I am sending this complaint to the Securities Exchange Commission (enforcement@sec.gov) to describe the illegal actions being taken by BayStar Capital LP, Boies Schiller & Flexner, Jeff Hunsaker, Microsoft Corporation, Thomas Raimondi, Royal Bank of Canada, The SCO Group, Inc., and Vulcan Capital. 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
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/
To my personal knowledge IBM has at least a 40 year history of competing
development projects. IBM has often developed both software and hardware
products by setting up two development projects unbeknownst to each other
and giving both project teams the same assignment. Then IBM chooses to
market the project with better product results and gives the axe to the
unsuccessful project. When this happens there is great consternation
among the members of the losing project team.
The Monterey project was started as a joint venture with SCO to
create an operating system based on System V code which works on large
IBM computers. Then later IBM started a second project team with the
same goals as Monterey except the second project was based on Linux.
Great was SCO's consternation when Monterey was axed in favor of IBM's
Linux project.
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
The code that IBM has contributed to Linux is publically available to
anyone. IBM has demanded that SCO identify which lines of that code
are the stolen code. SCO has never answered that question. On December
5, 2003 Judge Brooks Wells ordered SCO to answer that question in
great detail within 30 days.
http://www.groklaw.net/article.php?story=2003121122033016
On March 3, 2004 Judge Brooks Wells found that SCO had not complied with
the December 5 order and issued the order again with a 45 day deadline.
http://www.groklaw.net/article.php?story=20040303195948664
Even when ordered to do so in a court case that SCO must win in order to
survive as a company, SCO cannot provide specific evidence that IBM gave
any SCO intellectual property to Linux.
IBM explains the importance of the absence of evidence to Judge Kimball
this way.
http://www.groklaw.net/article.php?story=20040521183116140
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=472§ion=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. Two German courts 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.
May 28, 2003
The Bremen, Germany Regional Court ruled in favor of Univention GmbH and
issued a preliminary injunction against SCO-Caldera.
"The order prohibits SCO-Caldera from circulating:
'the idea that the Linux Operating System illegitimately acquired and
contains the Intellectual Property of SCO UNIX and/or that the end users
of LINUX can be made liable for patent/copyright infringements against
SCO's intellectual Properties.'"
http://www.mozillaquest.com/Linux03/ScoSource-19-Injunction_Story01.html
The injunction was based on the fact that SCO had no proof of any of its
intellectual property claims. The injunction gave Univention the right
to ask for a permanent injunction if SCO did not provide such proof
within 30 days.
June 5, 2003
The Munich, Germany District Court ruled in favor of Tarent GmbH and
issued a permanent injunction against SCO-Caldera which is very similar
to the Bremen injunction.
http://www.tarent.de/html/tarent-vs-sco/030612_Questions-and-Answers.html
September 2, 2003
SCO Group was fined 10,000 Euros (about US$11,000) by the Munich court
for violating the June 5 injunction.
http://www.computerworld.com/softwaretopics/os/linux/story/0,10801,84564,00.html
February 18, 2004
Univention GmbH and SCO Group GmbH agreed to an out of court settlement
of the Bremen case. In this agreement:
"1) SCO Group GmbH (German branch of SCO) has agreed not to allege any
more that Linux contains SCO's unlawfully acquired intellectual
property.
2) The settlement also forbids SCO from claiming that if end users
are running Linux they might be liable for breaches of SCO's
intellectual property.
3) Also they cannot say that Linux is an unauthorized derivative of
Unix.
4) Finally SCO Group GmbH is prohibited to threaten to sue Linux users
unless they bought SCO Linux or Caldera Linux."
http://www.groklaw.net/article.php?story=20040301025634926&mode=print
Here is the agreement in German.
http://www.computerwoche.de/index.cfm?pageid=254&artid=58483&main_id=58483&category=8&currpage=1&kw=
Here is an English synopsis of the agreement.
http://www.groklaw.net/article.php?story=20040301025634926
So in Germany the courts have ruled that SCO's claims against Linux are
completely unsubsantiated. And in spite of the German court orders SCO
is still fraudently claiming in Germany that SCO will make "millions or
up to billions of profit" by selling licenses for intellectual property
that SCO does not own.
