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The Courts Government Caldera IBM Software News Linux

SEC Investigating SCO? 281

Posted by Zonk from the that-would-surprise-me dept.
Udo Schmitz writes "As Groklaw reports, the SCO Group stated in a SEC filing from yesterday: 'In addition, regulators or others in the Linux market and some foreign regulators have initiated or in the future may initiate legal actions against us, all of which may negatively impact our operations and future operating performance.' Does this mean the SEC finally started to pull some stops? SCOs and Canopys financial dealings (Vultus acquisition anyone?) long ago lead to speculations in the Linux community about the legality of their business practices, or the whole lawsuit just being a stock scam."
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SEC Investigating SCO? More

SEC Investigating SCO?

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  • And the world wept (Score:5, Insightful)

    by Darkmoor ( 259836 ) on Thursday May 19, 2005 @11:51AM (#12579087) Homepage
    I mean, seriously, at this point, who (other than investors) is going to be the least bit sympathetic?

    • Re:And the world wept (Score:5, Insightful)

      by J Barnes ( 838165 ) on Thursday May 19, 2005 @12:06PM (#12579303) Homepage
      In all cases of law, society should aspire not to sympathy in the legal system, but to impartiality. Slight, but substantial difference.

      • Re:And the world wept (Score:3, Informative)

        by Anonymous Coward

        Slight, but substantial difference.

        If it's slight, then it's not substantial. I think the word you were looking for was "subtle".

      • In all cases of law, society should aspire not to sympathy in the legal system, but to impartiality. Slight, but substantial difference.

        If the system worked better, I'd agree. For instance, flipping a (fair) coin is impartial, but I'd certainly feel sympathy for any innocent person subjected to such a "court."

    • Re:And the world wept (Score:4, Funny)

      by Anonymous Writer ( 746272 ) on Thursday May 19, 2005 @01:24PM (#12580220)
      The day SCO is finally obliterated will be one serious celebration here on Slashdot. All around the world. Like friggin' New Years, complete with the dreadful hangover the next day. Should we come up with a name for it already? "NetCraft Confirms SCO is Dead Day"? You know, so we can all greet each other with a phrase like "Happy SCO is Dead Day" or "Happy GNU Years"? Help me out here.

      • Re:And the world wept (Score:5, Funny)

        by michrech ( 468134 ) on Thursday May 19, 2005 @02:43PM (#12581157)
        Help me out here.

        Certianly -- Which way did you come in?

        (insert rimshot here)

      • I hope that everyone here is not so naive as to think that things like this will stop if SCO (or more appropriately, The Canopy Group) goes away. This is an age of litigious bastards in America and it is foolhardy in the extreme to think that just because one group gets smacked that no one else will try again.

        The problem with cases like these are that they're too easy to bring up, and have damaging effects to the reputations of the accused with very little risk to the plaintiffs, regardless of the merit o

  • the cookie at the end of the page... (Score:4, Funny)

    by Doomie ( 696580 ) on Thursday May 19, 2005 @11:51AM (#12579099) Homepage
    "The party adjourned to a hot tub, yes. Fully clothed, I might add. -- IBM employee, testifying in California State Supreme Court"

    Relevant? I say yes :)

    • Re:the cookie at the end of the page... (Score:4, Funny)

      by endx7 ( 706884 ) on Thursday May 19, 2005 @12:40PM (#12579706) Homepage Journal
      "Never eat anything bigger than your head."

      I'm not sure how yet, but I think that's relevant too.
    • *Pictures IBM guys sitting in a hot tub while wearing full suit and tie, surrounded by hot chicks in bikinis*

      IBM Guy 1: Say, maybe we could loosen up a little, now that we're in a hot tub...

      IBM Guy 2: Are you MAD?! Dress code requires a shirt, jacket and tie at all times! We're IBMers, not some grungy hippie hackers from Berkeley!

      IBM Guy 1: Couldn't we at least take our jacket off? I'm getting kind of hot...

