August 22, 2006

Ladies and Gentlemen,

I am sending this complaint to the Securities Exchange Commission (enforcement@sec.gov) to describe the illegal actions being taken by Jim Allchin, Paul Allen, Steve Ballmer, BayStar Capital LP, Baystar Capital II, L.P., BayStar Capital Management, LLC, Boies Schiller & Flexner, The Canopy Group, Brent Christensen, Steven Derby, Bill Gates, Lawrence Goldfarb, Jeff Hunsaker, Steven M. Lamar, Darl McBride, Microsoft Corporation, Morgan Keegan, Darcy Mott, Thomas Raimondi, Royal Bank of Canada, S2 Strategic Consulting, Blake Stowell, The SCO Group, Inc., Vulcan Capital, Ralph Yarro, and Bert Young. These entities have committed numerous crimes centered around the recent activities of The SCO Group, Inc.

Ishtiaque Omar has written a thesis which thoroughly explains the background
and origins of the current fight between Microsoft and SCO on one side versus
IBM and the Open Source community on the other.  You can read the thesis, "The
Penguin in Peril: SCO's Legal Threat to Linux" here.

http://firstmonday.org/issues/issue10_1/omar/#o1

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.

This fraud is illegal under the Securities Act of 1934. Rule 10b-5 states:

"It shall be unlawful for any person, directly or indirectly, by the use
of any means or instrumentality of interstate commerce, or of the mails
or of any facility of any national securities exchange,

a. To employ any device, scheme, or artifice to defraud,

b. To make any untrue statement of a material fact or to omit to state
a material fact necessary in order to make the statements made, in
the light of the circumstances under which they were made, not
misleading, or

c. To engage in any act, practice, or course of business which operates
or would operate as a fraud or deceit upon any person, in connection
with the purchase or sale of any security."

http://www.law.uc.edu/CCL/34ActRls/rule10b-5.html

A. SCO sells a computer operating system called System V which is sometimes
referred to by the brand name of UnixWare.

http://www.caldera.com/products/unixware713/

Unix System V and its derivatives, including UnixWare, have a small and
shrinking share of the operating system market. That share has been
steadily shrinking for several years because System V 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 thousands of
volunteers who donate their creativity for free.

http://www.linux.org/

C. "Project Monterey" is a code name for a joint project between IBM and
"The Santa Cruz Operation" of Santa Cruz, California 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.

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
among the members of the losing project team. Here is an explanation of
why IBM chose to start supporting Linux.

http://www.groklaw.net/article.php?story=20050117091704111

The reason that IBM gave for cancelling the Monterey project was that
The Santa Cruz Operation (SCO) sold their interest in the Unix System V
code and the Monterey project to Caldera Systems. The Monterey project
contract gives IBM the right to cancel the project in the event of such
a sale by The Santa Cruz Operation.

"IBM shall have the right to terminate this Agreement immediately upon
the occurrence of a Change of Control of SCO which IBM in its sole
discretion determines will substantially and adversely impact the
overall purpose of the cooperation set forth by this Agreement and
applicable Project Supplements or will create a significant risk or
material and adverse exposure of IBM's confidential and/or technical
proprietary information (which is subject to, and to the extent of,
confidentiality restrictions) ("Information")."

http://www.sec.gov/Archives/edgar/data/851560/0000891618-99-000561.txt

The Santa Cruz Operation sold the Monterey project agreement to Caldera
Systems in August, 2000.

"Caldera Systems Inc., a Linux distributor will acquire the Server
Software Division and the Professional Services Division of The Santa
Cruz Operation (SCO) Inc., a Unix provider."

http://www.entmag.com/news/article.asp?EditorialsID=678

Caldera Systems Inc. changed their name to The SCO Group (SCO). This
similarity in names can sometimes be confusing when discussing the
history of the Monterey project. Since IBM terminated the Monterey
project based on the change in control from The Santa Cruz Operation
(old SCO) to Caldera Systems (new SCO) the distinction between the two
very similar names is important.

http://news.zdnet.co.uk/software/developer/0,39020387,2121346,00.htm

Great was (new) SCO's consternation when Monterey was axed in favor of
IBM's Linux project. SCO decided to sue IBM but had no legally
compelling case. SCO decided on a nuisance lawsuit against IBM for
contributing operating system code allegedly owned by SCO to the Linux
operating system.

http://news.com.com/2100-1016-991464.html

D. SCO knew before they filed suit against IBM that their claim was
fraudulent.

SCO hired an outside consultant named Bob Swartz who spent several months
comparing the computer code in Linux against several versions of the Unix
operating system originally developed by AT&T. Michael Davidson of
Caldera Internation (Caldera later changed their name to SCO) worked with
Bob Swartz and received Bob Swartz' report. On August 13, 2002 Michael
Davidson sent an email to Reg Broughton, who forwarded it to Darl McBride
with a cover note. Here is Reg Broughton's email to Darl McBride.

http://www.groklaw.net/pdf/IBM-459-22.pdf

The reasons for the study and the results are summerized by Michael
Davidson in his email thusly:

"The project was a result of SCO's executive management refusing to
believe that it was possible for Linux and much of the GNU software to
have come into existance without *someone* *somewhere* having copied
pieces of proprietary UNIX source code to which SCO owned the
copyright. The hope was that we would find a "smoking gun" somwhere in
code that was being used by Red Hat and/or the other Linux companies
that would give us some leverage. (There was, at one stage, the idea
that we would sell licenses to corporate customers who were using
Linux as a kind of "insurance policy" in case it turned out that they
were using code which infringed our copyright)."

"At the end, we had found absolutely *nothing*. ie no evidence of any
copyright infringement whatsoever."

E. SCO v IBM

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

1) 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 USL v BSDi,
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

2) 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 Brooke 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 Brooke 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.

3) IBM explains the importance of the absence of evidence to Judge
Kimball this way.

http://www.groklaw.net/article.php?story=20040521183116140

IBM has asked the court for a series of partial summary judgements to
resolve some of the disputed points in the case. One partial summary
judgement that IBM asked for was for the judge to rule that SCO's
claim that IBM infringed SCO's copyrights by contributing SCO code to
Linux was false. On February 9, 2005 Judge Kimball ruled that IBM's
motions for partial summary judgements are premature. In his ruling
Judge Kimball made the following statement about SCO's lack of
evidence.

"Viewed against the backdrop of SCO's plethora of public statements
concerning IBM's and others' infringement of SCO's purported
copyrights to the UNIX software, it is astonishing that SCO has not
offered any competent evidence to create a disputed fact regarding
whether IBM has infringed SCO's alleged copyrights through IBM's
Linux activities."

http://www.groklaw.net/article.php?story=20050209203941896

http://news.com.com/Judge+slams+SCOs+lack+of+evidence+against+IBM/2100-7344_3-5570265.html

If the SEC has any doubt that the whole SCO claim to owning Linux
intellectual property rights is a complete fraud this statement by
Judge Kimball should remove that doubt.

4) After the deadline for submitting claims has long passed SCO tried to
introduce the unsubstantiated claims again as part of some expert
witness testimony. IBM moved to strike SCO's claims. On June 28,
2006 Magistrate Judge Brooke C. Wells issued a court order in SCO v
IBM which states that SCO has willfully disobeyed several court orders
to produce specific evidence against IBM. In that court order Judge
Wells makes the following statements.

On page 2:

"As outlined in greater detail below, the court finds that SCO has
failed in part to meet the level of specificity required by this
court's orders and the order entered by Judge Kimball. It is also
apparent that SCO in some instances failed to meet the level of
specificity it required of IBM. Further, this failure was willful
under case law and prejudicial to IBM. Therefore, the court GRANTS
IBM's Motion to Limit SCO's Claims Relating to Allegedly Misused
Material in Part."

On page 32:

There appears to be a mistake where the court mentions SCO when she
obviously means IBM. I have placed this correction in parenthesis.

"Based on the foregoing, the court finds that SCO has had ample
opportunity to articulate, identify and substantiate its claims
against SCO (IBM). The court further finds that such failure was
intentional and therefore willful based on SCO's disregard of the
court's orders and failure to seek clarification. In the view of
the court it is almost like SCO sought to hide its case until the
ninth inning in hopes of gaining an unfair advantage despite being
repeatedly told to put "all evidence . . . on the table."

"Accordingly, the court finds that SCO willfully failed to comply
with the court's orders."

On page 33:

"The court finds SCO's arguments unpersuasive. SCO's arguments are
akin to SCO telling IBM sorry we are not going to tell you what
you did because you already know."

On page 36:

"Accordingly, based on the delays that would arise form SCO's lack
of specificity, and the burdens that this places on IBM at such a
late stage in this litigation, the court finds that IBM is
prejudiced by the lack of specificity in SCO's disclosures."

These repeated charges without any evidence and in violation of a
judge's specific orders to stop making such claims is further proof
that SCO v IBM is a deliberate criminal attack on IBM and Linux.

http://www.groklaw.net/pdf/IBM-718.pdf

F. 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

When IBM proved to be steadfast in fighting the lawsuit and refused to
negotiate a settlement SCO attacked IBM customers in an attempt to put
pressure on IBM to settle on terms favorable to SCO. SCO 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

In SCO v Novell Novell's counterclaims include the charge that SCO
fraudently tried to sell Linux licenses.

