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| Royce Buys More SCO Stock |
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Wednesday, October 08 2003 @ 07:35 PM EDT
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Royce and Associates just filed with the SEC to report that it now owns a little over 10.41% in SCO, 1,441,200 shares to be exact. That's about double what they had before. Meanwhile financial types are beginning to notice a few things, like Eric Hellweg, CNN/Money Contributing Columnist, writing about how many shares insiders are sellling: "Senior vice president Reginald Broughton has led the pack, offloading 170,000 shares since June for an estimated gain of $1.13 million. Broughton now owns only 95,000 shares in the company.
"When I reached McBride on Tuesday at his office in Utah, he defended the executive sales as a simple case of executives finally being able to sell shares that were underwater until the recent run-up. And he argued that the amount sold is 'very small' compared with the total number of insider shares owned.
"Others, however, aren't so sure. 'I'm not going to cast moral judgment,' says George Weiss, an analyst and vice president at Gartner Research. 'But there is a sense one gets that the whole lawsuit is a means to generate revenue and quick acceleration in stock price in hopes that a buyout would occur from a deep-pocketed company such as IBM. [The selling] doesn't surprise me.'" The SGI code comparison is having an effect on normal financial thinkers, as you can see in the article's analysis, where the author noted that 200 lines of code doesn't equal more than a million. Hey, he's a financial guy. Those guys can add: "SCO investors need to realize that, in many ways, they're betting on the outcomes of these lawsuits. SCO has engendered so much ill will in the open-source community, it's hard to imagine the company building a sustainable business around its products if it loses these cases. . . .
"If more companies opt to take the SGI route and conduct a code-by-code comparison, investors will get a ballpark sense of the strength of SCO's claims.
"But unless a company such as IBM decides to purchase SCO -- something that could happen if IBM's internal review shows a significant amount of infringing code -- these individual vendor code comparisons will just serve as canaries for investors trying to gauge the safety of entering the deep, dark SCO coal mine." I think we may assume that if IBM's internal review had shown that, they'd have folded by now. I have no inside info, I hasten to add. Just a brain. Don't laugh. Not everyone gives evidence of having one. Here's an interview with SCO's Chris Sontag, in which he repeats the misappropriation charges, without being specific, naturally, right after IBM has filed with the court a demand for specifics. Just clueless about the law: "Why have you chosen to go after Linux customers in addition to IBM?
"Sontag: SCO has really been left with no other choice but to request that commercial customers of Linux compensate SCO for our intellectual property with a license fee. The hardware vendors don't take responsibility for infringements in Linux because, technically, they aren't distributors. The distributors pass the hot potato to business end users by shielding themselves with the GPL by saying, 'This product has no warranty and no indemnification.' So now if Linux has problems, including misappropriated intellectual property going into Linux, the end users are left holding this hot potato.
"Q:Is the open source development process flawed in your opinion, with regard to intellectual property?
"Sontag: Yes, in that there is no rock-solid mechanism in place for checking in code and assuring users that this code is clean and doesn't infringe on others' intellectual property. Until that mechanism is in place, there will more than likely be problems with others' IP going into Linux. . . .
"Q: Any regrets about how this has played out? If so, what are they?
"Sontag: It's too bad that the Linux development process couldn't prevent misappropriations of Unix software code." I'd say that hot potato is in SCO's lap now, not in the hands of end users.
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| Authored by: Anonymous on Wednesday, October 08 2003 @ 07:51 PM EDT |
PJ, I think you missed the most important point in that article and in the last
one
SCO essentially gave as their evidence Linux source, UNIX source, and a bunch of
license agreements. That's it as far as I can tell.
SCO seem to have offered no specific evidence, not only as regards the alleged
trade secret breaches by IBM, but also as regards their other various claims
like tortious interference.
Meanwhile in the Sontag interview he claims to have detailed specific evidence
(the merits of any evidence are a different question), (1) not only that
contained in the slides, but also says (2) SCO has a line-by-line comparison,
(3) has traced the code not to be BSD, and (4) the slides are the tip of a much
larger iceberg that SCO is aware of.