      IBM Guy 2: Well, dress code reg. N21305-A says you may take off your jacket if the temprature is

  • More info (Score:5, Informative)

    by Udo Schmitz ( 738216 ) on Thursday May 19, 2005 @11:52AM (#12579110) Journal
    There is another link I should've added to the submission: This site [threenorth.com] assembles some very interesting information from the Yahoo SCOX Financial Board [yahoo.com].
    • To be fair, the Yahoo financial boards are rife with spam, garbage, and deliberate misinformation. And the site in your post merely notes a few hits from Caldera sites - that could very easily be a worker checking the message boards for clues about what's going on with SCO, not neccessarily any monitoring by SCO management.
      • To be fair, the Yahoo financial boards are rife with spam, garbage, and deliberate misinformation.

        Yep. And the only difference between a normal Yahoo board and the SCOX board in that respect is it is the pumpers who primarily spew the garbage and deliberate misinformation moreso than the dumpers. The board is mostly filled with noise.

        And the site in your post merely notes a few hits from Caldera sites - that could very easily be a worker checking the message boards for clues about what's going on wit

  • Good chance of it being a scam (Score:4, Interesting)

    by ProfaneBaby ( 821276 ) on Thursday May 19, 2005 @11:53AM (#12579128)
    In any event, the business was failing, so scam or not, it's a desperate game to try to stay alive and relevant for another few years.

    The corporation's responsibility is working in the best interest of their shareholders - everything short of breaking the law in order to turn a profit for those who own stock. If that means suing a company just to stay relevant, so be it.

    That's how public corporations work. It may not be morally correct (for some definition of morality), but they are responsible for protecting their shareholders... In the end [yahoo.com], the trick may work the way they wanted - extending the life of a failing company for another few years so that shareholders have time to sell and salaried employees can collect a few more dollars.
    • Protecting the interests of shareholders, indeed. And guess what happens when all the major shareholders are either insiders or institutionals?

      • Re:Good chance of it being a scam (Score:2, Funny)

        by Anonymous Coward

        And guess what happens when all the major shareholders are either insiders or institutionals?

        We put the insiders inside an institution?

      • Remember - that doesn't make it illegal.

        Immoral, maybe (like the original poster said, for some definition of morality) - but definitely not illegal.

        Welcome to Corporate America. :-)
    • Yes, but their shareholders are selling to other shareholders, so the new shareholders whos stocks tumbled could sue for loss due to them inflating the stock. Of course any intelligent stock holder buying stocks in the last year should have known what was going on and the risk. That doesn't mean they were.
      • Well, assuming it was a deliberate deception they might be able to sue, but I don't think the general stockholder has the resources to do such a thing.

        This is of course why people are supposed to do research on companies they buy into, rather than take it from someone else that it's a good investment.

    • Re:Good chance of it being a scam (Score:5, Insightful)

      by conteXXt ( 249905 ) on Thursday May 19, 2005 @12:00PM (#12579218)
      Quick question?

      "extending the life of a failing company for another few years so that shareholders have time to sell..."

      Don't shareholders sell their shares to other shareholders by definition?

      It's not like they are selling them back to Canopy Group.

      Someone (a shareholder) is going to get hurt eventually.

      Hence SCAM.

      • Re:Good chance of it being a scam (Score:4, Insightful)

        by jschottm ( 317343 ) on Thursday May 19, 2005 @02:03PM (#12580691)
        Someone (a shareholder) is going to get hurt eventually.

        Hence SCAM.

        If someone getting hurt eventually was the only criteria for a stock scam, companies could not do anything - by its very nature, someone will get hurt with the stock market, pretty much no matter what. Buy low, sell high. It's up to the individual investors or their financial group/investors to judge the merit of the companies and the relative worth of their stock. Caviat emptor and all that. People who bought Enron stock got scammed. People that bought $BIOTECH that had promise but never delivered and went under made a poor choice. But both parties got hurt financially.

        As grandparent said, there's prolly nothing illegal about SCO suing IBM et al. They claim that a contract was violated, hire a very respectable lawyer, and attempted to protect what they believed was theirs. Various of their statements have been rediculous and inflamatory, but there's no law against being stupid or making poor judgement. There's also no law against well timed press releases - all big companies do it all the time.

        What *could* be illegal is if the powers that be can show that they purjured themselves, that they violated SEC rules, or that they engaged in insider trading. All of which can be difficult to prove.

