Four years after the shutdown of 38 Studios, the Securities and Exchange Commission (SEC) is finally getting involved in the case.
38 Studios was founded by former baseball pitcher Curt Schilling, and was the one-time developer of the RPG Kingdoms of Amalur: Reckoning, in partnership with Big Huge Games and published by Electronic Arts. While the game was a modest hit, it failed to help pay the bills for 38 Studios, which were in debt to the excess of $1.125 million to the State of Rhode Island after the game was complete, which was paid late after the initial check bounced.
38 Studios at the time was working on a MMO, code-named Project Copernicus, which would take place in the Amalur universe. However, due to rising debts and poor business decisions on the part of Schilling, in particular moving the studio to Rhode Island with mounting debts and Shilling effectively going broke by spending $50 million out of his own pocket to keep the studio afloat, would lead to both Big Huge Games and 38 Studios closure in 2012.
The involvement with the SEC is primarily hit against the lenders to 38 Studios, Wells Fargo and the Rhode Island Commerce Corporation (formerly the Rhode Island Economic Development Corporation.) The SEC has claimed that both companies actively lied to investors, defrauding them by not telling 38 Studios how much they needed to complete Project Copernicus. According to the SEC, “We allege that the RIEDC and Wells Fargo knew that 38 Studios needed an additional $25 million to fund the project yet failed to pass that material information along to bond investors, who were denied a complete financial picture.”
Project Copernicus was originally given a $50 million loan from Wells Fargo and RIEDC, a loan 38 Studios was struggling to not only pay due to their move to Rhode Island, but was apparently short-changed, if the SEC’s claims of an extra $25 million to fully fund the project are true. The SEC also alleges that Wells Fargo acted with a conflict of interest in the entire case, representing 38 Studios and the State of Rhode Island at the same time.
Three individuals in the case have been charged with aiding and abetting the fraud. Former RIEDC executives Keith W. Stokes and James Michael Saul, two of the participants, have already settled their charges, paying $25,000 a piece but not admitting to the allegations legally. Wells Fargo’s lead banker Peter M. Cannava has disputed the charges, and a lengthy court battle may be in the future.
To date, the State of Rhode Island is paying back the majority of the debts owed by 38 Studios, which is in excess of $116 million that was owed to Rhode Island in the aftermath of the companies closure. That amount is currently being paid through Rhode Island taxes for the next twenty years.
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