in 1994 so that Novell can not possibly have sold BSD to SCO. SCO has threatened to reopen the BSD suit even though to do so is forbidden by the agreement settling the case. This creates the false impression among public investors that SCO owns BSD. http://www.newsforge.com/business/03/11/18/1742216.shtml H. SCO claims ownership of all Unix operating systems. http://radio.weblogs.com/0120124/2003/09/06.html In fact SCO owns only a disputed claim to System V. Claiming ownership of all the other Unix operating systems is a gross exaggeration of SCO assets and is a fraud against the investing public. I. Novell is the company from which SCO obtained ownership of System V. Novell strongly disputes the exaggerated size of the intellectual property claimed by SCO. Novell's position is that SCO has the right to sell System V but SCO does not own System V. http://www.wired.com/news/technology/0,1282,59013,00.html http://www.infoworld.com/article/03/12/22/HNnovellSCO_1.html http://www.theage.com.au/articles/2004/01/08/1073437391747.html Here is the agreement between Novell and SCO http://www.groklaw.net/article.php?story=2003111023050367 Here is the correspondence between Novell and SCO. http://www.novell.com/licensing/indemnity/legal.html In the list of assets excluded from the sale are: "Schedule 1.1(b) Excluded Assets (Page 2 of 2) V. Intellectual Property: A. All copyrights and trademarks, except for the trademarks UNIX and UnixWare. B. All Patents" SCO is suing Novell in an attempt to obtain clear title to Unix. http://www.iht.com/articles/125939.html SCO is deceiving the investing public by falsely claiming to have purchased Unix in its entirety from Novell. J. BSD has a valid claim to partial ownership of System V. BSD allows anyone to use BSD code as long as the source code displays the BSD copyright notice. In the law case explained in section G, AT&T barred BSD from using AT&T code but BSD said that AT&T was welcome to use BSD code, provided that it was copyrighted as BSD code. SCO accidently showed that some of System V code actually belongs to BSD when SCO held a public viewing of some code that they claimed was SCO code illegally added into Linux. The code turned out to be BSD code that was legally added into both System V and Linux. http://www.perens.com/SCO/SCOSlideShow.html Therefore System V contains some BSD code but the amount of BSD code in System V is not public knowledge. SCO says that there are millions of lines of SCO code in Linux. If in fact there are millions of lines of BSD code in both Linux and System V then a very significant portion of System V is actually owned by BSD. http://josiah.ritchietribe.net/blog/index.php?p=469&c=1 By not providing information as to how much of System V is owned by BSD SCO is misleading the general investing public about the value of the System V asset. K. SCO has sent letters to about 6000 SCO customers stating that SCO owns Linux and that the terms of the contract between SCO and each customer forbids the customer from using Linux unless the customer pays SCO for Linux. SCO demanded that each customer certify that they had not inserted any SCO code into Linux.. http://www.groklaw.net/article.php?story=20040106112439165 This letter has received wide publicity and creates the false impression among investors that SCO will receive money for Linux from the existing SCO customers. L. When SCO sued IBM, SCO hired a prominent law firm, Boies, Schiller, and Flexner to handle the case. SCO initially told the general investing public that Boies, Schiller, and Flexner was working on a contingency basis. This created the false impression among the general investing public that Boies, Schiller, and Flexner was so confident of SCO's chances of winning the IBM case that they would accept the case on a contingency fee basis. http://zdnet.com.com/2100-1104-1010981.html "SCO's legal costs are being paid under a contingency arrangement, McBride said. In such cases, lawyers typically are paid not by the hour, but with a percentage of whatever money they can win for their clients in the case." In fact Boies, Schiller, and Flexner is being paid a retainer fee and is billing SCO at hourly rates, as well as a 20% contingency fee on windfall profits from equity sales. http://www.sec.gov/Archives/edgar/data/1102542/000110465903028046/a03-6084_1ex99d1.htm