    • Bogus (Score:5, Insightful)

      by Anonymous Coward on Thursday May 19, 2005 @12:24PM (#12579515)
      You're right about profitability but completely wrong about share price. Shares are initially issued to raise capital. After that it's a secondary market and they fight among themselves for how much the shares are worth. Profit not share price should be the determining factor for the corporation.

      It used to be that the two were related, profit divided as dividends was the the primary motivation for determining share price - or the potential to control the company via the votes accrued. Now that it's all speculative - stockholders have hijacked the original purpose of the corporation which was a *business* to make money. This has led to SCO, HP, Nortel, Time Warner/AOL etc where short term decisions to help the stock price have resulted in long term harm to the corporation's viability and profitability.

      I'm not saying that this is wrong either - but it really isn't very good for the economy overall when otherwise productive businesses are gutted to be made more appealing to the sucker buyer. The worst excesses (SCO, ENRON) should probably be punished. But there's not much that can be done about it as long as there are fools that want to get in on the sinking ship...

      • Re:Bogus (Score:4, Insightful)

        by harrkev ( 623093 ) <kevin.harrelson@ ... om minus painter> on Thursday May 19, 2005 @01:25PM (#12580234) Homepage
        This *IS* wrong. What has happened is that long-term thinking has gone away. We live in the world of the disposable CEO who has a lot of stock options. A CEO is much better off to think five quarters ahead rather than 10 years. "R&D? Naaaaaa. That won't pay off for another ten years. I will only be here for another five." HP is the perfect example.

        The internet has also allowed stockholders to be the same way. 20 years ago, it was almost impossible to be a "day trader" and check on your stocks all of the time (unless you were doing it for a living). You had the newspaper with its once-a-day prices, and that's it. People also tended to hang on to stocks for a long time.

        But you are right about not being able to do anything about it, short of a re-education program for investors.

    • Re:Good chance of it being a scam (Score:5, Insightful)

      by Vellmont ( 569020 ) on Thursday May 19, 2005 @12:40PM (#12579702) Homepage

      The corporation's responsibility is working in the best interest of their shareholders - everything short of breaking the law in order to turn a profit for those who own stock. If that means suing a company just to stay relevant, so be it.

      Are you actually embracing the moraless practice that corporations have these days? I understand the motivation to do this. I also understand the motivation of bank robbers to rob banks. "I as a bank robber have a responsibility to give my family the best living conditions and education possible. I swear I'm only looking out for my family!"

      Yes I understand that's "how public corporations work", but that doesn't make it OK. Why is that in any way a defense? Enron has done much the same thing, and I don't hear too many people trying to defend them on a "corps do what corps do" basis.
    • That's how public corporations work. It may not be morally correct (for some definition of morality), but they are responsible for protecting their shareholders... In the end, the trick may work the way they wanted - extending the life of a failing company for another few years so that shareholders have time to sell and salaried employees can collect a few more dollars.

      To be honest, I think shareholders would have been better served by the closure of the company and selling of its assets. I don't know wh

    • "the best interests of shareholders" doesn't include getting sued into oblivion by IBM a short while after filing specious lawsuits. If I were a shareholder I'd be fuming - while the management could have been building a successful and profitable company based on linux, they got stupid or greedy and flushed it down the drain. The way to fix a failing company is to identify how to make it profitable, not spin out its death agonies.
    • "everything short of breaking the law in order to turn a profit for those who own stock"

      I don't think they're being investigated by the SEC on suspicion of hugging bunnies and adopting homeless kittens.
      • An old acquaintance of mine is currently doing time for hugging bunnies. His advice? Never let the inmates know that you were a bunny hugger.

        Not the happiest guy I know. Even if he makes parole he's going to have his photo stapled to every telephone pole in his neighborhood.
    • ... everything that's wrong with business.

      The corporation's responsibility is working in the best interest of their shareholders - everything short of breaking the law in order to turn a profit for those who own stock. If that means suing a company just to stay relevant, so be it.

      The problem with that is not "morality" (whatever that means for a business), but efficiency and effectiveness. Efficacy. Viability.