http://www.groklaw.net/article.php?story=20040413122355148
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, Berkeley 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 Berkeley 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 its successor, SCO, (if in fact SCO is Novell's successor
as SCO claims and Novell denies) 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
Eric Raymond gives a comprehensive explanation of why SCO's claims to own
all of Unix are false.
http://www.opensource.org/sco-vs-ibm.html#id2790728
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 a contract to sell 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 BSD code would also be legal in System V if SCO
included the BSD copyright notice in the code. SCO did not include the
BSD copyright notice in the example of BSD code that they claimed was SCO
code illegally incorporated into 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
Ransom Love is a former CEO of the company now called SCO. When
discussing the possibility of releasing SCO code as Open Source software
Ransom Love said, "Some code, however, can't be open sourced because
other companies own it."
http://www.practical-tech.com/infrastructure/i08042000.htm
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. By claiming ownership of BSD code SCO is committing
fraud.
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=scox&symb=scox&x=0&y=0&time=9&uf=7168&compidx=aaaaa%3A0
http://lwn.net/Articles/75129/
N. SCO insiders have registered the following SCO stock sales with the Securities
Exchange Commission during the period of March 6, 2003 through April 7, 2004.
SCO insider sales from March 6, 2003 through April 7, 2004
-------------------------------------------------------------
Date Name Shares Amount
04/08/2003 Robert Bench 4,100 $11,890.00
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
04/07/2004 Thomas Raimondi 11,481 $128,736.45
04/07/2004 Jeff F. Hunsaker 5,976 $66,733.84
------- -------------
Totals 268,255 $3,149,426.59
http://ir.sco.com/edgar.cfm
2. Microsoft has invested in SCO equity above the 5% reporting threshold without
revealing their true identity.
A. 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
customer's 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.
B. Microsoft is willing to finance an expensive lawsuit campaign by SCO to
bludgeon customers who use Linux.
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
C. 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=472§ion=News&subsection=Business&subsection_code=1
SCO has sued AutoZone for using Linux.
http://news.com.com/2100-1014-5168921.html
Coincidently, the Nevada court where SCO filed the Autozone lawsuit has
infringed upon SCO's intellectual property rights to the exact same
extent that Autozone has or has not infringed on SCO's intellectual
property rights.
http://www.linuxpipeline.com/trends/18201947
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
http://news.com.com/2100-7344-5176308.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 or sell Linux in line with the Microsoft
strategy that Mike Anderer announced.
So I conclude that Microsoft has 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 and the nominal investors to hide the fact that money invested
in SCO originated from Microsoft is illegal money laundering.
D. 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
E. 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 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 Royal Bank's name but is
beneficially owned by Royal Bank client then the client, and perhaps
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 Securities 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.
F. I suspect that the money laundry trail that leads from Microsoft to
Royal Bank passes through McGill University in Montreal, Quebec, Canada.
"Vulcan Inc. Paul G. Allen, co-founder of Microsoft" is listed as an
"angel", i.e. someone who has given McGill University a lot of money, by
McGill.
http://www.mcgill.ca/ott/links/
The same McGill web site also lists Royal Bank Business Plans as a
business plans site and Royal Bank Capital Corporation as a venture
capital site.
I sent a letter to McGill on April 10, 2004 asking the following two
questions.
1. During 2003 what investments did McGill University make, other than
short term money, where the investments were greater than one million
dollars?
2. During 2003 what non-government grants, endowments, or other gifts
did McGill University receive where the gifts were greater than one
million dollars?
McGill chose to ignore my letter. Therefore I recommend that the SEC
go through the Canadian authorities to ask McGill the following two
questions.
1. Did Paul Allen, Vulcan Capital, or anybody else donate $30,000,000
to McGill University's endowment, trust or other invested funds
during the 2003 calendar year?