M. The SCOX stock price has risen spectactularly since SCO began claiming exaggerated worth of their intellectual property. http://bigcharts.com/custom/washingtontimes-com/interactivechart.asp?sid=&o_symb=djia&symb=scox&x=0&y=0&time=8&uf=0&compidx=aaaaa%3A0 N. SCO insiders have registered the following SCO stock sales with the Security Exchange Commission during the period of March 6, 2003 through March 3, 2004. SCO insider sales from March 6, 2003 through March 3, 2004 ------------------------------------------------------------- Date Name Shares Amount 03/10/2003 Robert Bench 7,000 $21,420.00 04/08/2003 Robert Bench 4,100 $11,890.00 06/03/2003 Opinder Bawa 15,000 $90,000.00 06/04/2003 Opinder Bawa 7,916 $52,245.60 06/06/2003 Jeff Hunsaker 5,000 $44,500.00 06/09/2003 Robert Bench 3,000 $27,788.00 06/11/2003 Michael Olson 6,000 $51,820.00 06/20/2003 Reginald Broughton 5,000 $55,446.00 06/25/2003 Reginald Broughton 5,000 $50,000.00 07/08/2003 Robert Bench 7,000 $77,213.00 07/09/2003 Jeff Hunsaker 5,000 $59,000.60 07/11/2003 Michael Olson 8,000 $84,208.00 07/14/2003 Sean Wilson 6,000 $65,045.00 07/15/2003 Sean Wilson 6,000 $64,240.00 07/22/2003 Reginald Broughton 20,000 $242,893.00 07/23/2003 Jeff Hunsaker 5,000 $66,694.00 07/30/2003 Reginald Broughton 5,000 $64,001.00 08/05/2003 Reginald Broughton 5,000 $62,819.00 08/08/2003 Robert Bench 7,000 $76,300.00 08/11/2003 Michael Olson 5,000 $46,270.00 08/13/2003 Jeff Hunsaker 5,000 $50,000.00 08/19/2003 Reginald Broughton 5,000 $52,028.00 08/25/2003 Jeff Hunsaker 5,000 $71,400.00 08/26/2003 Reginald Broughton 5,000 $73,700.00 09/02/2003 Reginald Broughton 5,000 $73,555.45 09/09/2003 Reginald Broughton 5,000 $90,262.00 09/11/2003 Michael Olson 7,000 $122,850.00 09/14/2003 Reginald Broughton 2,450 $49,000.00 09/15/2003 Reginald Broughton 2,550 $51,199.00 10/08/2003 Robert Bench 6,800 $112,880.00 10/13/2003 Michael Olson 10,000 $141,486.50 12/29/2003 Duff Thompson 10,000 $174,860.00 01/07/2004 Thomas Raimondi 11,841 $210,189.59 01/26/2004 Larry Gasparro 5,259 $81,076.06 02/04/2004 Thomas Raimondi 11,841 $170,510.40 03/03/2004 Thomas Raimondi 11,841 $143,276.10 ------- ------------- Totals 246,698 $2,942,066.30 http://ir.sco.com/edgar.cfm
2. Microsoft has invested in SCO equity above the reporting threshold without revealing their true identity. SCO's strategy of suing their own customers and potential customers for using Linux or for ignoring SCO's demands that the customers attest that they are not using Linux is economic suicide. Existing customers now face the prospect of being sued in an attempt to force the customer to acknowlege that SCO owns Linux. Potential customers face the prospect that signing a contract to buy SCO products dramatically increases the customers chances of being sued by SCO. Such a strategy makes economic sense only if SCO has a way to make money from it. There is strong evidence that Microsoft has committed to paying SCO large amounts of money for SCO to attack Linux users in an attempt to force Linux out of the operating system marketplace. Microsoft has legally purchased a license to use SCO technology for somewhere between 10 million and 30 million dollars. Microsoft has absolutely no need to buy SCO technology licenses and the reasons Microsoft has given publicly are simply disinformation. http://news.com.com/2100-1016_3-1007528.html http://www.practical-tech.com/business/b05212003.htm So Microsoft has openly and legally given SCO money for reasons that Microsoft is unwilling to publicly reveal. Mike Anderer is one of the participants in the Microsoft money laundering scheme. Here is his explanation of the purpose of Microsoft's support of SCO: "In a world where there are $500 million dollar patent infringement lawsuits imposed on OS companies (although this is not completely settled yet), how would somebody like Red Hat compete when 6 months ago they only had $80-$90 million in cash? At that point they could not even afford to settle a fraction of a single judgment without devastating their shareholders. I suspect Microsoft may have 50 or more of these lawsuits in the queue. All of them are not asking for hundreds of millions, but most would be large enough to ruin anything but the largest companies. Red Hat did recently raise several hundred million which certainly gives