"45. A significant aspect of SCO's rebranding efforts and new business
strategy was its adoption of a scheme to extract "licenses" from the
UNIX and Linux communities based on claims to own intellectual
property specifically reserved to Novell, i.e., the UNIX Copyrights.
SCO proceeded on its own in this scheme after Novell rebuffed SCO's
overtures to participate."

"38. In late 2002, SCO repeatedly contacted Novell in connection with
SCO's soon-to-be- announced SCOsource campaign. SCO requested copies
of certain documentation concerning rights to UNIX, including the
agreement between Novell and Santa Cruz. SCO also expressed its
interest in a campaign to assert UNIX infringement claims against
users of Linux. SCO asked Novell to assist SCO in a Linux licensing
program, under which SCO contemplated extracting a license fee from
Linux end users to use the UNIX intellectual property purportedly
contained in Linux. Novell refused to participate."

'46. On January 22, 2003, SCO publicly announced its licensing scheme
as part of its "SCOsource" program. In connection with this
announcement, SCO's CEO, Darl McBride, commented that "SCO owns much
of the core UNIX intellectual property, and has full rights to license
this technology and enforce the associated patents and copyrights."'

'47. Under the SCOsource licensing program, SCO seeks to enter into
license agreements with UNIX vendors and offers Intellectual Property
Licenses to Linux end users ("Intellectual Property Licenses"). The
purported purpose of these licenses is to allow UNIX vendors to use
SCO's UNIX intellectual property and to permit Linux end users to
"properly compensate us for our UNIX intellectual property as
currently found in Linux." One term of SCO's Intellectual Property
Licenses for Linux is that licensees "will be held harmless against
past and future copyright violations based on their use of SCO's
intellectual property . . . in Linux distributions . . . ."'

"48. As part of its SCOsource initiative, SCO filed a lawsuit against
IBM on March 7, 2003, asserting, among other things, UNIX Copyrights
that SCO does not own. SCO has alleged that it owns the UNIX
Copyrights and that IBM's contributions to Linux and use of Linux
infringe these copyrights."

"52. As part of the SCOsource program, in May 2003, SCO sent letters
to 1,500 of the world's largest corporations threatening suit based on
its alleged ownership of the UNIX Copyrights ("End User Letters"). On
May 12, 2003, SCO sent one of these letters to IBM, and sent another
letter to Novell. On information and belief, all of the End User
Letters were nearly identical in content to the IBM and Novell
letters."

'53. In the End User Letters, SCO made the false and misleading
statement that "SCO holds the rights to the UNIX operating system
software originally licensed by AT&T to approximately 6,000 companies
and institutions worldwide (the 'UNIX Licenses')."'

'54. In the End User Letters, SCO also made the unsupported assertion
that "We [SCO] have evidence that portions of UNIX System V software
code have been copied into Linux and that additional other portions of
UNIX System V software code have been modified and copied into Linux,
seemingly for the purposes of obfuscating their original source."'

"55. After setting forth these alleged facts in the End User Letters,
SCO erroneously concluded that "Linux infringes on our UNIX
intellectual property and other rights." According to SCO, end users
of Linux were liable for this alleged infringement whether-or not they
participated in any contribution of UNIX System V software code into
Linux.'

"56. As set forth in detail above, besides sending the End User
Letters, SCO has made numerous public statements that it owns the UNIX
Copyrights and that end users of Linux are liable for infringement of
those copyrights. For instance, contrary to the express terms of the
APA, SCO has stated on its website that "only SCO is in a position to
license the use of this infringing intellectual property." The Court
itself has noted SCO's "barrage of public statements about pursuing
alleged infringers of its alleged intellectual property." The SCO
Group Inc. v. Int'l Bus. Machs., Case No. 2:03CV294 DAK, Memorandum
Decision and Order at 5 (Feb. 9, 2004)."

http://www.groklaw.net/article.php?story=20050915183241951

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

http://www.caldera.com/scosource/

Here is where you can order your SCO IP License license for US$699.

http://shop.sco.com/caldera/cart.jsp?action=add&collection=Scosource&sku=LA520-0001-CC1&additem_LA520-0001-CC1_0_Quantity=1&additem_LA520-0001-CC1_0_ShipTo=Me&additem_LA520-0001-CC1_0_BillTo=Me

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.

G. 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.

On 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.

On 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

On 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

On 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 unsubstantiated. 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

On August 19, 2003 SCO announced:

"LINDON, Utah, Aug 19, 2003 -- The SCO Group, Inc. (Nasdaq: SCOX), the
owner of the UNIX® operating system, today announced the appointment of
Gregory Blepp as vice president of SCOsource. Blepp will report to
Chris Sontag, the senior vice president and general manager of
SCOsource, the division of SCO tasked with protecting and licensing the
company's UNIX intellectual property."

http://ir.sco.com/ReleaseDetail.cfm?ReleaseID=116432

SCO never filed notice of this appointment with the SEC.

On August 16, 2004 Chris Preimesberger conducted an interview with Blake
Stowell of SCO in which Blake Stowell said that Gregory Blepp was no
longer a SCO employee. Chris Preimesberger asked:

"What ever happened to that SCO sales guy in Germany, Gregory Blepp,
who said he was carrying 'millions of lines' of the disputed
Linux code in his own briefcase last April?" I asked. "That was an
interesting story. He kind of fell off the map; I haven't heard about
him lately."

'Stowell laughed. "Oh, he no longer works for us," he said. "But I
think he might be doing some consulting. Anyway, do you know how many
pages 'millions of lines of code' would be? A lot bigger than his
briefcase, that's for sure. That should have been somebody's first
clue."'

http://www.newsforge.com/article.pl?sid=04/08/16/0658202

SCO never reported to the the SEC that Gregory Blepp has been terminated
as a SCO officer.

In an interview with Pamela Jones published on August 19, 2004 Gregory
Blepp denied that he had ever been a SCO employee:

"I am only consulting with SCO since day one for a couple of reasons. I
know it was taken up differently in many places, as some other facts,
especially by Heise in Germany, but they did not as you, contact me
directly (and I offered) so I did not bother any more correcting all
the time."

And later in the interview:

"PJ: One thing since we last spoke: I checked the press release
announcing your hiring by SCO as VP. They didn't say you were a
consultant. They indicated you were staff. Even now, the statement by
Stowell indicates you were staff but now are consulting. Can you
clarify? I understood that you were a consultant throughout."

"BLEPP: Yep, the announcement did say this. Being in Germany, we needed
to make sure that I can talk at that time, facing the TRO's and at
least try to inform the respective people about what SCO's position is.
So, being employed in Germany was no option. I was always consulting
SCO."

http://www.groklaw.net/article.php?story=20040819062642232

So the way that I interpret the situation is that the German courts
decreed a permanent injunction against SCO forbidding SCO to claim
ownership of Linux. SCO tried to evade the court order by hiring Gregory
Blepp as a consultant, rather than as an employee, to spread false
information. SCO issued a press release announcing that Blepp was a vice
president of SCOsource, which both SCO and Blepp now deny. However, SCO
did not notify the SEC that Gregory Blepp was appointed as an officer of
the company. Also Gregory Blepp never received any stock options, which
every other officer of SCO has received. Therefore I think that the
announcement that Gregory Blepp was appointed vice president of SCOsource
was a lie designed to add credence to the illegal propaganda Gregory
Blepp spread in Germany to bolster the SCO stock scam.

H. 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

I. 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.

J. 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 (USL v BSDi) 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 1994 agreement between (now) BSD and (now) 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

On November 28, 2004 this agreement was made public by a request under
California's Public Records Law. Here is a copy of the 1994 USL-Regents
of UCal Settlement Agreement.

http://www.groklaw.net/article.php?story=20041126130302760

Ray Noorda knew the contents of the agrement and is quoted in the agreed
upon press release as saying:

"Ray Noorda, Chairman of Novell, Inc., which recently acquired USL,
called the settlement an "excellent example of what can be
accomplished by cooperation between the business and academic
communities." Mr. Noorda stated that "the settlement permits the
University to accomplish its goals but preserves USL's legitimate
interest in protecting its intellectual property." David Hodges,"

The Noorda Family Trust is the majority shareholder in Canopy and Canopy
is the controlling shareholder in SCO.

Darl McBride keeps claiming he knows what's in various sealed documents
from the case. Also SCO claims that they have no copy of the agreement.
This conflict is easily resolved by the fact that Ray Noorda told the
officers of SCO verbally what the contents of the agreement are. Then
SCO proceeded to lie about the contents knowing that they would be
protected by the secrecy clause in the agreement. Such lies are fraud on
the investing public.

SCO claims ownership of BSD even though Novell's predecessor in
interest 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

K. 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.

L. 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

In the MINUTES OF THE MEETING OF THE BOARD OF DIRECTORS OF NOVELL, INC.
MONDAY, SEPTEMBER 18, 1995 the minutes contain the following explanation
that the agreement with SCO did not include certain assets which are now
claimed by SCO.

"Novell will retain all of its patents, copyrights and trademarks
(except for the trademarks UNIX and UnixWare), a royalty-free,
perpetual, worldwide license back to UNIX and UnixWare for internal
use and resale in bundled products, Tuxedo and other miscellaneous,
unrelated technology."

http://www.groklaw.net/article.php?story=20041129162537548

Here is the agreement between Novell and SCO which is dated September
19, 1995.