      A company should exist to provide the best products it can to as many customers as it

      • Re:You just summed up (Score:4, Insightful)

        by GreyPoopon ( 411036 ) <[gpoopon] [at] [gmail.com]> on Thursday May 19, 2005 @02:06PM (#12580735)
        Trying to run the company to please the shareholders is like driving a car down the highway looking back in the rear view mirror.

        Close, but to really understand it, you would have to drive down the road staring at the part just in front of the car instead of ranging in and out to 100 meters or so up the road like you are supposed to. It's a really really good way to get in an accident, so I don't actually recommend that you try it. Nevertheless, I think it's a very accurate comparison to running a company that is shareholder-driven.

    • The corporation's responsibility is working in the best interest of their shareholders - everything short of breaking the law in order to turn a profit for those who own stock.

      Doing everything possible to to turn a profit isn't always in the best interest of the shareholders. Are all SCO shareholders amoral greedy bastards? If so, we should judge them and their corporation accordingly and condem them as the scum they are. A corporation isn't a get out of jail free card for morality.

      Any human that d
    • You have it all wrong my man. SCOX is a scan to RIP OFF THE SHAREHOLDERS not to protect them. Look at the Vultus deal carefully. SCO buys vultus in order to transfer money from the SCO shareholders to the people who own vultus (which surprise! have lots of other dealings with people who own most of SCO stock). They then write off the deal as a loss and shareholder got reamed.

      Of course in the US that's perfectly moral and legal. Capitalism YouGottaLoveIt (TM).
      • You have it all wrong my man. SCOX is a scan to RIP OFF THE SHAREHOLDERS not to protect them. Look at the Vultus deal carefully. SCO buys vultus in order to transfer money from the SCO shareholders to the people who own vultus (which surprise! have lots of other dealings with people who own most of SCO stock). They then write off the deal as a loss and shareholder got reamed.

        Of course in the US that's perfectly moral and legal. Capitalism YouGottaLoveIt (TM).

        Not necessarily. If the stockholders can sho

    • Then why do corps give to charities? The corporate charter is given to advance the public good. A corp is meant to advance the interests of its stakeholders, not just its shareholders. A corp is not allowed to business that is not outlined in its charter.

      A lot of this gets ignored, but its still on the law books.

  • It means nothing. (Score:3, Insightful)

    by blair1q ( 305137 ) on Thursday May 19, 2005 @11:55AM (#12579147) Journal
    Every corporation has malcontents among the shareholders.

    It's the cost of raising capital through common stock.

  • No more bribe money (Score:2, Funny)

    by Anonymous Coward
    They must have run out of money to buy off the key Congress critters. The rest belongs to Darth Darl.
    • I keep reading SCO articles hoping to find out when the firesale starts. Every now and then I look on the "History of the SCO group" page on their website and skim past all the lawsuit entires but there is still no "Going out of business firesale" entry yet.

  • awww waaaaa (Score:5, Funny)

    by AviLazar ( 741826 ) on Thursday May 19, 2005 @11:55AM (#12579153) Journal
    have initiated or in the future may initiate legal actions against us, all of which may negatively impact our operations and future operating performance

    Yea so what? Like you haven't cost other companies millions of dollars, hundreds if not thousands of man-hours, and that is not even to mention all the lost work hours from us /. posters.

    I hope you get sued into the ground.

  • stock scams (Score:5, Insightful)

    by blunte ( 183182 ) on Thursday May 19, 2005 @11:58AM (#12579195)
    Many corporate actions are just games designed to artificially increase stock price.

    SCO just happened to have the balls (or the incredibly stupid idea) to sue the 2nd largest software company in the world for an astronomical figure.

    Consider this perspective. Even if IBM had rolled over and paid SCO some big number in a settlement, that wouldn't impact the company's value nearly as much as the potential of winning the huge case. So basically, the threat of the huge payoff, magnified by stock market gambling, would (and did) push the stock price up far more.

    Everyone with inside information then cashes out (inside meaning executives, primary funding investors, and Martha Stewart-type friends) while the stupid general "investing" public buys more stock after reading the daily press releases.
    • Although I agree with everything you said, I have no pity whatsoever with anyone who fell for that "Trick" and invested in SCO.

      If you were too ignorant to figure that one out, you don't deserve to be deciding how to spend your money--taking it away is best for society.