2. Has McGill University invested $30,000,000 in SCO through Royal Bank?
G. 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 warrant 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
Paul Allen makes most of his investments through Vulcan Capital:
http://capital.vulcan.com/
"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
After BayStar invested in SCO, BayStar began exerting extreme pressure
on SCO to abandon SCO's business of selling Unix operating systems and
concentrate on attacking Linux in the courts:
http://www.nytimes.com/2004/04/22/technology/22sco.html?ex=1083211200&en=11aa704a6aaf373f&ei=5062&partner=GOOGLE
SCO does not want to give up selling Unix or make the other changes
demanded by BayStar.
http://www.sltrib.com/2004/Apr/04252004/business/160190.asp
BayStar's business plan for SCO is exactly what Microsoft, Paul Allen,
and Vulcan Corp want SCO to do. It is in Microsoft's best interest for
SCO to stop selling System V which is a competing operating system to
Microsoft's Windows operating system. It is in Microsoft's best
interest to intimidate software customers to not use Linux. However
such a plan is disasterous for SCO's very viability as a business. This
pressure from BayStar indicates that BayStar is primarily interested in
SCO advancing Microsoft's interests even at the expense of SCO's, and
presumably BayStar's, best interests. Therefore I conclude that
Microsoft has illegal hidden control of the BayStar investment in SCO
and illegally laundered the money used to invest in SCO.
3. BayStar, Boies, Schiller, and Flexner, Microsoft, Royal Bank, SCO
management, and Vulcan Capital 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 four parties have
negotiated a new agreement dividing up the results of future SCO
equity sales among BayStar, Boies, Schiller, and Flexner, Royal Bank,
and SCO.
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 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. Since BayStar and/or Royal Bank are fronts for Microsoft and/or Vulcan
Capital who actually owns a 17.5% interest in SCO then Microsoft and/or
Vulcan Capital is also guilty of insider dealing.
G. On April 16, 2004 the deal among BayStar, Boies Schiller & Flexner,
Royal Bank, and SCO began to unravel. All parties involved were
extremely vague as to what the problem was.
http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=109&STORY=/www/story/04-16-2004/0002153221&EDATE=
On May 7, 2004 Royal Bank announced that it had sold 20,000 of its SCO
Series 1-A preferred stock to BayStar. Royal Bank converted its
remaining 10,000 Series 1-A preferred shares into SCO common stock at a
conversion price of $13.50 per common share. This leaves Royal Bank
owning 740,740 shares of SCO common stock which amounts to 4.8% of the
outstanding SCO common stock. Thus Royal Bank ownership in SCO drops
below the 5% threshold for reporting the name of real owner of the
position, although this action does not relieve Royal Bank of its
responsibility to report who beneficially owned the equity position before
May 7.
http://ir.sco.com/ReleaseDetail.cfm?ReleaseID=134782
H. By buying 20,000 shares of SCO Series 1-A preferred stock from Royal
Bank, Baystar moves from owning 40% of the Series 1-A preferred stock to
owning 100% of the Series 1-A preferred stock. According to the illegal
insider deal described in section 3.F.
"SCO is prohibited from completing any settlement, acquisition
of SCO or investment in SCO, unless the holders of two-thirds of the
preferred shares give written approval."
"Previously, when RBC held 60 percent of the preferred shares, and
BayStar had 40 percent, neither party had more than two-thirds. Now,
BayStar holds all the preferred shares."
http://news.zdnet.co.uk/software/linuxunix/0,39020390,39154226,00.htm
I. SCO cannot exist without more capital infusions. Thus Microsoft has
arrived at the position of illegal hidden control of SCO by having
acquired veto power over new investment in SCO. Such hidden control was
obtained by illegal money laundering and illegal insider dealing.
Microsoft intends to use their control of SCO to illegally destroy System
V as a competitor to Microsoft software and to run a protection racket
designed to drive Linux from the software market where it has begun
successfully competing with Microsoft products.
4. The SCO Group has illegally manipulated the price of their common stock. I
am asking the Securities and Exchange Commission to examine every trade made
in SCO stock during the time period of March 29 through April 7 to see if
SCO was manipulating the SCO stock price, making wash trades, and marking
the close. If such illegal trades were made then both SCO and the broker
who made the trades for SCO have broken the law.
A. On March 10, 2004 SCO filed a report with the SEC stating that SCO
intended to repurchase SCO common stock.
http://ir.sco.com/EdgarDetail.cfm?CompanyID=CALD&CIK=1102542&FID=1047469-04-7411&SID=04-00
SCO also issued a press release announcing the SCO stock repurchase
plan.
http://ir.sco.com/ReleaseDetail.cfm?ReleaseID=130784
SCO investing in their own, presumably undervalued, stock is legal.
Stock market price manipulation is illegal. I think that during the time
period of March 29 through April 7, 2004 SCO illegally manipulated its
stock price in an attempt to create higher prices for their stock.