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"

In April 1996, after the agreement between Novell and SCO, Novell
negotiated an amendment to the software license with IBM. This
amendment to the contract has been entered as exhibit 13 in SCO v IBM.
The fact that the contract is between Novell and IBM versus between SCO
and IBM is consistent with Novell's stance that SCO only bought
marketing rights to System V. If SCO had bought the copyright to System
V then SCO would have nogotiated the amended contract directly with IBM
without any Novell participation at all. And the amended contract
clearly states that the copyright belongs to Novell.

"Notwithstanding the above, the irrevocable nature of the above rights
will in no way be construed to limit Novell's rights to enjoin or
otherwise prohibit IBM from violating any and all of Novell's rights
under this Amendment, the Related Agreements, or under general patent,
copyright, or trademark law."

http://www.groklaw.net/article.php?story=20041023052655609

This viewpoint is supported by the testimony of the man who negotiated
the contract for Novell, Michael J. DeFazio.

http://www.groklaw.net/article.php?story=20041022220159488

SCO is suing Novell in an attempt to obtain clear title to System V.

http://www.iht.com/articles/125939.html

In SCO v Novell Novell's counterclaims include the charge that SCO
fraudently claims ownership of UNIX.

"40. Notwithstanding Novell's rejections, SCO embarked on an aggressive
campaign in which it falsely asserted ownership over these same
copyrights via public statements, a series of letters to Linux end
users, several lawsuits against Linux distributors and end users,
and a licensing program purporting to offer SCO's Intellectual Property
Licenses for Linux."

"41 SCO's misleading and wrongful public assertions of ownership
include the following:"

'a. On March 7, 2003, SCO stated in a press release, "In 1995, SCO
purchased the rights and ownership of UNIX and UnixWare that had been
originally owned by AT&T. This included source code, source
documentation, software development contracts, licenses and other
intellectual property that pertained to UNIX-related business. . . .
'SCO is in the enviable position of owning the UNIX
operating system,' said Darl McBride, president and CEO, SCO."'

'b. On May 14, 2003, SCO stated in a press release, "[SCO], the owner
of the UNIX operating system, today warned that Linux is an
unauthorized derivative of UNIX and that legal liability for the use
of Linux may extend to commercial users."'

"c. On June 6, 2003, SCO stated in a press release, "[SCO], the owner
of the UNIX© operating system, today confirmed its previously stated
ownership of UNIX copyrights. As SCO has consistently maintained, all
rights to the UNIX and Unix-Ware technology, including the
copyrights, were transferred to SCO as part of the Asset Purchase
Agreement between Novell and SCO dated September 19, 1995. Any
question of whether the UNIX copyrights were transferred to SCO under
the Asset Purchase Agreement was clarified in Amendment No. 2 to the
Asset Purchase Agreement dated October 16, 1996."

'"This amendment simply confirms SCO's long stated position that it
owns all copyrights associated with the UNIX and UnixWare
businesses,' said Chris Sontag, senior vice president and general
manager, SCOsource intellectual property division, SCO. . . . 'SCO is
the owner of the UNIX operating system, as well as all of the UNIX
contracts, claims and copyrights necessary to conduct that business,'
said Sontag. 'None of the litigation we are currently involved with
asserts claims based on copyrights. Because others have called into
question SCO's ownership of the UNIX and UnixWare copyrights, we are
satisfied that we have now proven without a doubt that SCO owns those
copyrights. "'

"d. During at least June and July, 2003, SCO wrongfully registered
copyrights in UNIX and UnixWare releases owned by Novell. These
registrations related to UNIX System V release 3.0, UNIX System V
release 3.1, UNIX System V release 3.2, UNIX System V release
3.21386, UNIX System V release 4.0, UNIX System V release 4.1, UNIX
System V release 4.lES, UNIX System V release 4.2, UNIX System V
release 4.2MP, and UnixWare 7.1.3."

'e. On January 13, 2004, SCO stated, "[SCO] today reiterated its
ownership of UNIX intellectual property, source code, claims and
copyrights and has made all of the documents surrounding the
companies' ownership of UNIX and UnixWare available for public
viewing at www.sco.com/novell."'

'f. On January 28, 2004, in its Form 10-K filed with the United
States Securities and Exchange Commission, SCO stated, "We own
the UNIX operating system and are a provider of UNIX-based products
and services. . . . We acquired our rights to the UNIX source code
and derivative works and other intellectual property rights when we
purchased substantially all of the assets and operations of the
server and professional services groups of The Santa Cruz Operation,
Inc., in May 2001. The Santa Cruz Operation (now known as Tarantella,
Inc.) had previously acquired such UNIX source code and other
intellectual property rights from Novell in September 1995, which
were initially developed by AT&T Bell Labs. Through this process, we
acquired all UNIX source code, source code license agreements with
thousands of UNIX vendors, all UNIX copyrights, all claims for
violation of the above mentioned UNIX licenses and copyrights and
other claims, and the control over UNIX derivative works . . .."'

"Interviewer: Well, Novell would say that you actually don't own
those copyrights fully. McBride: Yeah, well, the Novell thing, they,
they came out and made a claim that held up for about four days and
then we put that one to bed. If you go talk to Novell today, I'll
guarantee you what they'll say, which is they don't have a claim on
those copyrights."

"43. Novell has not acquiesced to SCO's claims, as recited in SCO's own
Amended Complaint. (Amended Complaint ¶ 19(d)-(e).) To the contrary,
Novell was vigorously contesting those claims in private correspondence
with SCO at the very same time SCO was publicly claiming otherwise. For
example:"

"a. On May 12, 2003, SCO's CEO Darl McBride sent Novell a letter
asserting that it owned the UNIX copyrights and that Linux end users
were infringing those copyrights."

"b. On May 28, 2003, Novell's CEO, Jack Messman, responded by letter,
asserting in no uncertain terms that "SCO is not the owner of the
UNIX copyrights."

'c. After SCO registered its claim to the UNIX copyrights with the
U.S. Copyright Office, Novell's General Counsel, Joseph LaSala wrote
to SCO, again disputing its claim to ownership of the copyrights. In
his August 4, 2003, letter, LaSala stated, "We dispute SCO's claim to
ownership of these copyrights."'

"44. In September and October 2003, Novell attempted to protect its
rightful ownership of the UNIX Copyrights, and to correct SCO's
erroneous registrations claiming ownership, by filing its own
copyright registrations."

"95. SCO made its public statements claiming ownership of the UNIX
Copyrights, and improperly registered its claim to UNIX Copyrights,
with knowledge that title to these copyrights remains with Novell."

"96. SCO made such statements maliciously, in bad faith, and with
intentional disregard for the truth."

http://www.groklaw.net/article.php?story=20050915183241951

SCO is deceiving the investing public by falsely claiming to have
purchased System V in its entirety from Novell.

M. 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

http://www.groklaw.net/article.php?story=20031128153414688

On November 28, 2004 this agreement was made public by a request under
California's Public Records Law. Here is an explanation of what portions
of System V are owned by BSD.

"4. BSD Derived Materials are computer files or documents which the
University contends are derived from the BSD Releases which are
contained in the UNIX System or are otherwise distributed by USL. A
list of the BSD Derived Materials is attached as Exhibit C."

"f. USL agrees that it shall affix the University Copyright Notice and
the University Acknowledgment to the files listed in Exhibit C in the
following manner:"

"(v) In any future release of the UNIX System issued following the
issuance of UNIXWARE 2.0, USL shall include the University Copyright
Notice and the University Acknowledgment in all of the files listed in
Exhibit C, other than the .mk files (the "Files"). In all events, USL
shall include the University Copyright Notice and the University
Acknowledgment in all such Files in any copies of UNIXWARE 2.0
distributed after January 31, 1995. If any such File contains a
copyright notice reflecting publication by the University at some date
earlier than the dates appearing in the University Copyright Notice,
USL shall not delete the reference to such earlier date(s) of
publication, but shall include those dates in addition to the later
dates reflected in the University Copyright Notice."

EXHIBIT C Then contains a 17 page list listing the files which are
owned by BSD and to which SCO is required to attach BSD copyrights.
Here is a copy of the 1994 USL-Regents of UCal Settlement Agreement.

http://www.groklaw.net/article.php?story=20041126130302760

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

Other individuals and organizations with known copyrights to portions of
System V code include:

Computer Associates International, Inc.
Edison Design Group, Inc.
Eric P. Allman
Hewlett-Packard Company
Hitachi, Ltd.
Intel Corporation
International Business Machines Corporation
Massachusetts Institute of Technology
Microsoft Corporation
The Regents of the University of California
Sun Microsystems, Inc.
The Open Group (formerly OSF)
Compaq Computer Corporation
Digital Equipment Corporation

http://www.groklaw.net/article.php?story=2004061708050599

By not providing information as to how much of System V is owned by
BSD and the other copyright holders 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.

N. One of the results of SCO attacking the validity of the GPL was that
SCO's Linux customers refused to buy Linux from SCO. SCO's customers
began returning SCO's Linux products. SCO's Linux business was hard hit
and was discontinued as a result. Erik Hughes, Director of Product
Management, for SCO filed a declaration in SCO v IBM which says in part:

"9. SCO copied, advertised and distributed the Linux kernel and other
related Linux software for years before 2003."

