Rhode Island Declares Fargain War On 38 Studios Remains
Not content with seizing all assets and auctioning them off at a pittance of their former value, the State of Rhode Island has enacted Operation Dead Horse Flog, or at least, Operation that SHOULD be called that. In a statement made directly to his constituents, Rhode Island Governor Lincoln Chaffe announced state plans to sue Curt Schilling over the $75 million loan that 38 Studio’s inability to repay led inexorably to the company’s spectacular collapse.
In addition to Schilling, former 38 Studios CEO Jennifer MacLean, former CFO Richard Wester, and former board member Thomas Zaccagnino are named. Furthermore, several employees of of the Rhode Island Economic Development Corporation who advised the EDC board to approve the loan are included in the suit. The full complaint is now online, and the list of defendants suggests that Rhode Island is convinced it was the victim of what amounts to a conspiracy to defraud the state.
According to the complaint, 38 Studios failed because of “risks that had not been disclosed to the EDC Board,” but “were or should have been known” to 38 Studios and to the named EDC members who acted as advisors to the full committee in getting the loan approved. Specifically, the complaint alleges that “the undisclosed risks included the express admission, made by 38 Studios’ directors and chief executives directly to these Advisors, and by 38 Studios’ own financial projections that were disclosed to the Advisors, that, even with the loan from the EDC, 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.”
Translation: The company, and the people they were relying on to fast-track their loan application, were fully aware that the company could not meet the financial targets upon which the loan’s approval was based, and withheld that information anyway. Worse, “At this time Plaintiff cannot identify a single member of the EDC Board who was not so misled by the Advisors.” Other allegations include failure to disclose a relationship between Wells Fargo and 38 Studios. In short, if this is all true, it looks bad.
Now, it must be noted that the Feds have opted not to press any charges, and it’s possible that nothing will come of this. We will obviously be paying attention as this develops. At the very least, we can count on Schilling to continue to claim that the business wouldn’t have failed has the fact they couldn’t pay their debts not been revealed.