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SCO's Suit: A Match Made in Redmond?

Just as the legal battle over Linux was about to become even more expensive, Microsoft suggested that a hedge fund invest in the outfit

For months, rumors have swirled around the Web alleging that Microsoft helped finance a small Utah software company's suit against IBM and two corporations that use Linux software. BusinessWeek has learned that Microsoft (MSFT ) did not put up the money, but did play matchmaker for SCO Group (SCOX ) and BayStar Capital, a San Francisco hedge fund which made a $50 million investment in SCO last October.

Lawrence Goldfarb, managing partner of BayStar, says that senior executives at the software giant had telephoned him about two months before the investment. Would he be interested in investing in SCO, they asked? Goldfarb wouldn't identify the executives, but says neither Chairman William Gates nor CEO Steve Ballmer were among them. He says Microsoft didn't put any money into BayStar or the SCO investment. A Microsoft spokesman says that the company has no "direct or indirect" financial relations with BayStar, but declined to comment when asked whether execs called BayStar to suggest investing in SCO.