No Federal Charges For 38 Studios Collapse

Disappointing news for those of you following the collapse of 38 Studios and its aftermath who were hoping for cathartic drama: the US Attorney’s investigation has ended, and no federal charges will be filed.

This means that, at least as far as US Law is concerned, 38 Studios management is guilty of nothing more serious than being really, really bad at their jobs. Well, that, and being kind of dickish to their employees. The federal investigation found no criminal violations, ruling out (among other things) Bank Fraud. No doubt that Schilling and company are breathing a sigh of relief, though it would be premature to break out the champagne just yet. The federal investigation is distinct from that being conducted by the State of Rhode Island, which is still ongoing.

At issue is the 75 million dollar loan given to 38 Studios in exchange for relocating the developer to Rhode Island. The company’s inability to repay the loan – they failed to make first scheduled payment on time, and when they scrounged the money together, it came out of their employee’s paychecks – triggered the shockingly quick demise of the company. Since then, a very troubling picture has emerged. The company failed to produce the game for which it was founded after nearly 6 years in development. The only game released by 38 Studios, Kingdoms of Amalur: Reckoning, was created by Big Huge Games, a subsidiary 38 Studios purchased from THQ in 2009. Over the course of its life, 38 Studios appears to have been dependent largely on securing new investments to cover old debts.

Of course, Schilling continues to insist that the real reason for the company’s collapse is that Rhode Island Governor Lincoln Chafee made their failure to repay the huge loan they received public. His contention is that the Governor’s reveal scared off potential investors. And he’s right, of course. It was painfully unfair to warn people who might have sunk money into a 38 Studios that they might never see a return on their investment. For Shame.

Whether or not the company will ultimately be found to have committed any violations of Rhode Island law, we will at least have it to kick around for a little bit longer. I can’t pretend that doesn’t make me happy.

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2 Comments on No Federal Charges For 38 Studios Collapse

Kevin

On October 1, 2012 at 3:41 pm

They are stupid, but not criminal. That also goes for the state of Rhode Island. While everyone is all the rage about how bad a businessman Schilling was, how come nobody stops to ask “wait, why the hell did the State of Rhode Island get in the business of giving welfare to businesses, and apparently gave that welfare with little to no due dilligence?”

Although deposing Schilling and the 38 studios brass might be instructive, if only so we have a step by step case of just how to run a business into the ground.

R.J.

On October 1, 2012 at 5:16 pm

Not too surprising, since it sounded more like a series of bad business moves rather than crimes, though we’ll see what Rhode Island says about it. But yeah, I have a hard time feeling bad for Schilling when he places the blame on the governor. Even if that statement did scare away potential investors, those investors deserved to know that the reason they were being asked for money was because the company already faced defaulting on a previous loan since that makes it far more likely that the new investors wouldn’t get paid either. Even without the governor saying anything there were certainly going to be records of this loan that would be accessible to anyone that wanted to look, so it’s not like those investors wouldn’t have found out anyway, and trying to hide the reason for the secondary loan Schilling wanted is dishonest in my mind.