"10. Prior to suspending sales of Linux-related products in May, 2003,
SCO had a promising Linux business with long standing customers and
pre-existing binding sales and service contracts. The Linux product
line, including the operating system, services, support, professional
services, education, and layered applications had accounted for 5-10%
of SCO's revenues."

"7. In accordance to its obligations to current customers from May
14, 2003, until May 31, 2003, SCO sold 83 units of SCO Linux Server
4.0, for gross revenue of %9,209. During this same period, 79 units
were returned, which resulted in a loss of $7,360, so net sales for
this period were 4 units and net revenue was $1,849."

"6. As indicated in SCO press release attached as Exhibit C, August 5,
2003, was the first date on which SCO offered its SCO Intellectual
Property License for sale."

"4. From August 5, 2003, until May 31, 2004, (the date of the last
sale), SCO sold 45 units of SCO Linux Server 4.0, for gross revenue of
$5,294. During this same period, 70 units were returned, which resulted
in a loss of $6,473, so net sales for this period were -25 units and
net revenue was -$1,179."

http://www.groklaw.net/pdf/IBM-353-B.pdf

O. 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.

P. 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

Q. The ELF standard is a description of a format used to store executable
programs on a computer disk. The ELF standard is widely used in UNIX
operating systems, including System V and Linux among others. SCO claims
ownership of the UNIX Executable and Linking Format (ELF) standard.

"SCO's two latest filings with the Utah district court hearing its $5
billion suit against IBM claim that SCO's Unix Executable and Linking
Format (ELF) codes are in Linux illegally."

"The charge was made by SCO VP of engineering Sandeep Gupta in a
declaration that is currently under seal, but is quoted, albeit
tersely, in the new filings."

The ELF standard was created by a committee of companies called Tool
Interface Standard Committee (TISC). One of the companies on the TISC
was named SCO. That SCO corporation is not the same corporation as the
corporation currently using the SCO name. The TISC committee issued non
exclusive licenses to use the standard to all comers to the point that
the ELF standard is essentially in the public domain. So while the
current SCO has the right to use the ELF standard, and does use the ELF
standard, the current SCO has absolutely no ownership claim to the ELF
standard.

http://www.linuxworld.com/story/45588.htm

SCO's claim that they own the ELF standard is an example of SCO claiming
ownership of something it does not own.

R. Eric Levenez has created a chart showing the history of the various UNIX
operating systems and the relationships between them.

http://www.levenez.com/unix/

The SCO group made two small modifications to Eric Levenez's chart.
These modifications are intended to bolster SCO's claim of owning Linux.
SCO posted the modified chart, still attributed as the original by Eric
Levenez, on the SCO web site. The forged chart added the claims that
UNIX SVR4 code was copied into Minix and that Minix code was copied into
Linux. Neither claim is true.

The forgery was noticed and publicized on the Groklaw web site.

http://www.groklaw.net/article.php?story=20040620053051348

SCO immediately tried to destroy the evidence by removing the forged
chart from the SCO web site. However a copy of the forged chart is still
available here.

http://web.archive.org/web/20030605133708/www.sco.com/scosource/unixtree/unixhistory01.html

SCO is guilty of both forgery and obstruction of justice in trying to
destroy the evidence.

S. On August 8, 2004 SCO released a story saying that SCO had found a
"smoking gun" to be used against IBM in the SCO v IBM lawsuit. Please
note that Santa Cruz Operation is a different company than the company
now called SCO.

"McBride says that as part of the Monterey deal, Santa Cruz Operation
gave IBM the right to use a version of Unix called System V Release 4
(SVR4)--but only on Intel-based microprocessors, and only if IBM stuck
to the partnership."

"McBride says IBM ignored that restriction and used SVR4 to build a
version of AIX--AIX 5L, released in 2001--that runs on IBM's
proprietary PowerPC microprocessor. (SCO claims that until then, AIX
had been based on Unix System V Release 3, an earlier version of
Unix.)"

http://www.forbes.com/business/2004/08/04/cz_dl_0804sco.html

This story is completely false. In August, 2000 IBM announced that AIX
5L would run on both Intel's Itanium chip and IBM's PowerPC
microprocessor.

http://www.eetimes.com/printableArticle.jhtml?doc_id=19168&_requestid=188585

There are bits and pieces of other articles in the 1999 - 2001 time frame
which show that the original SCO, the company that signed the Monterey
agreement with IBM, knew and approved of IBM using AIX on the PowerPC.

http://www.theinquirer.net/?article=17742

SCO floated this false rumor in an attempt to hype their stock price by
claiming much greater chance of success in the IBM lawsuit than is likely
otherwise. There is a difference between presenting this evidence in
court and presenting it to Forbes.

T. SCO publicly claimed to have hired a team of mathematicians from MIT who
found that System V code had been copied into Linux. This claim was
widely reported.

"SCO was able to uncover the alleged violations by hiring three teams
of experts, including a group from the MIT math department, to analyze
the Linux and Unix source code for similarities. "All three found
several instances where our Unix source code had been found in
Linux," said a SCO spokesman."

http://www.computerworld.com/governmenttopics/government/legalissues/story/0,10801,81973,00.html

This story is completely false. SCO never hired a team of MIT
mathematicians. Here the story is debunked by a MIT newspaper, "The
Tech".

http://www-tech.mit.edu/V123/N33/33sco.33n.html

U. C++ is a widely used programming language. C++ was created by Bjarne
Stroustrup.

http://www.research.att.com/~bs/homepage.html

SCO claims ownership of the C++ programming language and that people are
paying SCO to license C++. Statements to this effect were made by Darl
McBride and Blake Stowell of SCO and widely publicized.

"Blake Stowell: C++ is one of the properties that SCO owns today and we
frequently are approached by customers who wish to license C++ from us
and we do charge for that. Those arrangements are done on a
case-by-case basis with each customer and are not disclosed publicly.
C++ licensing is currently part of SCO's SCOsource licensing program."

http://www.mozillaquest.com/Linux03/ScoSource-02_Story03.html

In fact the C++ programming language is a standard published by ANSI
committee X3J16.

http://www.cplusplus.com/info/history.html

"No one owns the C++ language and the language is royalty-free."

http://en.wikipedia.org/wiki/C_Plus_Plus

SCO has the right to use the C++ programming language but SCO does not
own C++. The SCO statements claiming ownership of C++ are lies. I doubt
that anyone is foolish enough to pay royalties on C++ to SCO so the SCO
statements about collecting royalties for C++ are probably lies. The
purpose of these lies is to illegally promote the value of SCOX.

V. In 1994 Novell transferred the UNIX trademark to the Open Group.

"In 1994 Novell (who had acquired the UNIX systems business of
AT&T/USL) decided to get out of that business. Rather than sell the
business as a single entity, Novell transferred the rights to the
UNIX trademark and the specification (that subsequently became the
Single UNIX Specification) to The Open Group (at the time X/Open
Company). Simultaneously, it sold the UNIX source code and the
product implementation (UNIXWARE) to SCO. The Open Group also owns
the trademark UNIXWARE, transferred to them from SCO more recently.

As the owner of the UNIX trademark, The Open Group has separated the
UNIX trademark from any actual code stream itself, thus allowing
multiple implementations. Since the introduction of the Single UNIX
Specification, there has been a single, open, consensus specification
that defines the requirements for a conformant UNIX system."

http://www.opengroup.org/comm/press/who-owns-unix.htm

The UNIX trademark is owned by the Open Group. The Open Group has set
up guidelines for allowing companies to use the UNIX trademark. These
guidelines include:

"* It must not be used as a generic term.
* It must not be used in connection with products, unless the product
is licensed to use the mark.
* There are detailed guidelines referring to the visual presentation,
form and manner of use.
* In editorial or articles, but not advertising the trade marks may be
used without prior permission - provided that the rules in our
Trademark Usage Guide are followed."

http://www.unix.org/trademark.html

While SCO has the right to use the UNIX trademark under certain
conditions SCO does not have exclusive rights to use the UNIX trademark.
The Open Group has publicly stated that SCO's use of the UNIX trademark
is incorrect.

"Regarding SCO's positioning on UNIX, The Open Group would like to make
it clear that SCO holds the rights ONLY to the operating system source
code (originally licensed by AT&T) and related intellectual property
and DOES NOT OWN the UNIX trademark itself or the definition (the
Single UNIX Specification) of what the UNIX system is.

Reference to the SCO web site shows that they own certain intellectual
property and that they correctly attribute the trademark to The Open
Group. SCO has never owned "UNIX". SCO is licensed to use the
registered trademark UNIX "on and in connection" with their products
that have been certified by The Open Group, as are all other
licensees.

These are the ONLY circumstances in which a licensee may use the
trademark UNIX on and in connection with its products.

Statements that SCO "owns the UNIX operating system" or has "licensed
UNIX to XYZ", are clearly inaccurate and misleading."

http://www.opengroup.org/comm/press/unix-backgrounder.htm

Indeed, SCO has flagrently violated the Open Group's term of usage for
the UNIX trademark. SCO has widely publicized the notions that SCO "owns
the UNIX operating system" and/or has "licensed UNIX to XYZ". A Google
search turns up thousands of examples of SCO mischaracterizing its rights
to use the UNIX trademark. One example that I give is a SCO quarterly
report filed with the SEC in which SCO repeatedly refers to UNIX as their
product without qualifying that the UNIX name is shared by several other
companies' products.

http://www.sec.gov/Archives/edgar/data/1102542/000110465904027598/a04-10532_110q.htm

Another example is this press release in which SCO states that it owns
UNIX. The press release notes that UNIX is a registered trademark but it
does not note that the UNIX trademark belongs to the Open Group, not SCO.