    • Re:stock scams (Score:3, Interesting)

      by jafac ( 1449 )
      Many corporate actions are just games designed to artificially increase stock price.

      more true than most people know.

      Like the massive manpower ramp-up (and concurrent book-cooking) in the late 1990's that companies did just to show stockholders that they were "growing".

      The current "fad" is offshoring and outsourcing, to show stockholders that they're "cutting fat".

      Fooling the investors in order to get cheap financing can temporarily make a money-losing enterprise look profitable.

      None of this has/d a d

  • Canopy Group? (Score:4, Funny)

    by chinard ( 555270 ) on Thursday May 19, 2005 @12:01PM (#12579232)
    How come every time I hear about Canopy group in this case I cant help but thinking about the Umbrella Corporation? O.o;

  • standard template language (Score:2, Informative)

    by Anonymous Coward
    while it's tempting to read more into it than is there, the fact is every corporation warns against a worst-case scenario in its financial filings to avoid shareholder suits down the road. LNUX and RHAT filings also contain similar template language, but no one anticipates they will go under in the next quarter.

    This is absolutely no indication that there's a SEC investigation on the horizon and shows how really ignorant of standard business practices the Groklaw and anti-SCO folks really are. SCO is nicely

    • But "similar" is the point (Score:4, Informative)

      by Udo Schmitz ( 738216 ) on Thursday May 19, 2005 @12:59PM (#12579921) Journal
      "Similar" doesn't mean "the same".

      "LNUX and RHAT filings also contain similar template language[...]"

      Just checked the last LNUX filing and found sentences like: "The Company is subject to various claims and legal actions arising in the ordinary course of business." I bet you'll find stuff like that in the filings of a lot of listed companies, but I didn't find mentions of "legal actions" "initiated" by "regulators".

    • and speculating falsely about something that can effect stock prices is prosecutable, by the way

      I am almost positive that this is total bunk, unless you're an insider or have access to insider information. Certainly as you phrase it it's untrue - otherwise it'd be illegal to speculate on the outcome of litigation. Or the merit of a new product. Or the potential success of an advertising campaign. Or whether or not the AC on the trading floor is broken.

  • 10-K (Score:4, Informative)

    by odin53 ( 207172 ) on Thursday May 19, 2005 @12:03PM (#12579250)
    This exact language was in their 10-K filed last month. There have no other filings recently that would normally have a "Risk Factors" section, so that's why you wouldn't have seen this sort of language elsewhere. I don't think this is really news.

    • Re:10-K (Score:3, Funny)

      by krbvroc1 ( 725200 )
      My guess is the SEC noticed they are reporting 'goodwill'. Someone realized something was fishy because there is no goodwill towards SCO.

  • Standard CYA (Score:5, Insightful)

    by cmcguffin ( 156798 ) on Thursday May 19, 2005 @12:04PM (#12579255)
    It is standard operating procedure to include in SEC filings discussion of any factors that will or reasonably may negatively impact business.

    This CYA language is meant to prevent both SEC probing and shareholder lawsuits should something go wrong. This language is often copied verbatim in later filings, so it often is written to be as broad as possible.

    Mere inclusion of such language does not mean that these factors have happened or will happen, only that the company thinks there is some non-zero chance of it happening.

    Not surprisingly, SCO's language is pretty mushy here, but the wording, "have initiated or in the future may initiate" makes me believe that they're simply being prudent.

    Of course, the fact that they feel the need to mention regulator investigation says a great deal about the company, regardless.
    • It is standard operating procedure to include in SEC filings discussion of any factors that will or reasonably may negatively impact business.

      That is true, but some of these factors are more far-fetched and amusing than others. My all time favourite was the bubble company NetJ.com. I could never describe NetJ as well as Michael Lewis did here [hackvan.com], but in summary, the documents NetJ filed with the SEC indicated that as a matter of policy, it had no business plan. However, the principal risk was not that no bus

  • Giggling (Score:5, Funny)

    by kristopher ( 723047 ) <gedekran@gmail.com> on Thursday May 19, 2005 @12:04PM (#12579267) Homepage
    You know I didn't think anything would make me giggle like a little girl. I was wrong.
  • "Our stock price could decline further because of the activities of short sellers. Our stock has attracted the interest of short sellers. We believe the activities of short sellers have in the past and could in the future further reduce the price of our stock or inhibit increases in our stock price. " ha ha ha. Next on the Nature channel: How the activities of vultures and buzzards inhibit and reduce the activities an otherwise perfectly healthy wildebeest.