SCO should be providing some evidence supporting their claims (the existence of
license agreements, Unix and Linux does not in itself), and more specifically
items of the types (1), (2), (3) and (4) which they publicly proclaim to exist.[ Reply to This | # ]
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| Authored by: rand on Wednesday, October 08 2003 @ 08:06 PM EDT |
SCOX is being driven now by pure speculation; things like value, worth, and
return have no meaning in the virtual world of the day-trader. Noone is
seriously asking themselves "Is this stock going to pay a handsome
dividend next year?", just "Will somebody else buy this stuff from
me?"
Just today the value jumped around by over 6% in just 2 hours. In fact, it
rose by about 6%, fell 4%, rose 4%, fell 7%...well, you get the picture.
There have been rumors of manipulation on Yahoo's SCOX board and other places,
and some of it does seem strange: I noticed a few weeks ago that someone
apparently bought a few hundred shares for more than the asking price. That's
not normal, but it sure tends to drive the price up, all right.
If anyone out there knows more about trading that I (and that wouldn't take
much), I urge you to keep tabs on SCOX; keeping a close eye could be very
rewarding.
---
The Wright brothers were not the first to fly...they were the first to LAND.[ Reply to This | # ]
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| Authored by: reuben on Wednesday, October 08 2003 @ 08:25 PM EDT |
Who are Royce and Associates? Do they have any connection to suspected
behind-the-scenes players in the SCO business, like MS?[ Reply to This | # ]
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| Authored by: freeio on Wednesday, October 08 2003 @ 08:51 PM EDT |
I had a manager once who very carefully pointed out that his object was not to
make sense, but rather to make money. The SCOX management and figurehead game
here seems to be exactly the same. From past experience we can see that the
market rewards those who speculate just about as much as it rewards those who
produce, and sometimes better. The fact that SCOX behavior is positively
destructive to long term value is a useless fact for anyone who intends to be
out of that investment long before it craters.
So the SCOX game can be seen to be high stakes "investment" or
perhaps even "gambling," but a game in which the rules are fluid,
flexible, and have not always been historically well-enforced. Statistically,
the odds against ever being actually punished for corporate misdeeds have been
quite favorable, and so the prospect of using PR and FUD (along with a lawsuit
or two) to drive the market can be seen as a bet with better than even odds.
So sure, Sontag or McBride can be trusted to say the most outrageous things, and
the spin is extremely predictable. The question is when the right market
analyst will make the right observation to the right audience, and SCOX
financial fortunes will tumble. Remember, these long-term lawsuits (court dates
1 to 2 years out) are invisible to the investor who is mostly worrying about the
behavior of the stock this week. As long as the analysts do not note that the
emperor is out there stark naked, the public will all still figure that somewhow
they are just not worthy enough to see all of those new clothes that only the
worthy are able to see.
<BG>
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TRVTH[ Reply to This | # ]
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| Authored by: Glenn on Wednesday, October 08 2003 @ 09:14 PM EDT |
"Sontag: It's too bad that the Linux development process couldn't
prevent misappropriations of Unix software code."
It's too bad that SCO hasn't been able to show any of this code, not even
in the discovery process. Judge Kimball may well give them an order with which
they cannot comply.
Since SGI has done a code audit and found only about two hundred lines of
code that could possibly be Sys V, then if SCO is claiming and can show much
more identical code .... from Unixware, they are going to be in a pickle because
they will have to prove ownership, and it is more likely that it would be found
that the code originally came from Linux to Unixware than the other way around.
Could be very interesting, if it ever gets to court. I doubt that Darl
McBride or Chris Sontag will be on board SCO when 2005 rolls around.