"LINDON, Utah, Jun 15, 2004 /PRNewswire-FirstCall via COMTEX/ -- The
SCO Group, Inc. ("SCO") (Nasdaq: SCOX), the owner of the UNIX(R)
operating system and a leading provider of UNIX-based solutions, today
announced a broad array of new and enhanced UNIX products as well as
new channel support and training programs."

http://ir.sco.com/ReleaseDetail.cfm?ReleaseID=137086

Thus SCO has misled the investing public by repeatedly stating that they
own UNIX when in fact they have a dubious claim to System V which is one
of several operating systems which conform to the UNIX specifications.

W. SCO has misled investors about SCO's revenues.

1) On March 1, 2004 SCO announced that EV1Servers.Net had bought a
SCOsource license. Blake Stowell, SCO Director of Public Relations,
said that SCO had received more than $1 million for the SCOsource
license.

'Blake Stowell, SCO's director of public relations, said that
EV1Servers.Net had made the deal because its "CEO felt that there
was uncertainty about Linux's legal standing and they made a
business decision to avoid any possible doubts about their use of
Linux for both themselves and their customers."'

'Stowell added, "They didn't pay full retail price on each server,
but the deal was still worth seven figures all together for SCO."'

http://www.eweek.com/article2/0,1759,1541140,00.asp

2) On March 3, 2004 Robert Marsh, CEO of EV1Servers.net, denied that EV1
had paid that large an amount for the SCOsource license.

"I would discount ANY reports or quotes of a 7 figure cash payment
as has been reported."

"We did agree to a one time payment, however we did not agree to pay
a 7 figure cash payment as reported in the media."

"__________________"
"Robert Marsh"
"Head Surfer Ev1servers.net"

http://forum.ev1servers.net/showthread.php?s=ec6c44446e8b2650e51ec132337d3bf4&postid=261665#post261665

3) On June 10, 2004 SCO held their 2nd Quarter Earnings Conference Call.
During this conference call SCO made several evasive statements about
the amount and accounting for the EV1 SCOsource license. Eventually
Darl McBride stated that the EV1 SCOsource revenue was less than
$250,000 and at least $100,000.

"McBride: We had a few deals on the SCOsource side, Maureen. You
know with last quarter we had announced a major deal with EV1. That
is not part of the revenue stream that we're reporting in second
quarter. That revenue will start to be accounted for in the quarter
that we're currently in."

"Cornett: Just what's the magnitude going to be? I mean is the
quarter million still right for the July quarter?"

"Young: That'd be a little high."

"McBride: From them, that would be high. It's going to be spread out
over multiple quarters, but it will be in the six figures."

http://www.groklaw.net/article.php?story=20040615030206675

So from March 1, 2004 to June 10, 2004 SCO misled the investing public
by stating that revenue from the EV1 SCOsource license was at least
four times as high as it actually was.

X. SCO has engaged in fraudulent accounting.

Section 1350 of the Sarbanes-Oxley Act of 2002 says:

"Sec. 1350. Failure of corporate officers to certify financial reports"

"(a) CERTIFICATION OF PERIODIC FINANCIAL REPORTS- Each periodic report
containing financial statements filed by an issuer with the Securities
Exchange Commission pursuant to section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) shall be
accompanied by a written statement by the chief executive officer and
chief financial officer (or equivalent thereof) of the issuer."

"(b) CONTENT- The statement required under subsection (a) shall certify
that the periodic report containing the financial statements fully
complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act pf 1934 (15 U.S.C. 78m or 78o(d)) and that
information contained in the periodic report fairly presents, in all
material respects, the financial condition and results of operations of
the issuer."

"(c) CRIMINAL PENALTIES- Whoever--"

"(1) certifies any statement as set forth in subsections (a) and (b)
of this section knowing that the periodic report accompanying the
statement does not comport with all the requirements set forth in this
section shall be fined not more than $1,000,000 or imprisoned not more
than 10 years, or both; or"

"(2) willfully certifies any statement as set forth in subsections (a)
and (b) of this section knowing that the periodic report accompanying
the statement does not comport with all the requirements set forth in
this section shall be fined not more than $5,000,000, or imprisoned not
more than 20 years, or both."

http://thomas.loc.gov/cgi-bin/query/F?c107:1:./temp/~c1077MINQe:e197484:

On September 1, 1998 Novell and the first of two companies to be called
SCO entered into a sales agreement which gave old SCO the right to market
the Unix System V operating system and its derivatives. In this
agreement SCO agreed to pay 95% of the revenue from existing customers to
Novell. SCO also agreed that if the contract of an existing customer
were renegotiated then Novell was still entitled to 95% of the revenue
from that customer.

http://www.groklaw.net/article.php?story=20040229023446199

Old SCO later transfered their rights in the Novell-SCO contract to
Caldera.

http://contracts.corporate.findlaw.com/agreements/sco/caldera.mer.2000.08.01.html

In August 2002 Caldera changed its name to The SCO Group (SCO). This
corporation now called SCO is the successor company to the company called
SCO which signed the agreement with Novell.

http://news.zdnet.co.uk/software/developer/0,39020387,2121346,00.htm

1) Under the terms of the Novell - SCO agreement SCO must pay Novell
about 3 million dollars per quarter for the original contract between
Sun and Novell. This was explained in the transcript of the "SCO 4Q &
Year-End Financial Conference Call" on December 22 2004.

"Eisenberg: Right, I know you mentioned this once before, but I'm
now looking at the balance sheets. Funny. There were two press
releases -- one didn't have the balance sheet but the other did. I
found it. The restricted cached 8 million is earmarked for legal
expenses."

"Young: 5 million of that is."

"Eisenberg: Uh-huh. What about the other 3?"

"Young: The other 3 is a royalty agreement that we collect on behalf
of Novell and then send to them. So it's basically just a
pass-through here in the company. We have that every quarter."

http://www.groklaw.net/article.php?story=20041222011158357

SCO is accounting for pass through royalty payments to Novell by
recording them as legal expenses. This is a serious misrepresentation
of what the money is spent on. SCO has repeatedly claimed that
their ongoing software business is cash flow positive. By recording
these expenses payable to Novell as legal expenses SCO is making
fraudulent claims of the viability of their ongoing software business.

On April 1, 2005 SCO filed their 10-K for 2004. In that 10-K there is
a statement confirming that SCO owes Novell money and that such money
had been previously been accounted as restricted cash for legal
expenses.

"Restricted Cash and Payable to Novell, Inc."

"Pursuant to the 1995 Asset Purchase Agreement and the Company’s
acquisition of assets and operations of The Santa Cruz Operation,
the Company acts as an administrative agent in the collection of
payments from a limited number of pre-existing Novell, Inc.
(“Novell”) customers who continue to deploy SVRx technology. Under
the agency agreement, the Company collects payments from such
customers and receives 5 percent as an administrative fee. The
Company records the 5 percent administrative fee as revenue in its
consolidated statements of operations. The accompanying
consolidated balance sheets as of October 31, 2004 and 2003 reflect
amounts collected related to this agency agreement but not yet
remitted to Novell of $3,283,000 and $2,025,000, respectively, as
restricted cash and payable to Novell. The Company’s obligation to
act as an administrative agent for Novell is unrelated to the
Company’s SCOsource initiatives related to its intellectual property
rights or the Company’s lawsuit against Novell for slander of title
alleging Novell’s bad faith effort to interfere with the Company’s
copyrights in its UNIX source code and derivative works and its
UnixWare product. . . . ."

http://www.sec.gov/Archives/edgar/data/1102542/000110465905014787/a05-6064_110k.htm

2) In February 2003 Sun Microsystems renegotiated their contract with
SCO. Scott McNealy is Chairman and CEO of Sun Microsystems. In a
Newsforge interview he was asked a question by Jem Matzan.

"McNealy responded by saying that the process of open sourcing
Solaris actually started five years ago. 'There were hundreds of
encumbrances to open sourcing Solaris. Some of them we had to buy
out, others we had to eliminate. We had to pay SCO more money so we
could open the code -- I couldn't say anything about that at the
time, but now I can tell you that we paid them that license fee to
expand our rights to the code,' he said, referring to the February
2003 multi-million-dollar purchase of expanded Unix SVR4 license
rights from the SCO Group."

http://www.newsforge.com/article.pl?sid=04/11/18/1540233

SCO owed Novell 95% of the multimillion dollar fee paid by Sun to SCO
for Sun's expanded Unix SVR4 license rights in the February 2003
agreement. This money has not appeared on the SCO books either as
payable to Novell or as a disputed payable.

Before the December 22, 2004 SCO 4Q & Year-End Financial Conference
Call I looked at the SCO financial report in a SCO press release. The
fourth quarter balance sheet showed a multimillion dollar liability to
Novell which was more than 72 days old. That item had not appeared on
any previous SCO quarterly statement. After the teleconference when I
went looking for that balance sheet I could not find it. I found a
different balance sheet which did not contain any mention of overdue
payables to Novell.