them more staying power. Ultimately, I do not think any company except a few of the largest companies can offer any reasonable insulation to their customers from these types of judgments. You would need a market cap of more than a couple billion to just survive in the OS space." http://trends.newsforge.com/trends/04/03/12/1731252.shtml SCO has sent letters to about 6000 SCO customers stating that SCO owns Linux and that the terms of the contract between SCO and each customer forbids the customer from using Linux unless the customer pays SCO for Linux. SCO demanded that each customer certify that they had not inserted any SCO code into Linux. SCO then sued one of their customers, DaimlerChrysler, because DaimlerChrysler did not reply to the letter. http://www.groklaw.net/article.php?story=20040303182714835 Such lawsuits against SCO's existing customers are a strong incentive for SCO's customers to stop doing business with SCO. This strategy of trying to extort money from existing customers by threatening to launch expensive lawsuits does not make any economic sense from SCO's viewpoint unless SCO has been promised large amounts of money by Microsoft for harassing companies that use Linux in line with the Microsoft strategy that Mike Anderer announced. SCO has also repeatedly threatened to sue Linux users who are not SCO customers. http://www.cxotoday.com/cxo/jsp/index.jsp?file=template0.jsp&storyid=472žion=News&subsection=Business&subsection_code=1 SCO markets Linux licenses as a way to avoid lawsuits. http://www.thescogroup.com/scosource/linuxlicense.html http://www.nwfusion.com/news/2003/0721sco.html The SCO attempt to sell Linux licenses has all of the earmarks of an extortion racket. From a marketing viewpoint such an extortion campaign is economic suicide. No Linux user will pay SCO a Linux licensing fee based on SCO's extremely flimsy claims to owning Linux. This strategy of trying to extort money from Linux users by threatening to launch expensive lawsuits does not make any economic sense from SCO's viewpoint unless SCO has been promised large amounts of money by Microsoft for harassing companies that use Linux in line with the Microsoft strategy that Mike Anderer announced. Microsoft has also secretly and illegally invested money in SCO equity. No sophisticated investor would seriously consider buying equity in SCO's lawsuit campaign against Linux because the SCO lawsuit strategy is a guarenteed loss to SCO and its investors. Therefore any sophisticated investor would only be interested in investing in SCO if Microsoft compensated the investor for doing so. Any efforts by Microsoft to hide the fact that money invested in SCO originated from Microsoft is illegal money laundering. A. BayStar and The Royal Bank of Canada invested in a private placement of SCO convertible preferred shares which amounts to 17.5% of SCO equity. http://www.forbes.com/markets/newswire/2003/10/16/rtr1112634.html http://marketwatch-cnet.com.com/2110-7344_3-5093997.html http://biz.yahoo.com/e/031017/scox8-k.html This is the contract between SCO and Royal Bank and BayStar. http://contracts.onecle.com/sco/baystar.reg.2003.10.16.shtml B. The Royal Bank has stated that it purchased the equity position in SCO as a hedge against client positions. In fact Royal Bank purchased the SCO equity as a front for Microsoft or Microsoft's agents.. http://www.globetechnology.com/servlet/story/RTGAM.20031209.gtscodec9/BNStory/Technology/ In order for a hedge to work both sides of the hedge must be owned by the same investor. The article in the Globe and Mail quotes the Royal Bank as saying that the Royal Bank made the SCO investment to hedge a client's position. If the client owns one side of the hedge and Royal Bank owns the offsetting position of the hedge then neither the client nor Royal Bank is hedged against anything. In order for the client to be hedged the client must own the SCO equity position. If the SCO equity position was purchased in the Royal Bank's name but is actually owned by the RoyalBank client then the client, and perhaps the Royal Bank, has broken the United States securities law that requires any purchaser of a significant equity position to publicly announce their equity purchase and their reasons for the purchase. The purchaser must also file a form with the United States Security