Did Microsoft Back SCO Against IBM?

In a sworn statement last September for IBM's defense in its ongoing battle with UNIX patent-holder SCO Group, BayStar Capital Management founder Lawrence Goldfarb stated a Microsoft senior vice president -- who since left the company in a separate controversy -- approached him with an offer to "backstop," or guarantee, a $50 million investment in UNIX patent-holder SCO Group. The news was revealed on Sunday by the technology law blog Groklaw.

"Microsoft assured me that it would in some way guarantee BayStar's investment in SCO," stated Goldfarb. The person negotiating on Microsoft's behalf, according to the statement, was then-senior vice president for corporate development and strategy, Richard Emerson.

The fund did choose to make the investment, but it later appeared to Goldfarb, he said, that the company's commitment to the deal disappeared along with Emerson. "Microsoft stopped returning my phone calls and e-mails, and to the best of my knowledge, Mr. Emerson was fired from Microsoft," Goldfarb went on to say.

In actuality, Emerson left Microsoft in September 2003, amid a lingering cloud of suspicion concerning a $12 million loan granted Emerson at the time of his hiring in 2000. Personal loans as hiring bonuses were later made illegal under federal law in 2002, although Microsoft disclosed to sources that Emerson had repaid the loan, plus interest.

Emerson is currently Senior Managing Director of Evercore Partners, a firm retained by banks and financial institutions that offers advice and guidance to corporations on mergers and acquisitions.

A Wall Street Journal story this morning speculated on the possibility that SCO may have used that $50 million investment to pay for its legal services, thus making Microsoft an unofficial -- and off the books -- sponsor of the SCO v. IBM case.

But the absence of Microsoft's backing, coupled with a re-examination of the state of SCO as a company, Goldfarb stated, prompted BayStar to retire its investment in the company.

Goldfarb's statement comes in response to SCO's allegations that IBM compelled BayStar to revoke its $50 million investment, which is one of the alleged interferences for which SCO is seeking compensation.

"No one from IBM ever had any communications with me," he stated under oath, "or, to my knowledge, anyone at BayStar...about SCO, BayStar's investment in SCO, or anything else." SCO also alleges that IBM interfered with existing contracts with as many as 182 of SCO's customers and partners, though IBM contends that SCO has failed to prove any interference took place outside the boundaries of the law.

IBM is seeking a summary judgment in US District Court in Utah, which would effectively toss SCO's interference claims in the same general direction as most of its intellectual property infringement claims, which were dismissed last June with a stern rebuke of SCO from Magistrate Judge Brooke Wells.