Microsoft no secret backer, SCO says

SCO Group dismissed a leaked memo that connects Microsoft to $86m in investments in the company, saying the author of the email misunderstood the venture deal.

On Thursday SCO acknowledged the authenticity of an email sent on 12 October from Michael Anderer, CEO of Salt Lake City venture firm S2 Partners, to SCO VP Chris Sontag and CFO Robert Bench. The memo appears to be a discussion of the compensation that Anderer received for facilitating venture deals on SCO's behalf.

"Microsoft will have brought in $86m for us including BayStar," stated the email, which was posted by the Open Source Initiative on its website.

Eric Raymond, an open source software and Linux luminary, added his comments to the memo: "This is the smoking gun. We now know that Microsoft raised at least $86m for SCO but according to the SCO conference call [on Wednesday] their cash reserves were $68.5m. If not for Microsoft, SCO would be at least $15m in debt today."

SCO acknowledged the memo but dismissed both the author's and Raymond's conclusions. BayStar Capital's $50m investment in SCO wasn't due to Microsoft's participation, said Blake Stowell, a spokesman for Lindon, Utah-based SCO.

"We believe the email was simply a misunderstanding of the facts by an outside consultant who was working on a specific unrelated project to the BayStar transaction, and he was told at the time of his misunderstanding," Stowell said, reading from a statement. "Contrary to the speculation of Eric Raymond, Microsoft did not orchestrate or participate in the BayStar transaction."

Stowell would not comment beyond the statement and refused to furnish a copy of the memo to silicon.com sister site CNET News.com. Anderer could not be reached for comment.

In January this year SCO VP Sontag flatly denied Microsoft funding of the company's recent legal actions in an interview with silicon.com. He said "there is no conspiracy" but acknowledged SCO and Microsoft had been speaking, about licences and other issues.

SCO has gained the ire of the open-source community and many companies that use Linux because of its claims that it retains copyrights on critical pieces of the Linux code base.

This week, SCO ratcheted up its pressure on Linux users by suing AutoZone and DaimlerChrysler, both which use Linux in their businesses. The company had prepared a complaint against Bank of America, but changed the focus of its target on 18 February, according to a document seen by CNET News.com.

The Open Source Initiative made the memo part of its collection of so-called Halloween documents, which are leaked memos from or about Microsoft's attempts to fight the open source software movement. The name stems from the date on which the first memo - a leaked Microsoft paper on the open source phenomenon published on 31 October 1998 - was originally released.

SCO's blanket dismissal of the leaked memo as the mistaken assumptions of an independent contractor doesn't explain several parts of the letter which seem to indicate knowledge of Microsoft's involvement in SCO's investment search, however.

For example, the memo states that Microsoft apparently wanted to use private investments in public companies to help fund SCO.

"Microsoft also indicated there was a lot more money out there and they would clearly rather use Baystar 'like' entities to help us get significantly more money if we want to grow further or do acquisitions," the leaked memo stated.

SCO also is involved in suits with IBM, Red Hat and Novell regarding Unix and Linux technology. The cost of these suits and the rest of the company's SCOsource effort to derive more money from its intellectual property was $3.4m for the company's most recent quarter.

CNET News.com's Stephen Shankland and Ina Fried and silicon.com's Tony Hallett contributed to this report.