Rhode Island Suing Curt Schilling's 38 Studios Over $75M Loan

Rhode Island has filed a complaint against company executives and government officials involved in the state's high-profile $75 million loan guarantee for Curt Schilling’s video-game developer 38 Studios, which filed for bankruptcy in June, just months after releasing its first game “Kingdoms of Amalur: Reckoning.”

The lawsuit was filed with the Rhode Island Superior Court by the state's Economic Development Corp., or EDC, which negotiated the loan that convinced 38 Studios to move from Massachusetts to Rhode Island two years ago.

The defendants named in the suit include 38 Studios founder Schilling, the former Major League Baseball star, and company CEO Jennifer MacLean, as well as former EDC Executive Director Keith Stokes, who oversaw the negotiations that brought the video-game developer to Rhode Island. Stokes was fired after the company closed this summer.

In addition to other employees of 38 Studios and the EDC, other companies involved in the loan deal that were named as defendants include Barclays Capital PLC, First Southwest Co., Wells Fargo Securities LLC, and Starr Indemnity and Liability Co., according to the complaint.

The Rhode Island EDC alleges the "defendants knew or should have known, but failed to inform the EDC Board, that 38 Studios was destined to fail according to 38 Studios’ own financial projections."

Its complaint also charges that 38 Studios executives, including Schilling himself, knew the company would not be able to successfully complete the video game that was under development when it began the processes of relocating and of releasing “Kingdoms of Amalur,” even with the additional funding guaranteed by the state. The suit says that the company deliberately concealed this information from the EDC board.

Accusations made in the complaint therefore encompass breach of fiduciary duty, fraud, fraudulent misrepresentations, and omissions, negligent misrepresentation, violation of the state's RICO statute, and numerous others.

The EDC included in its list of damages the $75 million loan to 38 Studios, its impaired ability to issue bonds and other guaranties, its injured reputation and credit, and its increased exposure to potential liability to third parties.

According to the television station WPRI, Rhode Island Gov. Lincoln Chafee had pressured the EDC to pursue potential legal action in June when 38 Studios filed for bankruptcy protection following an FBI investigation that was launched into the company.

The month before 38 Studios’ official closure, the company raised suspicions when it missed a $1.12 million loan payment, WPRI reported.