For those who have been following the SCO stories and their stock, one of the bigger surprises may have been the fact that SCO's stock rose considerably just after the "infringing" code SCO displayed at SCOForum was shown to be not infringing. Here, I attempt to show that many attribute that to news stories and a CNBC appearance by Jonathan Cohen, a person with a rather strong vested interest. But in my searching, I missed earlier reports here.
On Monday 18 August 2003, SCO gives a slideshow that includes examples of code they claim is infringing. Apparently someone there took some digital pictures of the slides and on Tuesday the 19th, a German website publishes some commentary and the slides. This gets posted in a Slashdot comment on the 19th, and the Linux community is off and running discussing it. Perhaps, one of the better analyses to come out is by Bruce Perens. It shows that the code is not infringing. By late on the 19th and then into the 20th and 21st, first the Austrialian tech press, then the US trade magazines begin to report this controversy. Later, by the 22nd, stories begin to appear in the mainstream press. If you look at SCO's stock closing prices during the days in question, it does not seem to make sense:
Aug-20-03 132,000 10.44 Aug-21-03 754,400 12.66 Aug-22-03 526,400 13.55 Aug-25-03 841,300 14.85
Realize, too, tht those volumes are very out of whack for typical SCOX trading. And the fact that volume and price were up in the face of very bad news seemed very odd to many on the Yahoo SCOX message board. The first clue I read as to what was going on was a comment on the Yahoo SCOX board on the 21st that in the evening of the 20th some fund owner had said good things about the stock on TV. Later messages revealed that this was done on CNBC by Jonathan Cohen.
To many Linux fans in this post-Enron world, it seems odd that a stock like SCOX would be doing well at all given what has come out about the lawsuit, let alone doing so incredibly well. It may also seem odd that talking heads on TV or in the business press can hype a stock that seems even shakier than many of the dot-bombs, but apparently it can still happen. In a June 23 in BusinessWeek, we learn that Jonathan Cohen has invested in SCO stock and feels it will do well. The next day, he gives a good rating to SCOX on moneycentral.msn.com. By 30 June 2003, we see that he owns 167,500 shares of SCOX stock through Royce and Associates.
Now, it turns out that this Royce and Associates investment in SCOX is actually for Royce Technology Value Fund. I think the description of that fund is worth repeating here:
This Fund seeks long-term growth of capital by investing primarily in a diversified portfolio of mid-, small- and micro-cap technology companies, both domestic and foreign, using a value approach. The Fund is managed by Jonathan Cohen, principal of JHC Capital Management, LLC, the Fund's sub-investment adviser. Mr. Cohen, who founded JHC in April 2001, has 14 years of experience as a technology analyst at firms such as Merrill Lynch, UBS and Smith Barney. Please note that this Fund is now available in all states; contact Investor Services at (800) 221-4268 for information.
So, our friend Jonathan Cohen is in charge of a Technology Fund that has invested in SCO stock. How heavily? According to Morningstar, SCOX represents over 5% of the total fund. According to the same link, SCOX is up over 900% (as of the morning of 29 August 2003) since Cohen bought the stock. In fact, Cohen, through the Royce fund, is the 5th largest institutional investor in SCOX stock.
Here we have someone with a strong vested interest in keeping SCO from diving off a cliff. Let's go back to the week of SCOForum again. On Monday, SCO shows code at its annual conference, SCOForum. By Tuesday, a German website has released pictures of SCO's slides and the Linux community is begining to tear SCO's case apart. By late Tuesday and early Wednesday, the tech press is starting to pick up the story. On Thursday, we begin to see a few stories in the mainstream press--but oddly enough SCO's stock price starts climbing and volume begins picking up.
Again, by late Wednesday, the press is very bad. By Thursday morning, the stock is climbing with increasing volume. Well, one thing that happened Wednesday night was that Cohen apparently had some good things to say about SCO on CNBC. Then to push it further, this article comes out after hours on the 21st. It mentions 3 different stocks that have wildly increased in value recently--like the dot-bomb days of old. Specifically SCO is one that is mentioned. In fact, what they have to say about SCO is such an incredible representation of either poor or unethical journalism, given the news that had come out about SCO's code sample that week, that I will let it speak for itself:
And the rally in shares of the SCO Group has been even more dramatic. Shares have soared from a 52-week low of $0.78 per share to as high as $15.02, gaining more than $2 per share in Thursday's trading alone to close at $12.66. The SCO Group, Inc., formerly known as Caldera International, Inc., is a developer and provider of software and services related to the development, deployment and management of Linux-based specialized servers and Internet devices, and according to one hedge fund analyst, “…is our top idea…it could even be a ten-bagger from here.”
Anyone want to take a bet as to who that unnamed hedge fund analyst is? I will point out the "it is our top idea" and point you again to MorningStar where we see that SCOX is the top investment for the Royce Technology Value Fund. I'll let you draw your own conclusions. I would also point out that besides not mentioning the IBM lawsuit or the bad news at the time the article was written, it is so well researched that they list SCO as a provider of "Linux-based specialized servers." Now, I actually didn't know about this article until yesterday. I'd really like to thank cyzq2003 for posting it, which allowed me to connect a few more dots in an interesting week for SCO.
UPDATE 15 MARCH 2005: Check out the newest Cohen article.
I can be contacted at firstname.lastname@example.org.