I am not the only person who remembers two balance sheets. One of the
people asking questions at the teleconference was Tom Eisenberg with
Open Road Partners. Tom Eisenberg asked a series of questions that
showed he was confused about the balance sheet and was trying to
figure it out. His comments included this statement:

http://www.groklaw.net/article.php?story=20041222011158357

My recollection differs from Tom Eisenberg in that I remember that
both press releases had balance sheets but that the two balance sheets
differed. The financial statements as they appeared in the second
press release can be found in a FORM 8-K files by SCO on January 26,
2005.

http://www.sec.gov/Archives/edgar/data/1102542/000110465905002648/a05-2253_1ex99d1.htm

There has been a series of letters exchanged between Novell and SCO.
These letters reveal a pattern of SCO withholding payments due Novell
and Novell demanding both payments and audits, the right for Novell to
conduct such audits being a part of the contract between Novell and
SCO.

http://www.groklaw.net/article.php?story=20040115161155820

Novell has filed a reply in SCO v Novell. On page 27, section 63 of
Novell's pleadings Novell states:

"Section 1.2(b) of the APA gives Novell broad audit rights relating
to the administration of the SVRX licensing program. It reads in
part:

[Novell] shall be entitled to conduct periodic audits of [SCO]
concerning all royalties and payments due to [Novell] hereunder or
under the SVRX Licenses, provided that [Novell] shall conduct such
audits after reasonable notice to [SCO] and during normal business
hours and shall not be entitled to more than two (2)such audits
per year."

On page 30, section 73 of Novell's pleadings Novell states:

"Despite Novell's repeated requests, SCO has never provided copies
of the Sun and Microsoft licenses, or amendments, or copies of SCO's
Intellectual Property Licenses for Linux or other agreements
connected with attempts by SCO to enter into new or amended SVRX
licenses. SCO also never provided any explanation why SCO was not
obligated under the APA to seek Novell's consent to amend or
otherwise enter into new SVRX agrements. As a result, Novell has
been unable to verify SCO's compliance with the APA, as Novell is
entitled under the APA."

On page 30, section 75 of Novell's pleadings Novell states:

"SCO has failed to remit to Novell all royalties owen under 1.2(b)
and 4.16(a) of the APA."

On page 31, section 78 of Novell's pleadings Novell states:

"SCO has not remitted any royalties from its new SVRX Licenses with
Sun or Microsoft."

http://www.groklaw.net/pdf/Novell-78.pdf

"In fiscal 2003, SCO Group reported $25.8 million in new Unix
license fees from Sun and Microsoft, according to its financial
statements. Novell says 95% of that should be paid to Novell. That
would come to $24.5 million that SCO owes Novell."

"But SCO currently has only about $11 million. So Novell is asking
for SCO's assets to be attached and its cash put in a trust fund
until the legal issues are resolved, in order to protect the money
Novell says it's owed. If the judge in this case (who's also the
judge in SCO v IBM), grants those preliminaries, SCO will have no
money at all to continue in business -- much less to sue IBM, Novell
or Linux users."

http://www.computerworld.com/blogs/node/688

I consider these facts to be evidence that SCO has misrepresented
large payments by Microsoft and Sun Microsystems as income in the SCO
books without recording the corresponding liability to Novell. SCO
must file their yearly statement with the SEC by January 31, 2005 and
this report must be certified by an outside auditor, KPMG. Is this
why SCO made a belated effort to correct their books in the first
December 22, 2004 press release and then pulled the corrections
between the press release and the teleconference? I suggest that the
SEC audit the SCO books to determine whether or not the royalty fees
due to Novell have been accounted for correctly.

3) Novell's counterclaims include the charge that SCO has fraudulently
failed to pay money owed to Novell. SCO concealed this fraud from the
investing public by engaging in fraudulent accounting.

"63. Section 1.2(b) of the APA gives Novell broad audit rights
relating to the administration of the SVRX licensing program.
It reads in pertinent part:"

"[Novell] shall be entitled to conduct periodic audits of [SCO]
concerning all royalties and payments due to [Novell] hereunder or
under the SVRX Licenses, provided that [Novell] shall conduct such
audits after reasonable notice to [SCO] and during normal business
hours and shall not be entitled to more than two (2) such audits per
year."

"64. Further, section 1.2(f) of the APA obligates SCO to provide
Novell monthly reports detailing the SVRX royalties that SCO
received."

"65. On July 11, 2003 Novell notified SCO that it intended to
conduct an audit beginning on August 18, 2003 covering the period
beginning January 1, 1998 through June 30."

"66. By reply correspondence dated July 17, 2003, SCO accepted
Novell's right to an audit. Novell's audit began during the week of
August 25, 2003."

"67. As part of Novell's aforementioned audit rights, on November
21, 2003, Novell sought information and documentation relating to:"

"a. Any amendments and modifications to SVRX licenses, and in
particular the amendments to the Sun and Microsoft SVRX licenses.
Novell specifically requested (1) "copies of the Sun and Microsoft
amendments to verify SCO's compliance" with the APA and (2) "a
detailed explanation of SCO's position" if SCO contends that
either of the two exceptions to the prohibition on unilateral
amendments by SCO were applicable."

"b. Any buy-out of SVRX licenses, and in particular any
information concerning any buy-out of Sun's and Microsoft's
royalty obligations under their SVRX licenses. Novell specifically
requested that SCO identify any potential buy-out transactions so
that Novell could verify SCO's compliance with the APA."

"c. Any new SVRX licenses, and in particular SCO's Intellectual
Property Licenses for Linux. Novell specifically requested (1)
"copies of all SCO Intellectual Property Licenses for Linux, and
any other agreements connected with attempts by SCO to enter into
new SVRX Licenses, so Novell can verify SCO's compliance" with the
APA and (2) "a detailed explanation of SCO's position" if SCO
contends that the exception to the prohibition on new SVRX
licenses by SCO was applicable."

"d. Any SVRX to UnixWare Conversions. Novell specifically
requested that SCO (I) identify and provide documentation for any
allegedly valid conversions and (2) "explain in detail" how the
alleged conversion complies with the APA and (3) provide "a
detailed explanation of SCO's position" if SCO contends that any
exception to the prohibition on conversion by SCO was applicable."

"68. Novell renewed its November 21, 2003 demand on December 29,
2003 and again on February 4, 2004."

"69. On February 5, 2004, SCO conveyed its refusal to provide at
least the information identified in subparagraphs a, b and c of
Paragraph 67, above."

"70. On March 1, 2004, Novell again contacted SCO for the above
categories of information: "In order to complete our audit, we
need the Sun, Microsoft and any other Intellectual Property
Licenses for Linux. Stated more categorically, we need all
agreements in which SCO purported to grant rights with respect to
Unix System V." Novell noted that SCO's Intellectual Property
Licenses for Linux appeared to be SVRX Licenses since they
purported to grant rights relating to UNIX System V or Unix-Ware."

"71. Novell again sent a letter to SCO on April 2, 2004 urging a
response."

"72. On November 17, 2004, Novell contacted SCO yet again:

We have communicated with SCO several times about our concerns
with SCO's handling of UNIX licenses, including the license with
Sun. In these communications, we have noted that our audit rights
under the Asset Purchase Agreement require SCO to provide Novell
with copies of any UNIX agreements (including amendments) SCO has
reached with Sun. We have sent you letters twice on this issue (in
March and April 2004), and have not received an adequate response.
. . . Accordingly, we must once again insist that you provide us
with copies of any agreements with Sun (including amendments) that
relate to UNIX. We would appreciate a response by Friday,
December 3, 2004."

"73. Despite Novell's repeated requests, SCO has never provided
copies of the Sun and Microsoft licenses, or amendments, or copies
of SCO's Intellectual Property Licenses for Linux or other
agreements connected with attempts by SCO to enter into new or
amended SVRX licenses. SCO also never provided any explanation why
SCO was not obligated under the APA to seek Novell's consent to
amend or otherwise enter into new SVRX agreements. As a result,
Novell has been unable to verify SCO's compliance with the APA, as
Novell is entitled under the APA."

'74. Sections 1.2(b) and 4.16(a) of the APA obligate SCO to remit
100% of "all royalties, fees and other amounts due under all SVRX
Licenses" to Novell. "SVRX Licenses" are in turn defined to
include "[a]ll contracts relating to" the various UNIX System
releases and auxiliary products enumerated at Schedule 1.1(a)(VI)
and Attachment A to Amendment No. 1. Under the APA, Novell has
"all right, title and interest to the SVRX Royalties, less the 5%
fee for administering the collection thereof."'

"75. SCO has failed to remit to Novell all royalties owed under §§
1.2(b) and 4.16(a) of the APA."

"76. As SCO admitted in its February 5, 2004 letter to Novell, SCO
has entered into "new" agreements with Sun and Microsoft."

"77. On information and belief, these new agreements are
"contracts relating to" the various UNIX System releases and
auxiliary products enumerated at Schedule 1.1 (a)(VI) and
Attachment A to Amendment No. 1. The new agreements are therefore
SVRX Licenses under the APA."

"78. SCO has not remitted any royalties from its new SVRX Licenses
with Sun or Microsoft."

http://www.groklaw.net/article.php?story=20050915183241951

4) SCO has deliberately falsified their accounting for SCOsource
revenues.

a) On March 1, 2004 SCO announced that EV1Servers.Net had bought a
SCOsource license. SCO said that they had received more than $1
million for the SCOsource license.

