An IBM Corp memorandum to support a motion for summary judgment against SCO earlier this week quoted Goldfarb as saying he was told by Microsoft’s then senior vice president of corporate development and strategy, Richard Emerson, that the company would backstop or guarantee in some way, BayStar’s investment.

The full transcript of Goldfarb’s declaration is now available and reveals that he spoke to two other Microsoft employees before being convinced to recommend a $50m investment in SCO, which included $20m from BayStar and $30m from the Royal Bank of Canada.

The declaration also reveals that Lindon, Utah-based SCO’s external lawyer, David Boies, assured BayStar that he believed IBM would settle the case quickly, and that SCO failed to provide BayStar with its evidence against IBM despite the $50m investment.

Sometime in 2003, I was approached by Richard Emerson… about investing in SCO, a company about which I knew little or nothing at the time, stated Goldfarb. Mr Emerson stated that Microsoft wished to promote SCO and its pending lawsuit about IBM and the Linux operating system. But Microsoft did not want to be seen as attacking IBM or Linux. For that reason, Microsoft wanted to further its interest through independent investors like BayStar.

According to Goldfarb, his research into SCO gave him concerns that the company might be merely a litigation company, leading to conversations with Emerson about Microsoft guaranteeing BayStar’s investment.

In addition, I had discussions with Kenneth Lustig, Microsoft’s managing director of intellectual property and Tivanka Ellawala, from Microsoft’s corporate development department regarding the SCO deal, he added.

As part of these discussions, Microsoft assured me that it would in some way guarantee BayStar’s investment in SCO. However, Microsoft would not agree to put anything in writing on this point.

According to Goldfarb, BayStar decided to continue with its investment based on the assurances of Microsoft, as well as a presentation from SCO chief executive, Darl McBride, and the opinion of Boies that he believed that IBM would settle the case fairly quickly.

In a statement in response to Goldfarb’s declaration, Microsoft maintained the company did not have a financial relationship with BayStar, but stopped short of denying the offer of a guarantee.

Microsoft has no financial relationship with BayStar and never agreed to guarantee any of BayStar’s $50 million investment in SCO, it stated. The BayStar declaration confirms that no guarantee was ever provided. Microsoft does have a deal with SCO that has been widely reported. We paid SCO for licensing rights to ensure IT interoperability for Unix migration technology, currently in use in Microsoft Utilities for Unix-based Applications.

Based on the fact that the guarantee was never provided, Goldfarb quickly got cold feet about the SCO investment, according to his declaration, while he was also concerned about SCO’s high cash burn rate and whether its Unix products were viable in the marketplace.

He was also concerned that it became clear to me that the BayStar investment was used primarily to pay David Boies’ law firm, while SCO’s share price declined and Microsoft stopped returning my phone calls.

SCO was soon to use the same tactic after Goldfarb’s concerns led it to ask the company for evidence of its breach of contract and copyright claims against IBM. Thereafter, I had meetings with David Boies and asked him to provide me the evidence supporting SCO’s case against IBM, so that my consultants could analyze the strength of the claims, he stated.

Mr Boies promised to provide the evidence but never did. Eventually Mr Boies stopped returning my calls, stated Goldfarb.

BayStar eventually pulled out of the investment in June 2004 having failed to convince SCO to return its investment or force the company to change its management and take a more professional approach to its intellectual property claims.