  • Hear that? (Score:4, Funny)

    by cyclist1200 ( 513080 ) on Thursday May 19, 2005 @12:09PM (#12579333) Homepage
    It's the sound of the world's tiniest violin, playing just for SCO.

  • This is perfectly normal. (Score:3, Informative)

    by Jerky McNaughty ( 1391 ) on Thursday May 19, 2005 @12:09PM (#12579337)
    Check out the prospectus of any publically traded company. It's completely normal to list just about every possible thing that could happen to the company negatively which would affect shareholder value. Think of it as "cover your ass" material.

    Seriously, read the prospectus of a company you know and understand very well, such as a traditional retailer like Wal-Mart, Target, Borders, or Barnes and Noble. They'll list things like potential litigation, seasonal variances, competitors, natural disasters, affect of the institution of internet taxation on their business, etc., etc.

    So, this is SCO's way of trying to prevent a class action suit by shareholders in the event that they are sued by companies/persons in the Linux community.

  • They got in over their heads (Score:5, Interesting)

    by Anonymous Coward on Thursday May 19, 2005 @12:10PM (#12579345)
    Canopy sued Microsoft and made a bundle without actually having to go to court. SCO was a Canopy company and both had Ralph Yarro as part of the organization.

    It was reasonable to assume that if they sued IBM over its use of UNIX, that IBM would also cave in and give them a bundle of cash. Given what the lawyers have cost so far, it would have been cheaper. Oops, IBM didn't cave.

    There are very serious issues involved in the SCO vs. IBM case which could have made many businesses worry about adopting Linux. IBM had bet the farm on Linux. IBM had no choice to fight.

    Not only did SCO not have a leg to stand on but it seriously looked like they were perpetrating a fraud. Their only chance to stay out of jail is to make it look like they really believed their claims about IBM. SCO, therefore, had no choice but to fight to the bitter end.

    What have we gotten out of this whole mess? Linux is unencumbered by anybody's copyrights. All doubt has been removed. The extra publicity may actually have promoted the uptake of Linux. We have gotten a wonderful legal education on Groklaw. We have been activated. A lot of people realize the importance of the next big fight (patents) and have started writing their congresscritters.

    So, thank you SCO. Good luck staying out of jail.

    • We've been what? (Score:4, Funny)

      by spun ( 1352 ) <loverevolutionary&yahoo,com> on Thursday May 19, 2005 @12:41PM (#12579725) Journal
      We have been activated.

      Wonder geek powers, activate! Form of: an 800lb. gorrilla! Form of: a tidal wave of litigation!
    • It's comments like this that make you wish there was a +6

  • I hope the SEC is investigating (Score:4, Informative)

    by richg74 ( 650636 ) on Thursday May 19, 2005 @12:12PM (#12579370) Homepage
    I have thought this whole lawsuit was a crock since very shortly after it was filed, and that it was all about manipulating the stock price so that the insiders could sell.

    SCO's management claimed that the stock sales (which you can find on their Form 4 filings with the SEC [sec.gov]) were part of a pre-arranged sale plan that had absolutely nothing to do with the litigation. The sale plan was filed two months before the lawsuit was filed. That sure seems plausible to me.

    I really hope someone nails these slimeballs.

    (P.S. I've posted several notes on /. about this; here's one from back in June 2003 [slashdot.org].)

    • "The sale plan was filed two months before the lawsuit was filed. That sure seems plausible to me."

      This is one of those moments I wish there were sarcasm tags on /. Not sure if you meant waht you wrote, so anyway, here comes my answer :)

      Look at this thread [slashdot.org] starting with a post by Quatermass of Groklaw fame. There he writes:

      "In January 2003, O'Gara published an article about SCO's plans to monetize their IP allegedly in Linux. This was two months before SCO sued IBM. This was six months before SCO announc

  • Battle of the acronyms, film at 11.

