SEC Investigating SCO?

Udo Schmitz writes "As Groklaw reports, the SCO Group stated in a SEC filing from yesterday: 'In addition, regulators or others in the Linux market and some foreign regulators have initiated or in the future may initiate legal actions against us, all of which may negatively impact our operations and future operating performance.' Does this mean the SEC finally started to pull some stops? SCOs and Canopys financial dealings (Vultus acquisition anyone?) long ago lead to speculations in the Linux community about the legality of their business practices, or the whole lawsuit just being a stock scam."

Comments

They got in over their heads

[Anonymous Coward]

Canopy sued Microsoft and made a bundle without actually having to go to court. SCO was a Canopy company and both had Ralph Yarro as part of the organization.

It was reasonable to assume that if they sued IBM over its use of UNIX, that IBM would also cave in and give them a bundle of cash. Given what the lawyers have cost so far, it would have been cheaper. Oops, IBM didn't cave.

There are very serious issues involved in the SCO vs. IBM case which could have made many businesses worry about adopting Linux. IBM had bet the farm on Linux. IBM had no choice to fight.

Not only did SCO not have a leg to stand on but it seriously looked like they were perpetrating a fraud. Their only chance to stay out of jail is to make it look like they really believed their claims about IBM. SCO, therefore, had no choice but to fight to the bitter end.

What have we gotten out of this whole mess? Linux is unencumbered by anybody's copyrights. All doubt has been removed. The extra publicity may actually have promoted the uptake of Linux. We have gotten a wonderful legal education on Groklaw. We have been activated. A lot of people realize the importance of the next big fight (patents) and have started writing their congresscritters.

So, thank you SCO. Good luck staying out of jail.

Re:This doesn't mean anything

[DeathB]

They also have more amusing risk factors than that one. (All text from SCO's current 10k)

• We do not have a history of profitable operations.
• We may not prevail in our SCO Litigation, which may adversely affect our business.
• Our failure to timely file this Form 10-K, and our quarterly report on Form 10-Q for the quarter ended January 31, 2005 (as previously defined, the "Form 10-Q"), could result in the delisting of our common stock on The Nasdaq SmallCap Market.
• Our Engagement Agreement with the Law Firms will require us to spend a significant amount of cash during fiscal year 2005 and could harm our liquidity position.
• Our future SCOsource licensing revenue is uncertain.
• We may lose the support of industry partners leading to an accelerated decline in our UNIX products and services revenue.
• Our claims relating to our UNIX intellectual property may subject us to additional legal proceedings.
• Fluctuations in our operating results or the failure of our operating results to meet the expectations of public market analysts and investors may negatively impact our stock price.
• We operate in a highly competitive market and face significant competition from a variety of current and potential sources; many of our current and potential competitors have greater financial and technical resources than we do; thus, we may fail to compete effectively.
• If the market for UNIX continues to contract, our business will be harmed.
• We rely on our indirect sales channel for distribution of our products, and any disruption of our channel at any level could adversely affect the sales of our products.
• Our Engagement Agreement with the Law Firms representing us to enforce our intellectual property rights may reduce our ability to raise additional financing.
• Our foreign-based operations and sales create special problems, including the imposition of governmental controls and taxes and fluctuations in currency exchange rates that could hurt our results.
• If we are unable to retain key personnel in an intensely competitive environment, our operations could be adversely affected.
• We have issued shares and options under our Equity Compensation Plans that were not exempt from registration or qualification under federal and state securities laws, and, as a result, we may incur liability to repurchase such shares and options and may face additional potential claims under federal and state securities laws.
• Our stock price is volatile.
• There are risks associated with the potential exercise of our outstanding options.
• The resale of common shares by BayStar may have an adverse impact on the market value of our stock and the existing holders of our common stock.
• Our stock price could decline further because of the activities of short sellers.
• The right of our board of directors to authorize additional shares of preferred stock could adversely impact the rights of holders of our common stock.
• Our Stockholder Rights Plan could make it more difficult for a hostile bid for the Company or a change of control transaction to succeed at current market prices for our stock.

FYI, the full text of the risk that Groklaw is quoting from:

Our claims relating to our UNIX intellectual property may subject us to additional legal proceedings.

In August 2003, Red Hat brought a lawsuit against us asserting that the Linux operating system does not infringe on our UNIX intellectual property rights and seeking a declaratory judgment for non-infringement of copyrights and no misappropriation of trade secrets. In addition, Red Hat claims we have engaged in false advertising in violation of the Lanham Act, decept

The Wheels of Justice Turn Slow

[Greyfox]

We've been speculating that the whole thing was a pump'n'dump since day 1. I personally found it a little too coincidental that a couple of days before the lawsuit was announced, a lot of people in high places at SCO were issued a heaping helping of SCO stock options for pennies on the dollar. Issuing options is a perfectly normal business operation, of course, but I personally thought the timing was a little too good.

Anyway, I don't foresee a serious SEC investigation until the lawsuit is settled. It would be a waste of resources to start an investigation when all that really needs to be done is to sift through the broken remants of a case. If a judge dismisses the case because SCO never had any more evidence than "It looks like UNIX so they must have copied it!" then I expect the SEC would crawl up SCO's ass with a microsope at that point.

Unless something has changed, I doubt it

[anomaly]

Some time last year I got fed up with the irritation that is SCO. I got interested to see if the SEC was digging into what seems to be false claims on their part. It seems that the SEC does not offer any information publicly about ongoing investigations.

Since I didn't know what, if anything, was happening, I reported them to the SEC. I was shocked to get a call the NEXT DAY from a man who identifdied himself as an attorney with the SEC. We spoke for about 45 minutes. At the conclusion of the conversation, he indicated that he thought he understood my issues with them - their apparent lies, their seeming stock manipulation, etc but doubted that he could proceed without more specific information about how they knowingly lied to the public.

If sufficient evidence was produced, he seemed interested in protecting the public from abusive corporate officers. He was not satisfied with what I offered him.

Unless someone has subsequently provided more and better evidence than what I knew about as an interested observer, it is doubtful that the SEC proceeded.

I was displeased that I was unable to move them to action.

Regards,
Anomaly