B. Between March 29 and April 7 "time and sales" shows there were frequent
sequences of 100 share lots bought at about 10 minute intervals on
constant upticks. It is unlikely that random small investor purchases
would occur with such regularity. A large investor would not buy in
such a large number of small lots because commission costs would
balloon.
Even more suspiciously, time and sales shows several final daily
purchases on the Pacific Exchange where the final transaction was a 100
share lot purchased on a large uptick. Such transactions are called
"marking the close" and marking the close is illegal. In the OPINION OF
THE COMMISSION in the matter of Richard D. Chema the Commission stated:
"In addition to his wash trades, Broumas engaged in the
practice of "marking the close" by purchasing small amounts of
JML on the AMEX and the Midwest Stock Exchange at or near the
close of trading. [4] Between January 18, 1989 and June 25,
1990, he made 69 purchases of JML during the final 10 minutes of
the trading day. Of those purchases, 54 were the last trade of
the day and 47 were executed on an uptick. [5] On several
occasions, Broumas' trades raised the closing price of JML stock
by 1/8. Broumas' purchases at the close of trading were
beneficial to him in more than one respect. Brokerage firms use
the closing price of a security in determining whether they will
extend margin on the security, whether a customer's account meets
margin requirements, and the customer's equity in his margin
account. Moreover, the closing price of a security is quoted in
the following day's newspapers. Broumas admitted to one of his
registered representatives that he was trying to create interest
in JML, observing that "if nobody [bought] it on a certain day,
it [wouldn't] show up in the [newspaper] listing." [6]"
http://www.sec.gov/litigation/opinions/3440719.txt
On and before March 29 there was a huge short interest in SCO stock. In
addition to the advantages to SCO for marking the close given in the
case I just cited, marking the close helped SCO to squeeze the shorts by
increasing the shorts margin requirements.
Another advantage to SCO of marking the close is that the closing price
of SCO stock sets the conversion price of SCO Series A-1 Convertible
Preferred Stock under the agreement between SCO and BayStar and Royal
Bank.
http://www.edgar-online.com/bin/edgardoc/finSys_main.asp?dcn=0001104659-04-002999&nad=
So it is illegal for SCO to engage in marking the close for SCO stock.
C. SCO stock is not widely followed by stock market analysts because of its
small market volume. One person who has followed SCO for some time is
Dion Cornett, a Decatur Jones analyst, who since January has been
recommending that investors short SCO stock. Dion Cornett has a target
price of $2 per share for SCO stock.
http://biz.yahoo.com/ibd/040402/tech_1.html
If SCO were investing in their own stock because it was grossly
undervalued then SCO should purchase their stock at prices well below $2
a share. The fact that SCO is purchasing their stock in the $8.50 to
$9.50 range indicates an attempt at stock price manipulation rather than
investment. This is not a closed end mutual fund buying back their own
common stock that is trading at well under net asset value. This is a
pump and dump stock scam trying to raise the price of its stock to
prolong the bubble.
http://bigcharts.com/custom/washingtontimes-com/interactivechart.asp?sid=&o_symb=scox&symb=scox&x=0&y=0&time=9&uf=7168&compidx=aaaaa%3A0
D. SCO has made wash trades.
SCO is in poor financial shape:
http://ir.sco.com/ReleaseDetail.cfm?ReleaseID=129977
Which creates a problem for SCO as to how to pay for all of the stock
that it might have to buy to raise the stock price. One way that SCO
can prolong the time that it can support its stock price is by engaging
in "wash trades". Wash trades are where SCO acts simultaneously as the
buyer and seller thus creating the appearance of a 100 share trade on an
uptick at at no cost to SCO other than the commission cost. One way
that the SEC can check for SCO wash trades on the NASDAQ is to check to
see if SCO made any trades where SCO told their broker to execute the
trade with a particular NASDAQ dealer. Such a stipulation to a broker is
a red flag for a wash trade or other illegal trade. SCO is thinly
traded enough that a series of 100 share wash trades on continuous
upticks could raise the price of SCO stock.