Exchange Commission. quoted from the Globe and Mail: 'An RBC spokesman was reluctant to comment, saying the SEC filing was about how SCO operates its business. He said that RBC's "investment in SCO is passive, made to hedge an economic exposure resulting from client transactions."' In any case, the Royal Bank statement is nonsense meant to hide who really owns the SCO equity position. C. BayStar is also a front for a secret Microsoft investment in SCO. Here is a leaked email from Michael Anderer of S2 Strategic Consulting to SCO which states that Microsoft provided the entire $50,000,000 which BayStar and Royal Bank invested in SCO: http://www.opensource.org/halloween/halloween10.html SCO has stated that the leaked email is genuine: http://www.eweek.com/article2/0,1759,1542904,00.asp Here is the contract between S2 Strategic Consulting and SCO. http://contracts.onecle.com/sco/s2.svc.2003.07.01.shtml SCO paid S2 Strategic Consulting Services by giving them a warrent to purchase 25,000 shares of SCO stock at a price of $8.50 per share. Therefore S2 Strategic Consulting Services did something useful for SCO. http://contracts.onecle.com/sco/s2.warrant.2003.07.01.shtml This article explains that Paul Allen, the second largest Microsoft shareholder, is also a large investor in BayStar: http://www.wired.com/news/business/0,1367,62544,00.html?tw=wn_tophead_2 "Lawrence Goldfarb, managing partner of BayStar, says that senior executives at the software giant had telephoned him about two months before the investment." http://www.businessweek.com/technology/content/mar2004/tc20040311_8915_tc119.htm
3. BayStar, Boies, Schiller, and Flexner, Microsoft, Royal Bank, and SCO management are engaged in insider dealing to the detriment of the outside SCO shareholders. A. SCO entered into an agreement with the law firm Boies, Schiller, and Flexner where Boies will receive 20% of the value of any new equity issued by SCO. http://www.sec.gov/Archives/edgar/data/1102542/000110465903028046/a03-6084_1ex99d1.htm http://www.groklaw.net/article.php?story=20031209210141826 B. Under the terms of that agreement SCO paid Boies, Schiller, and Flexner $10 million consisting of $1 million in cash and nominally $9 million in SCO stock as being 20% of the private equity placement to BayStar and Royal Bank. http://www.crn.com/sections/BreakingNews/dailyarchives.asp?ArticleID=46124 C. BayStar and Royal Bank have objected to the terms of the agreement between SCO and Boies, Schiller, and Flexner. The three parties have negotiated an agreement dividing up the results of future SCO equity sales among the three groups of investors. http://www.globetechnology.com/servlet/story/RTGAM.20031209.gtscodec9/BNStory/Technology/ http://www.sec.gov/Archives/edgar/data/1102542/000110465903028046/a03-6084_18k.htm D. If, as Royal Bank stated in the Globe and Mail, the Royal Bank investment is passive then why is the Royal bank so actively trying to manage SCO equity sales strategy? It is against U.S. law for a bank to manage a corporation. E. This negotiation and resulting agreement is illegal insider dealing. Whether SCO equity growth results from SCO successfully stealing other people's operating systems, being a Microsoft mercenary, or from a pump and dump stock scam the resulting profit will be distributed according to an insider deal among BayStar, Boies, Schiller, and Flexner, Royal Bank, and SCO management to the detriment of the outside shareholders. F. If BayStar and/or Royal Bank are trustees for Microsoft who actually owns a 17.5% interest in SCO then Microsoft is also guilty of insider dealing.
------------------------------------ BayStar: BayStar Capital LP 50 California Street San Francisco, California 94111 U.S.A. ------------------------------------ Boies, Schiller, and Flexner: Boies Schiller & Flexner 570 Lexington Avenue New York, New York 10022 U.S.A. ------------------------------------ Microsoft Microsoft Corporation One Microsoft Way Redmond, WA 98052-6399 USA ------------------------------------ Royal Bank: Royal Bank of Canada 200 Bay Street Toronto, Ontario M5J 2J5 Canada ------------------------------------ SCO: The SCO Group, Inc. 355 South 520 West Lindon, Utah 84042 U.S.A. ------------------------------------ Sincerely, Steve Stites 2933 Marshall Street Falls Church, Virginia 22042 U.S.A.