'Stowell added, "They didn't pay full retail price on each
server, but the deal was still worth seven figures all together
for SCO."'

http://www.eweek.com/article2/0,1759,1541140,00.asp

b) On March 3, 2004 Robert Marsh, CEO of EV1Servers.net, denied that
EV1 had paid that large an amount for the SCOsource license.

"I would discount ANY reports or quotes of a 7 figure cash
payment as has been reported."

"We did agree to a one time payment, however we did not agree to
pay a 7 figure cash payment as reported in the media."

"__________________"
"Robert Marsh"
"Head Surfer Ev1servers.net"

http://forum.ev1servers.net/showthread.php?s=ec6c44446e8b2650e51ec132337d3bf4&postid=261665#post261665

c) On June 10, 2004 SCO held their 2nd Quarter Earnings Conference
Call. During this conference call SCO made several evasive
statements about the amount and accounting for the EV1 SCOsource
license. Eventually Darl McBride stated that the EV1 SCOsource
revenue was less than $250,000 and at least $100,000.

"McBride: We had a few deals on the SCOsource side, Maureen. You
know with last quarter we had announced a major deal with EV1.
That is not part of the revenue stream that we're reporting in
second quarter. That revenue will start to be accounted for in
the quarter that we're currently in."

"Cornett: Just what's the magnitude going to be? I mean is the
quarter million still right for the July quarter?"

"Young: That'd be a little high."

"McBride: From them, that would be high. It's going to be spread
out over multiple quarters, but it will be in the six figures."

http://www.groklaw.net/article.php?story=20040615030206675

In the same conference call SCO stated that revenue for SCOsource
was $11,000 the in 2nd quarter of 2004 and did not provide any
customer names. The customers are probably Questar Corp. and
Leggett & Platt Inc.

http://www.computerworld.com/softwaretopics/os/linux/story/0,10801,90791,00.html

"McMillan: Yeah, hi there. Just a question about SCOsource
revenue for Q2, can you tell me what that was?"

"McBride: [pause] Well, it's not ... go ahead Bert."

"Young: Yeah, I mean, it's Bert. It was just a couple of small
licensing deals, people that, you know, signed up for our
SCOsource agreement."

"McMillan: So you're not saying what the ... so was it zero?"

"Young: No, it's eleven thousand dollars."

http://www.groklaw.net/article.php?story=20040615030206675

d) On August 31, 2004 SCO held their 3d Quarter Earnings Conference
Call.

The SCOsource revenue from EV1 was not mentioned specifically but
was lumped into a total SCOsource revenue of $678,000. Since EV1
SCOsource revenue was less than $250,000 then SCO is claiming
SCOsource revenue of more than $438,000 from an unnamed customer
in the 3d quarter of 2004.

"Revenue from our SCOsource division relating to compliance
licenses was $678,000 for the 3rd quarter, and $709,000
year-to-date. This revenue was primarily from two sources,
including a transaction that was completed in a prior quarter,
and a newly signed license agreement in the third quarter. Due
to confidentiality reasons we are not disclosing specific terms
of either of these license agreements."

http://www.groklaw.net/article.php?story=20040902040655144

e) On December 21, 2004 SCO held their 4th Quarter Earnings Conference
Call. In the 4th quarter of 2004 SCO claimed SCOsource revenue of
$120,000 from and unnamed source.

"The remaining revenue for the 4th quarter was derived from
$120,000 in SCOsource licensing, which represents significant
year-over-year decrease, given the 4th quarter of 2003 was an
exceptional quarter in which the company closed two large
licenses."

http://www.groklaw.net/article.php?story=20041222011158357

I consider these facts to be evidence that SCO has deliberately
falsified their accounting for SCOsource revenues.

5) On January 31, 2005 SCO filed a FORM 12b-25 with the SEC which stated
that SCO could not file a FORM 10-K on time and requested a 15 day
extension.

http://www.sec.gov/Archives/edgar/data/1102542/000104746905001904/a2150650znt10-k.htm

Part III of the FORM 12b-25 contained an explanation by SCO of why the
10-K could not be filed on time:

"PART III — NARRATIVE"

"State below in reasonable detail why forms 10-K, 20-F, 11-K, 10-Q,
N-SAR, N-CSR, or the transition report or portion thereof, could not
be filed within the prescribed time period."

"The SCO Group, Inc. (the "Company") hereby requests an extension of
time to file its Annual Report on Form 10-K for the period ended
October 31, 2004. The Company was unable to file its Form 10-K by
January 31, 2005 without unreasonable effort or expense because the
Company needs more time to adequately compile and analyze supporting
documentation and provide such documentation to its auditor.
Consequently, the Company's auditor was unable to complete the audit
of the Company's financial statements within the necessary period of
time. The Company currently anticipates that the Form 10-K will be
filed by no later than the fifteenth calendar day following the date
on which the Form 10-K was due."

http://www.sec.gov/Archives/edgar/data/1102542/000104746905001904/a2150650znt10-k.htm

Exhibit A is a letter from KPMG agreeing that the reasons given in
PART III of the FORM 12b-25 were why KPMG has been unable to complete
their audit and report on SCO's financial statements for the year
ended October 31, 2004. I wish to emphasis that KPMG only agreed to
PART III of the FORM 12b-25.

"January 28, 2005"

"The SCO Group, Inc.
355 South 520 West
Lindon, Utah 84042"

"Ladies and Gentlemen:"

"Pursuant to Rule 12b-25 of the General Rules and Regulations under
the Securities and Exchange Act of 1934, we inform you that we have
been furnished a copy of the Form 12b-25 to be filed by The SCO
Group, Inc. (the "Company") on or about January 31, 2005, which
contains notification of the registrant's inability to file its Form
10-K by January 31, 2005. We have read the Company's statements
contained in Part III therein and we agree with the stated reason as
to why we have been unable to complete our audit and report on the
Company's financial statements for the year ended October 31, 2004,
to be included in its Form 10-K."

"Very truly yours,"

"/s/ KPMG LLP"

PART IV — OTHER INFORMATION of the FORM 12B-25 SCO contains some
questions to be answered by SCO. One of these questions is:

"(3) Is it anticipated that any significant change in results of
operations from the corresponding period for the last fiscal year
will be reflected by the earnings statements to be included in the
subject report or portion thereof?"

SCO has answered both "yes" and "no" to this question. NOTE THAT KPMG
HAS NOT AGREED TO THIS ANSWER. Both the "yes" and the "no" reference
a footnote which seems to shed more light on the nature of the
problem. The footnote says:

"The Company is examining certain matters related to the issuance of
shares of common stock issued under the Company's 2000 Employee
Stock Purchase Plan and potentially its other equity compensation
plans. More time is needed to compile and analyze all relevant
data."

NOTE THAT KPMG HAS NOT AGREED TO THIS FOOTNOTE.

The SCO 2003 10-K states that Arthur Andersen used to be the SCO
external auditors until Arthur Andersen folded. Then KPMG became the
SCO external auditors. KPMG refuses to express any opinion or any
form of assurance on events before November 1, 2001. So KPMG cannot
express any opinion on whatever problems SCO might be having with
their 2000 Employee Stock Purchase Plan.

"As discussed above, the consolidated financial statements of The
SCO Group, Inc. and subsidiaries for the year ended October 31, 2001
were audited by other auditors who have ceased operations. . . .
However, we were not engaged to audit, review, or apply any
procedures to the fiscal year 2001 consolidated financial statements
of The SCO Group, Inc. and subsidiaries other than with respect to
such adjustments and disclosures and, accordingly, we do not express
an opinion or any form of assurance on the fiscal year 2001
consolidated financial statements taken as a whole."

"/s/ KPMG LLP"

http://www.sec.gov/Archives/edgar/data/1102542/000104746904002142/a2127332z10-k.htm

Regardless of whether or not the ambiguous answer and tangential
footnote by SCO in PART IV are true they are not the reasons why KPMG
has been unable to complete its audit. The statements by SCO in PART
IV are a fraud meant to mislead investors about the true nature of the
accounting problems at SCO.

6) SCO failed to file a FORM 10-K for 2004.

SCO has failed to file a FORM 10-K for the 2004 fiscal year. The FORM
10-K was due by January 31, 2005. On January 31, 2005 SCO filed a
FORM 12b-25 notifying the SEC that the 10-K would file filed late.
The FORM 12b-25 gave two reasons for the late filing. One of the two
reasons was fraudulent. SCO promised that the 10-K would be filed no
later than February 15, 2005. That deadline has passed and SCO still
has not filed a 10-K.

http://www.sec.gov/Archives/edgar/data/1102542/000104746905001904/a2150650znt10-k.htm

I suggest that the SEC conduct a formal investigation into why KPMG
refuses to certify SCO's accounts.

7) SCO's financial statements for the quarters ending January 31, 2004,
April 30, 2004 and July 31, 2004 are incorrect.