Glenn[ Reply to This | # ]
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| Authored by: Anonymous on Wednesday, October 08 2003 @ 09:43 PM EDT |
There is another interesting aspect to this: SCO can't claim confidentiallity
for those trade secrets IBM is accused of publishing without permission. If IBM
put something into Linux, its not considered a secret any more and SCO can't
claim legal protection for it. Their main argument seems to be "work
product", but that usually only works for defendant. The plaintiff can't
go to court and say "he stole my car, but when I bought it my lawyer was
present and thus I do not have to say what brand and color."[ Reply to This | # ]
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| Authored by: brenda banks on Wednesday, October 08 2003 @ 09:48 PM EDT |
http://worldwatch.linuxgazette.com/article.php?sid=181
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br3n[ Reply to This | # ]
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| Authored by: AveryAndrews on Wednesday, October 08 2003 @ 11:10 PM EDT |
I posted a bit of a serve at Sontag and Mimoso on the theme of misleading
without lying in the soundoff section of the interview:
http://discussions.techtarget.com/WebXmsgInContext@245.Ea5UaqKXFW5.0@.1dcfe7f3/5
isReply=1&setContentUrl=1
I think some questions for journalists to ask could be constructed out of this:
1. Were NUMA, JFS, SMP and RCU copied into Linux from System V?
2. How much material covered by copyrights or patents held by TSG is present in
NUMA, JFS, SMP and RCU?
And if the answers to the above are `None', then
3. On what moral basis can TSG expect to be compensated for IBM's violation of
its contract terms, if IBM is found to be at fault, and made to pay compensation
itself?
4. On what legal basis can TSG expect to enforce payment of license fees for
NUMA, JFS, SMP and RCU, in the absence of any relative patents or copyrights?
Just another formulation of content that many people have posted here before,
but I think it's worth going thru lots of formulations to try to find the
best.
Maybe we need an 'Infrequently Answered Questions for Journalists' list as
well as the IAQ; formulating questions for others to ask of the Gang of Four
(Sontag, Stowell, McBride, Hunsaker, who have I missed?) is a slightly different
enterprise than an IAQ/FAQ to get people up to speed on the issues.
[ Reply to This | # ]
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| Authored by: bobh on Wednesday, October 08 2003 @ 11:26 PM EDT |
| I don't think it is possible for anyone sane to believe that one can take a
large position in this stock without losing most of the "investment."
It is
probably true that a lucky day trader can make a few bucks on this thing as it
bobs up and down like a cork on the sea, but that cannot be the game of an
institutional fund that is taking a sizeable position.
So here's my question:
Is Royce set up the way a venture capital fund would be? In particular, is there
a limited partnership, formed to engage in this particular activity,
whose participants would be (a) few in number, and (b) "sophisticated investors"
as that term is understood by the SEC?
Here is what might be going on.
We might have a few individuals (Mr. Gates would be a candidate) who
would purchase a share in such a partnership, in the knowledge that the
"investment" will not be recovered. It is essentially a cash payment to the
Canopy Group, disguised as the purchase of SCO shares on the open market, which
just so happens to consist almost entirely of shares owned by the Canopy Group.
A small amount of the cash might leak off into some individual investors who
were standing in the right place at the right time, but the main flow of the
"river" of cash would be from the Partnership to the Canopy Group via a
market-maker who arranged the trade. The shares would be the newly-issued ones
used in the Vultus acquisition (in which SCO "acquired" Vultus from Canopy for
newly-issued shares).
I do not have any spies in the financial sector. I do
not know how we could determine who precisely is invested in any particular
partnership or investment fund that might be managed by Royce (or anyone else,
like Silverlake).
Other than some minor stock price irregularities that occur
almost as a side effect of Big Money moving in the vicinity of a thinly-traded
stock, I don't see anything illegal about this. It would be embarrassing for Mr.
Gates to be discovered as a person shoveling money to the Canopy Group at this
particular time, but that's probably the end of it. Still, if that is what is
going on, it would be fun to uncover and publicize it. Do we have a financial
maven in the house who knows how to go about researching this? [ Reply to This | # ]
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| Authored by: Alex on Thursday, October 09 2003 @ 12:23 AM EDT |
I'm not real good at the financial stuff, so let me play this back and we'll
see if I understand.
To manipulate a stock it helps if you have a partner. The two manipulating
partners then sell small lots of the stock back and forth to each other, raising
the price a little each time. Eventually, this pulls the share price up.
In fact, the two parties don't even have to know about each other. Someone who
wants to manipulate the stock price can simply try to sell the shares for a
price that's a little too high, and if someone else wants to play, they'll buy
a little high. All anyone really has to know is that there's another player.
