BayStar admits Microsoft set up SCO venture

BayStar Capital Inc. confirmed on Thursday it invested in SCO at the suggestion of Microsoft Corp.

“We don’t have any statement other than to say that BayStar’s comment that Microsoft did introductions between BayStar and SCO is accurate,” said Blake Stowell, a spokesperson for SCO in Lindon, Utah.

“There were a lot of different investments companies we were considering as part of this investment and BayStar was one of several and the only involvement Microsoft had was in the introductions. Microsoft did not participate in or orchestrate the investment in SCO.”

MS’s suggestion led to BayStar investing US$50 million in SCO. The company, which claims rights to Unix, is now suing IBM Corp., alleging Big Blue illegally contributed Unix System V code into the Linux project. As a result, SCO is asserting ownership of the Linux operating system and demanding Linux users buy a license to run it.

While Linux is mostly displacing low-level Unix systems, by 2007 Microsoft’s Windows will also start losing marketshare to the open source operating system, according to research by IDC Ltd. in Framingham, Mass.

Eric Raymond, president of the Open Source Initiative, was anonymously slipped an internal e-mail from SCO last week, which indicated that Microsoft set up the BayStar investment in SCO and would be able to dig up more funding for SCO through third-parties. Raymond published the e-mail on his Web site,

The letter was addressed to Chris Sontag, vice-president and general manager of SCOsource, the division of SCO responsible for overseeing intellectual property and copied to Bob Bench, CFO of SCO. It was written by Mike Anderer, a consultant with S2 Strategic Consulting LLC and dated Oct. 12, 2003.

SCO confirmed that the e-mail was real but stated that Anderer was misinformed when he wrote the note.

“It was simply a misunderstanding of facts by an outside consultant who was working on an unrelated project to the BayStar transaction,” said Marc Modersitzki, spokesperson for SCO, last week.

— With files from IDG News Service

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