On April 7 a SCO insider, Thomas Raimondi, sold 11,481 shares of SCO for
$128,736.45.
http://ir.sco.com/EdgarDetail.cfm?CompanyID=CALD&CIK=1102542&FID=1102542-04-12&SID=04-00
On April 7 a SCO insider, Jeff Hunsaker, sold 264,155 shares of SCO for
$3,137,536.59.
http://ir.sco.com/EdgarDetail.cfm?CompanyID=CALD&CIK=1102542&FID=1102542-04-14&SID=04-00
These two trades are illegal wash sales. SCO cannot be buying up its
stock at the same time that SCO insiders are selling SCO stock.
E. SCO may have illegally supported the SCO stock price.
http://bigcharts.com/custom/washingtontimes-com/interactivechart.asp?sid=&o_symb=scox&symb=scox&x=0&y=0&time=8&uf=7168&compidx=aaaaa%3A0
Looking at the SCOX stock chart shown above it appears that about April
20 SCOX was likely due for a rally back up to the $8 support/resistance
level driven by short covering. There are 8 SEC Statement of Changes
of Beneficial Ownership filings dated 04/22/2004. I suggest that the
SEC investigate whether SCO bought stock on April 21 and/or April 22,
2004 to trigger the expected short covering rally. If SCO did so then
SCO was engaged in illegal stock price manipulation in an effort to
support the SCO stock price above the exercise price of the 8 newly
issued insider stock options.
5. SCO has illegally manipulated its insider stock option plan.
In order to balance the conflicting interests of the inside and outside
shareholders in a corporation it is customary when granting stock options
based on stock market prices to use the average closing price for some time
period previous to the date that the option was issued. The usual averaging
period is 30 days.
But SCO has used an entirely different method of setting the exercise price
for the stock options issued to SCO insiders from March 6, 2003 through
April 23, 2004. SCO has been back dating the date that stock options are
granted and then using the closing price on the transaction date as the
exercise price for the stock option. In fairness to the outside
shareholders the stock options should have been granted at the 30 day
average closing price on the issue date. This fraud has resulted in 31 of
the 32 stock options issued since March 6, 2003 being issued at exercise
prices very advantageous to the SCO insiders and very disadvantageous to SCO
outside shareholders.
The SCO stock option reports filed with the SEC can be found here.
http://ir.sco.com/edgar.cfm
The daily stock prices for SCOX can be found here.
http://finance.yahoo.com/q/hp?s=SCOX
The following list shows each stock option issued, the issue date, the back
dated transaction date, the 30 day closing price average on the issue date,
the closing price on the transaction date, and the exercise price of the
option. I then calculate the insider advantage amount by subtracting the
exercise price from the 30 day average and multiplying by the number of
shares.
Insiders Stock Options Exercise Advantage
Prices
-------------------------
Date Name Shares 30 Day Close Exercise
issued 03/27/2003 $2.36 $2.27
03/18/2003 Robert Bench 100,000 $2.07 $2.07
unfair insider advantage: $29,000
issued 03/27/2003 $2.36 $2.27
03/18/2003 Reginald Broughton 50,000 $2.07 $2.07
unfair insider advantage: $14,500
issued 03/27/2003 $2.36 $2.27
03/18/2003 Michael Olson 50,000 $2.07 $2.07
unfair insider advantage: $14,500
issued 03/27/2003 $2.36 $2.27
03/18/2003 Darl McBride 200,000 $2.07 $2.07
unfair insider advantage: $58,000
issued 06/09/2003 $6.03 $9.05
03/18/2003 Jeff Hunsaker 100,000 $2.07 $2.07
unfair insider advantage: $396,000
issued 07/08/2003 $10.60 $11.01
06/26/2003 Fred Skousen 45,000 $10.25 $10.25
unfair insider advantage: $15,750
issued 07/24/2003 $10.56 $14.84