To accomplish this, the stock needs to be thinly traded, so that the two
partners can play their game while the stock is not being traded by anyone else
- if someone else gets in there regularly and offers to sell for less than one
of the manipulating partners, the whole scheme can collapse because then other
traders might buy the stock for less, forcing the price down.
It's better if the stock starts out as a cheap stock. That way there's less
risk. It also helps if the company is doing something interesting, like suing
IBM, so the outside world can believe that the stock is going up for a reason
unrelated to manipulation.
After a couple days of ratchetting the stock price up with small lots, the
players can sell large lots on the open market (rather than to each other) and
take a profit. The price these players get when they finally sell out doesn't
matter. Even if the manipulating traders take a bath on their final sale, they
will still make a profit on all their prior manipulations.
Since most stock traders are wired, paid shills who will push the stock in chat
rooms and on mailing lists are helpful.
We're theorizing that the SCO stock is being manipulated by this method. Some
of us are speculating that the two players involved are Royce and Renaissance.
Do I understand this correctly?
Alex[ Reply to This | # ]
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| Authored by: DrStupid on Thursday, October 09 2003 @ 04:24 AM EDT |
Sontag: "SCO has really been left with no other choice but to request that
commercial customers of Linux compensate SCO for our intellectual property with
a license fee."
TSG can "request" anything it likes. If X's brother smashes my
headlamps with a baseball bat but has no money, I can request that X compensates
me - but X can refuse. X isn't responsible for his brother's actions.
Even if IBM had done horrible things to TSG, TSG is only entitled to
compensation from IBM.
Yet again Sontag's language is carefully chosen, but nevertheless exposes his
knowledge of TSG's weakness.
End-users are not liable for the actions of IBM. They are only liable for their
own actions (Indemnity is when you offer to take on all or part of another's
liability.) Given that end-users have no contractual relationship with TSG, and
TSG holds no relevant patents, the only recourse TSG could have against them is
with respect to copyrights. But if end-users are breaching TSG's copyrights,
the distributors are committing breaches orders of magnitude worse, and no
disclaimer of warranty can shield them. Disclaimers do not allow you to break
the law!
Sontag would like us to believe that a distributor's disclaimer is what
prevents TSG pursuing the distributor in court. This is utterly false. If TSG
are not launching copyright infringement suits it is because they know the
results would be disastrous for them.[ Reply to This | # ]
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| Authored by: tleps on Thursday, October 09 2003 @ 04:34 AM EDT |
The Age has this up:
http://www.theage.com.au/articles/2003/10/08/1065292635400.html
Looks like SCO is having more international problems...
Thomas
[ Reply to This | # ]
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| Authored by: shadowman99 on Thursday, October 09 2003 @ 09:57 PM EDT |
| http://www.sec.gov/Archives/edgar/data/1102542/0001102542030000
67/xslF345X02/edgardoc.xml [ Reply to This | # ]
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| Authored by: Anonymous on Friday, October 10 2003 @ 01:30 PM EDT |
Hey folks,
Royce and Associates is a fairly well-respected and long-lived (been arounce
since 1975 or so) small cap value investment adviser.
The have a series of mutual funds (both no-load and load) that focus on small
and micro cap companies. In fact, the firm's founder, Chuck Royce, is
practically the dean of small cap value investing.
The Royce Funds web site is here:
http://www.roycefunds.com
I've held shares in four different Royce funds for a number of years. I'm
rather confused that they would buy into a company like SCO, as it doesn't seem
to at all fit their criteria for buying sound businesses at value prices.
That said, they do have a technology value fund, and on this web page, as of
9/26, SCO is listed as one of their top ten holdings:
http://www.roycefunds.com/commentary/index.html
Download and read some of the Royce Funds semi-annual reports. You'll see that
they don't buy business based on hype of FUD.
It might be possible that SCO's stock price is so depressed relative to the
value of its assets or cash flow that it's a screaming bargain, at least in
technical firms.
OTOH, it could be that the manager for this fund (who is practically brand new
with Royce compared to the other fund managers who have been there for ages) is
just a blithering fool who doesn't understand the nature of the business and
technology involved .
If this is the case, SCO is going to give him a massive black eye when these
lawsuits do not go in their favor.
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