On March 3, 2005 SCO filed an 8-K with the SEC. This 8-K said in
part:

"On February 28, 2005, on management’s recommendation, the Audit
Committee of the Board of Directors of The SCO Group, Inc. (the
“Company”) concluded, and KPMG LLP, the Company’s independent
auditors agreed, that, due to certain accounting errors, the
Company’s financial statements for the quarters ending January 31,
2004, April 30, 2004 and July 31, 2004 should no longer be relied
upon and should be restated."

http://www.sec.gov/Archives/edgar/data/1102542/000110465905009368/a05-4200_28k.htm

The 8-K then included some more explanations of SCO's accounting
problems. Such explanations were not certified by KPMG. A press
release with further explanations, again not certified by KPMG, was
attached.

http://www.sec.gov/Archives/edgar/data/1102542/000110465905009368/a05-4200_2ex99d1.htm

All of the accounting problems listed in the press release could be
solved to both parties' satisfaction in a half hour meeting between
SCO and KPMG. Whatever problem(s) is causing the deadlock between SCO
and KPMG is not listed in the press release. The best description
that I could find of what SCO's elaborations mean is this:

"Those assiduous corporate officers -- singlemindedly and doggedly
badgering the auditors into seeing the necessity for restating
results: no matter how long it took. What a team. What ethics.
What ... self-serving bilgewater."

http://www.groklaw.net/article.php?story=20050303161820784

8) On April 1, 2005 SCO filed their 10-K for 2004 very late. In that
10-K SCO stated that the S-3 registration statement was invalid
because the 10-K was filed late. I suggest that the 10-K has cause
and effect backwards; the 10-K was filed late because SCO (and
BayStar) lied about the SEC approving the S-3 registration for the
SCOX common stock exchanged for the Series A-1 Preferred Stock and the
auditors, KPMG, refused to certify actions taken under the unapproved
SCO/BayStar registration statement.

"We previously had an effective registration statement on Form S-3
relating to the sale or distribution by BayStar as a selling
stockholder of the 2,105,263 shares of common stock issued to
BayStar in connection with our repurchase completed in July 2004 of
all Series A-1 shares previously held by BayStar. When we failed to
file this Form 10-K in a timely fashion, we became ineligible to use
Form S-3, our registration statement ceased to be effective and
BayStar’s ability to resell shares pursuant to that registration
statement terminated. We are currently in the process of preparing
a new registration statement for the resale of BayStar’s shares on
Form S-1. Upon that registration statement being declared effective
by the SEC, BayStar will again be able to resell its shares."

http://www.sec.gov/Archives/edgar/data/1102542/000110465905014787/a05-6064 _110k.htm

One of the actions taken under the invalid contract was that the
outstanding dividends owed by SCO on the Series A-1 redeemable
convertible preferred stock were canceled. As part of the accounting
corrections forced by KPMG $7,123,000 in dividends on the Series A-1
preferred stock were moved to liabilities.

http://www.sec.gov/Archives/edgar/data/1102542/000110465905014787/a05-6064 _110k.htm

9) SCO failed to file a 10-Q for the first quarter of 2005,

"On March 18, 2005, the Company received a notice from the staff of
The Nasdaq Stock Market regarding the Company's failure to comply
with Nasdaq's requirement to file its Form 10-Q for the quarterly
period ended January 31, 2005 in a timely fashion, as required under
Marketplace Rule 4310(c)(14)."

http://ir.sco.com/ReleaseDetail.cfm?ReleaseID=158467

10) KPMG has resigned as SCO's external auditors.

"June 3, 2005"

"Securities and Exchange Commission
Washington, D.C. 20549"

"Ladies and Gentlemen:"

"We were previously principal accountants for The SCO Group,
Inc. and, under the date of February 18, 2005, except as to note 16,
which is as of March 11, 2005, we reported on the consolidated
financial statements of The SCO Group, Inc. as of and for the years
ended October 31, 2004 and 2003. On May 27, 2005, we notified the
SCO Group, Inc. that we would resign upon completion of the
Statement of Auditing Standards (SAS) No. 100 review of The SCO
Group, Inc.'s condensed consolidated financial statements as of
April 30, 2005 and for the related three-month and six-month periods
ended April 30, 2005. The SAS No. 100 review was completed June 2,
2005. We have read The SCO Group, Inc's statements included under
Item 4.01 of its Form 8-K dated June 3, 2005, and we agree with such
statements, except that we are not in a position to agree or
disagree with The SCO Group, Inc's statements that: 1) Tanner LC was
engaged as the independent registered public accounting firm and the
Audit Committee recommended or approved their appointment and 2)
whether or not The SCO Group, Inc. consulted with Tanner LC
regarding any of the matters set forth in Item 304(a)(2)(i) and (ii)
of Regulation S-K."

"Very truly yours,"

"/s/ KPMG LLP"

http://www.sec.gov/Archives/edgar/data/1102542/000104746905016438/a2159203z424b3.htm#toc_ka2085_1

An external auditor can make no public statements about their clients.
Anything that KPMG says about SCO has to be published by SCO. I have
read through all of the statements published by SCO about what KPMG
has told SCO in KPMG's audit reports. According to SCO, KPMG has
approved everything done by SCO with one exception. The exception is
that KPMG found a weakness in SCO's internal controls related to the
accounting for capital stock and stock option transactions.

"KPMG reported in a letter to the Company's Audit Committee dated
May 17, 2005 that during its audit of the Company's financial
statements for the fiscal year ended October 31, 2004, it noted a
material weakness in internal controls related to the accounting
for capital stock and stock option transactions."

http://www.sec.gov/Archives/edgar/data/1102542/000104746905016438/a2159203z424b3.htm

11) When KPMG refused to certify SCO's 10-Q all of the reasons for why
they did so were published by SCO. While KPMG possibly raised the
objections published by SCO, I think SCO lied about THE reason why
KPMG refused to certify SCO's books. KPMG had discovered that the SEC
never did approve the BayStar repurchase agreement.

While SCO has stated that KPMG objected to SCO's internal controls
related to the accounting for capital stock and stock option
transactions, SCO never did explain what KPMG's objection was to the
repurchase agreement. When SCO finally admitted that the repurchase
agreement was invalid they gave a bafflegab explanation of why it was
invalid. KPMG finally certified the books. But the evidence
indicates that KPMG wound up their work at a convenient point and then
resigned because KPMG was horrified that SCO was and still is lying
about what the KPMG audit reports said about the repurchase agreement.

Here are the responsibilities laid down by the Sarbanes-Oxley act for
Darl McBride (CEO) and Bert Young (CFO).

"SOX Section 302 - Corporate Responsibility for Financial Reports
a) CEO and CFO must review all financial reports.
b) Financial report does not contain any misrepresentations.
c) Information in the financial report is "fairly presented".
d) CEO and CFO are responsible for the internal accounting controls.
e) CEO and CFO must report any deficiencies in internal accounting
controls, or any fraud involving the management of the audit
committee.
f) CEO and CFO must indicate any material changes in internal
accounting controls."

http://www.sarbanes-oxley-101.com/sarbanes-oxley-compliance.htm

The penalties for violating the Sarbanes-Oxley reporting
responsibilities include the following.

"Besides lawsuits and negative publicity, a corporate officer who
does not comply or submits an inaccurate certification is subject to
a fine up to $1 million and ten years in prison, even if done
mistakenly. If a wrong certification was submitted purposely, the
fine can be up to $5 million and twenty years in prison."

http://www.sarbanes-oxley-101.com/sarbanes-oxley-faq.htm

I think that the SEC should obtain a search warrant to find all of the
audit reports which KPMG has submitted to SCO. The SEC should compare
the KPMG audit reports with the information that Darl McBride and Bert
Young have filed with the SCO and their public statements through
press releases and the quarterly earning conference calls.

Darl McBride and Bert Young are violating their Sarbanes-Oxley
reporting responsibilities and should be indicted for doing so.

I also suggest that the SEC freeze all payments to Darl McBride,
Ralph Yarro, and Bert Young under the authority given to the SEC to
do so by the Sarbanes Oxley Act.

http://www.webcpa.com/article.cfm?articleid=15839

Y. SCO fraudulently claimed that Computer Associates bought a SCOsource
license.

Robert Bench, SCO Chief Financial Officer, said that Computer Associates
had purchased a SCOsource license.

"Software giant Computer Associates International Inc. has signed up
for The SCO Group Inc.'s Intellectual Property License for Linux, SCO
Chief Financial Officer Bob Bench confirmed yesterday."

http://www.computerworld.com/softwaretopics/os/linux/story/0,10801,90791,00.html

Sam Greenblatt, Computer Associates Senior Vice Ppresident, said that SCO
had misconstrued the terms of the agreement settling a breach of contract
dispute between Canopy and Computer Associates. Canopy insisted that a
SCOsource license be included in the settlement even though no money was
paid by Computer Associates to SCO and SCO was not party to the
agreement.

"The settlement that gave CA the Linux rights took place in August, CA
spokeswoman Michelle Healy said. In that settlement, CA agreed to pay
$40 million to Canopy and Center 7, a company in which Canopy holds a
majority ownership, according to a SCO filing with the Securities and
Exchange Commission. Center 7 sued CA in April 2001, alleging a breach
of contract of a software license agreement, CA said in a filing with
the SEC."

"CA disagrees with SCO's tactics, which are intended to intimidate and
threaten customers. CA's license for Linux technology is part of a
larger settlement with the Canopy Group. It has nothing to do with
SCO's strategy of intimidation,"

http://news.zdnet.com/2100-3513_22-5170310.html

Z. The SCOX stock price rose spectactularly after SCO began claiming
exaggerated worth for their intellectual property beginning about
February 25, 2003. The bubble reached a high on October 17, 2003 and
eventually faded away about May 20, 2004

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/

AA. 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.  SCO has illegally manipulated its insider stock option plan and its
    employee stock option plan..