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Rhode Island Sues Over 38 Studios

| 1 Nov 2012 19:26

The Rhode Island Economic Development Corporation has launched a sweeping lawsuit against Curt Schilling and numerous others involved in the 38 Studios debacle.

The Rhode Island Economic Development Corporation has filed a lawsuit in an effort to recover some of the $100 million it lost in the 38 Studios debacle, following a review to determine whether such legal action could be undertaken. Named in the suit are 38 Studios founder Curt Schilling, 38 Studios board member Thomas Zaccagnino, Chief Financial Officer Richard Wester, Chief Executive Officer Jennifer MacLean, former EDC Executive Director Keith Stokes, former EDC Deputy Director J. Michael Saul and Antonio Afonso Jr. and Robert Stolzman, lawyers for the state who helped put the deal together. Also named are Wells Fargo Securities, Barclays Capital, First Southwest Co., Starr Indemnity and Liability Co., and law firm Adler Pollock & Sheehan.

The suit states that none of the members of the Economic Development Corporation were "experts in law, lending, video gaming or economic development," and thus relied on "advisors" to lay things out for them. The information they were given led them to decide that the deal, "although not without risk, had a reasonable probability of bringing high-quality jobs and creating a new industry in Rhode Island, with 38 Studios as the anchor tenant and a cluster of companies performing related activities."

"38 Studios failed in May of 2012," it continues. "If that failure had resulted from the risks that these advisors had disclosed to the EDC Board, there would be little or no cause for complaint. In fact, 38 Studios failed because of risks that had not been disclosed to the EDC Board, but were or should have been known by all of these advisors, and by 38 Studios, and defendants Schilling, Zaccagnino, Wester and MacLean."

Chief among those risks was that even with the $75 million EDC loan, 38 Studios was "undercapitalized by many millions of dollars and would not have nearly enough money to relocate to Rhode Island and complete Copernicus, and that, as a result of this cash shortfall, 38 Studios was likely to run out of money in 2012." The lawsuit states that the cost of relocating to Rhode Island alone was more than $10 million.

The action was filed "with the clear goal of protecting the taxpayers of Rhode Island," Governor Lincoln Chafee said. "My message to Rhode Islanders is this: I know you work hard for your paychecks, and for your tax dollars to be squandered is unacceptable. The board's legal action was taken to rectify a grave injustice put upon the people of Rhode Island."

The suit also alleges that Well Fargo "secretly" received more than $473,000 in fees from 38 Studios, that lawyers withheld expert information that 38 Studios was likely to fail, that the EDC was denied an opportunity to reconsider the deal before things got out of hand and that the requirement for "third-party assessment and monitoring" was ignored. It's a hefty thing, but if that's how you like it you can grab a copy of the full complaint from the RIEDC.

via: WPRI.com

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