Fraud charges brought in 38 Studios loan saga

You have to feel sorry for anyone remotely connected to 38 Studios’ financing deal with the state of Rhode Island. To date, it’s claimed 38 Studios itself, its sister studio Big Huge Games, the solvency of its founder, Curt Schilling, and about $36 million of public money. And yet the misery continues, because the US Securities and Exchange Commission has now charged the Rhode Island Commerce Corporation and Wells Fargo, one of the banks that worked on the bond offering, with defrauding investors.

The complaint alleges that key staff involved knew 38 Studios would require $25 million more than the $50 million the deal would yield to see its Amalur MMO, Project Copernicus, to completion. According to the SEC, this was not made apparent to investors.

“38 Studios’ funding gap was known at the time the Bond Placement Memo was sent to investors. It was not speculative. It was an existing risk that should have been disclosed to potential investors in the offering,” the complaint reads.

Wells Fargo is also accused of not disclosing a conflict of interest, representing as it did both 38 Studios, the loan’s recipient, and Rhode Island, which was stumping up the cash. As you might expect, Well Fargo is contesting the claim, so legal proceedings grind miserably on four years after 38 Studios closed its doors.