  • No SEC investigation (Score:4, Insightful)

    by Alioth ( 221270 ) <no@spam> on Thursday May 19, 2005 @12:16PM (#12579428) Journal
    No, I don't think this means there is an SEC investigation or anything like it. Let's examine the (rather badly and unclearly written) statement:
    In addition, regulators or others in the Linux market and some foreign regulators have initiated or in the future may initiate legal actions against us, all of which may negatively impact our operations and future operating performance

    I parse this to mean the statement is true if one or more of the conditions are true now or in the future. We know that 'others in the Linux market' are already suing (RHAT, NOVL). However, the statement as it stands doesn't say that SCO are being prosecuted NOW by regulators, but they may in future be prosecuted by regulators.

    Therefore, I think the statement refers to the fact they are currently being sued by RHAT and NOVL, and might be prosecuted later by regulators (although this is not yet certain).

  • This doesn't mean anything (Score:4, Interesting)

    by DeathB ( 10047 ) on Thursday May 19, 2005 @12:20PM (#12579473) Homepage
    If there's any group out there who is claiming that they are doing something that the SEC is going to have to investigate, they need to disclose the risk to make a shareholder lawsuit less likely.

    If there is some risk that a company doesn't disclose, where there was some way for them to know that it was a posibility, they can be sued by shareholders if the stock goes down as a result of it comes true.

    You often find really silly risks listed in safe harbor statement like that. For example, Walmart lists as a risk that they may not be able to buy from certain vendors if political instability takes place in their country. They also disclose that they won't do as well if they can't hire good employees.

    Also, if they know about a SEC investigation or lawsuit against them, a company would usually give more information than that in a 10k (lest the SEC investigate them for the way they disclose their risks in their 10k).

    • Re:This doesn't mean anything (Score:5, Interesting)

      by DeathB ( 10047 ) on Thursday May 19, 2005 @12:35PM (#12579646) Homepage
      They also have more amusing risk factors than that one. (All text from SCO's current 10k [sec.gov])
      • We do not have a history of profitable operations.
      • We may not prevail in our SCO Litigation, which may adversely affect our business.
      • Our failure to timely file this Form 10-K, and our quarterly report on Form 10-Q for the quarter ended January 31, 2005 (as previously defined, the "Form 10-Q"), could result in the delisting of our common stock on The Nasdaq SmallCap Market.
      • Our Engagement Agreement with the Law Firms will require us to spend a significant amount of cash during fiscal year 2005 and could harm our liquidity position.
      • Our future SCOsource licensing revenue is uncertain.
      • We may lose the support of industry partners leading to an accelerated decline in our UNIX products and services revenue.
      • Our claims relating to our UNIX intellectual property may subject us to additional legal proceedings.
      • Fluctuations in our operating results or the failure of our operating results to meet the expectations of public market analysts and investors may negatively impact our stock price.
      • We operate in a highly competitive market and face significant competition from a variety of current and potential sources; many of our current and potential competitors have greater financial and technical resources than we do; thus, we may fail to compete effectively.
      • If the market for UNIX continues to contract, our business will be harmed.
      • We rely on our indirect sales channel for distribution of our products, and any disruption of our channel at any level could adversely affect the sales of our products.
      • Our Engagement Agreement with the Law Firms representing us to enforce our intellectual property rights may reduce our ability to raise additional financing.
      • Our foreign-based operations and sales create special problems, including the imposition of governmental controls and taxes and fluctuations in currency exchange rates that could hurt our results.
      • If we are unable to retain key personnel in an intensely competitive environment, our operations could be adversely affected.
      • We have issued shares and options under our Equity Compensation Plans that were not exempt from registration or qualification under federal and state securities laws, and, as a result, we may incur liability to repurchase such shares and options and may face additional potential claims under federal and state securities laws.
      • Our stock price is volatile.
      • There are risks associated with the potential exercise of our outstanding options.
      • The resale of common shares by BayStar may have an adverse impact on the market value of our stock and the existing holders of our common stock.
      • Our stock price could decline further because of the activities of short sellers.
      • The right of our board of directors to authorize additional shares of preferred stock could adversely impact the rights of holders of our common stock.
      • Our Stockholder Rights Plan could make it more difficult for a hostile bid for the Company or a change of control transaction to succeed at current market prices for our stock.

