The SEC Is Investigating 38 Studios
Former Red Sox pitcher Curt Schilling’s financial and legal headaches won’t be going away any time soon, if the U.S. Securities and Exchange Commission has its way. Bloomberg is reporting that the SEC has turned its jaundiced eye toward 38 Studios, the developer founded by Schilling that went belly up last year in a spectacular meltdown which left the state of Rhode Island on the hook for tens of millions of dollars.
According to documents obtained by Rhode Island television station WPRI, the Rhode Island Economic Development Corporation, the entity which approved taxpayer-subsidized loans of up to $75 million to entice the Kingdoms of Amalur publisher to relocate to the Ocean State, hired legal counsel to respond to SEC inquiries for five months in 2012. The EDC has indicated to Bloomberg that the SEC investigation is ongoing. However, the state has refused to comment on the matter “because of pending litigation.”
Related: Yep: Corruption, Mismanagement (Probably) Killed 38 Studios
The litigation in question is an attempt by the State of Rhode Island to recoup the millions lost when 38 studios declared bankruptcy. The loans, funded by the sale of federally taxable municipal bonds, required repayment on a set schedule, but the publisher defaulted on its first payment and soon after went bankrupt.
The state alleges that 38 Studios actively misrepresented the true state of its finances at the time the EDC granted these loans. Documents made public in April of this year suggest rather conclusively that members of the EDC were well aware that the company’s financial outlook was very poor, but actively concealed that information to prevent the loan from being rejected. While the full $75 million was never distributed, 38 Studios did reportedly receive around $45 million; with interest and other associated fees, the disputed amount is far larger. If courts find that the company did indeed misrepresent its finances, 38 Studios’ management will be required to repay Rhode Island in full.
When 38 Studios went defunct, Rhode Island assumed control of its assets in full. The state reportedly intends to auction the rights to the Kingdoms of Amalur franchise later this month.