05/16/2003 Ralph Yarrow 10,000 $4.75 $4.75
unfair insider advantage: $58,100
issued 07/24/2003 $10.56 $14.84
05/16/2003 Duff Thompson 10,000 $4.75 $4.75
unfair insider advantage: $58,100
issued 07/24/2003 $10.56 $14.84
05/16/2003 Darcy Mott 10,000 $4.75 $4.75
unfair insider advantage: $58,100
issued 07/24/2003 $10.56 $14.84
05/16/2003 Steven Cakebread 10,000 $4.75 $4.75
unfair insider advantage: $58,100
issued 07/24/2003 $10.56 $14.84
05/16/2003 Edward Iacobucci 10,000 $4.75 $4.75
unfair insider advantage: $58,100
issued 07/24/2003 $10.56 $14.84
06/02/2003 Thomas Raimondi 10,000 $6.13 $6.13
unfair insider advantage: $44,300
issued 09/12/2003 $13.61 $17.99
09/11/2003 Ryan Tibbits 30,000 $17.99 $8.71
unfair insider advantage: $147,000
issued 09/12/2003 $13.61 $17.99
09/11/2003 Ryan Tibbits 35,000 $17.99 $17.99
insider disadvantage: $153,300-
issued 11/03/2003 $16.87 $16.90
11/03/2003 Daniel Campbell 45,000 $15.99 $15.99
unfair insider advantage: $39,600
issued 12/12/2003 $15.59 $15.99
06/02/2003 Thomas Raimondi 15,000 $6.13 $6.13
unfair insider advantage: $141,900
issued 12/12/2003 $15.59 $15.99
05/16/2003 Steven Cakebread 15,000 $4.75 $4.75
unfair insider advantage: $162,600
issued 12/12/2003 $15.59 $15.99
05/16/2003 Darcy Mott 15,000 $4.75 $4.75
unfair insider advantage: $162,600
issued 12/12/2003 $15.59 $15.99
05/16/2003 Ralph Yarrow 15,000 $4.75 $4.75
unfair insider advantage: $162,600
issued 12/12/2003 $15.59 $15.99
05/16/2003 Duff Thompson 15,000 $4.75 $4.75
unfair insider advantage: $162,600
issued 12/12/2003 $15.59 $15.99
05/16/2003 Edward Iacobucci 15,000 $4.75 $4.75
unfair insider advantage: $162,600
issued 12/15/2003 $15.85 $16.02
06/13/2003 Christopher Sontag 5,739 $11.21 $0.001
unfair insider advantage: $85,252
issued 01/30/2004 $16.37 $14.85
05/16/2003 Ralph Yarrow 15,000 $4.75 $4.75
unfair insider advantage: $174,300
issued 02/03/2004 $16.07 $14.40
05/16/2003 Darcy Mott 15,000 $4.75 $4.75
unfair insider advantage: $169,800
issued 04/22/2004 $9.02 $6.08
04/20/2004 Thomas Raimondi 15,000 $7.18 $7.18
unfair insider advantage: $27,600
issued 04/22/2004 $9.02 $6.08
04/20/2004 Edward Iacobucci 15,000 $7.18 $7.18
unfair insider advantage: $27,600
issued 04/22/2004 $9.02 $6.08
04/20/2004 Daniel Campbell 15,000 $7.18 $7.18
unfair insider advantage: $27,600
issued 04/22/2004 $9.02 $6.08
04/20/2004 Darcy Mott 15,000 $7.18 $7.18
unfair insider advantage: $27,600
issued 04/22/2004 $9.02 $6.08
04/20/2004 Ralph Yarrow 15,000 $7.18 $7.18
unfair insider advantage: $27,600
issued 04/22/2004 $9.02 $6.08
04/20/2004 Fred Skousen 15,000 $7.18 $7.18
unfair insider advantage: $27,600
issued 04/22/2004 $9.02 $6.08
04/20/2004 Duff Thompson 15,000 $7.18 $7.18
unfair insider advantage: $27,600
issued 04/22/2004 $9.02 $6.08
04/20/2004 Bert Young 150,000 $7.18 $7.18
unfair insider advantage: $276,000
----------------------------------------
total unfair insider advantage: $2,749,302
------------------------------------ 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. ------------------------------------ Jeff F Hunsaker 355 S 520 W, Suite 100 Lindon, Utah 84042 U.S.A. ------------------------------------ Microsoft Microsoft Corporation One Microsoft Way Redmond, WA 98052-6399 U.S.A ------------------------------------ Thomas P. Raimondi jr 1801 S. Federal Highway, Suite 100 Delrae Beach, Florida 33483 U.S.A. ------------------------------------ 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. ------------------------------------ Vulcan Capital Vulcan Capital 505 Fifth Avenue South Suite 900 Seattle, Washington 98104 U.S.A. ------------------------------------ Sincerely, Steve Stites 2933 Marshall Street Falls Church, Virginia 22042 U.S.A.