      FYI, the full text of the risk that Groklaw is quoting from:

      Our claims relating to our UNIX intellectual property may subject us to additional legal proceedings.

      In August 2003, Red Hat brought a lawsuit against us asserting that the Linux operating system does not infringe on our UNIX intellectual property rights and seeking a declaratory judgment for non-infringement of copyrights and no misappropriation of trade secrets. In addition, Red Hat claims we have engaged in false advertising in violation of the Lanham Act, decept

    • "You often find really silly risks listed in safe harbor statement like that."

      Yes, everyone who ever read in an SEC filing knows that. But it is not so usual to see investigations mentioned in those.

      "Also, if they know about a SEC investigation or lawsuit against them, a company would usually give more information than that in a 10k"

      Well, yeah, since when is SCOX known [infoworld.com] for complying to those rules? :)

  • Common mistake (Score:2, Informative)

    by Anonymous Coward
    I think every single annual report I have ever read contains a very similar statement. The first time I saw it in my own company's report I freaked out, thinking that it referred to some specific, impending doom. A more senior business person clued me in that every company says that as protection (CYA, if you will), i.e. should they lose a lawsuit, they can claim that they already warned investors, stakeholders, et. al.
    • "[...]every single annual report I have ever read contains a very similar statement"

      I tend to repeat [slashdot.org] myself, but I can't remember mentions of "legal actions" "initiated" by "regulators" in the filings I read.

  • The Wheels of Justice Turn Slow (Score:5, Interesting)

    by Greyfox ( 87712 ) on Thursday May 19, 2005 @12:47PM (#12579787) Homepage Journal
    We've been speculating that the whole thing was a pump'n'dump since day 1. I personally found it a little too coincidental that a couple of days before the lawsuit was announced, a lot of people in high places at SCO were issued a heaping helping of SCO stock options for pennies on the dollar. Issuing options is a perfectly normal business operation, of course, but I personally thought the timing was a little too good.

    Anyway, I don't foresee a serious SEC investigation until the lawsuit is settled. It would be a waste of resources to start an investigation when all that really needs to be done is to sift through the broken remants of a case. If a judge dismisses the case because SCO never had any more evidence than "It looks like UNIX so they must have copied it!" then I expect the SEC would crawl up SCO's ass with a microsope at that point.

  • Ignorance of the law (Score:3, Insightful)

    by tverbeek ( 457094 ) on Thursday May 19, 2005 @01:04PM (#12579979) Homepage
    This statement means next to nothing. The whole point of this section of SEC filings is ass-covering. Corporations list everything they can think of that might make their share price decline, so they can point to that statement when/if someone later accuses them of covering up the fact that it was coming.

    Sure, it's a fun place to dig up speculative dirt, but that's all it is: speculation, and anyone who reads an SEC filing without this basic understanding of what he's actually looking at is... the kind of person who posts stories like this to Slashdot.

  • Unless something has changed, I doubt it (Score:5, Interesting)

    by anomaly ( 15035 ) <tom DOT cooper3 AT gmail DOT com> on Thursday May 19, 2005 @01:47PM (#12580477)
    Some time last year I got fed up with the irritation that is SCO. I got interested to see if the SEC was digging into what seems to be false claims on their part. It seems that the SEC does not offer any information publicly about ongoing investigations.

    Since I didn't know what, if anything, was happening, I reported them to the SEC. I was shocked to get a call the NEXT DAY from a man who identifdied himself as an attorney with the SEC. We spoke for about 45 minutes. At the conclusion of the conversation, he indicated that he thought he understood my issues with them - their apparent lies, their seeming stock manipulation, etc but doubted that he could proceed without more specific information about how they knowingly lied to the public.

    If sufficient evidence was produced, he seemed interested in protecting the public from abusive corporate officers. He was not satisfied with what I offered him.

    Unless someone has subsequently provided more and better evidence than what I knew about as an interested observer, it is doubtful that the SEC proceeded.

    I was displeased that I was unable to move them to action.

    Regards,
    Anomaly

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