The state of Rhode Island stopped just short of suing itself in its wide-ranging court action against 38 Studios, and nearly everyone who had an advisory role in the bankrupt company's $75 million loan guarantee, alleging a massive fraud.
"It's very unusual for a state to sue its own advisers over a loan that the state made," said Hub bankruptcy attorney David Reier of Posternak Blankstein & Lund. He added, "It's odd that members of a board called 'the Economic Development Corporation' lack expertise in economic development."
But that fact is an underlying premise of the suit, which alleges the board relied on more experienced advisers to approve the loan given to the now-belly-up game developer.
The state and its Economic Development Corporation filed a complaint in Rhode Island Superior Court yesterday against 38 Studios and its owner, former Red Sox [team stats] pitcher Curt Schilling [stats], along with its own former executive director, a law firm that it employed for a decade and other advisers.
Schilling's company filed for bankruptcy and laid off its entire staff earlier this year after defaulting on the loan, leaving taxpayers holding the bag. Reached yesterday by phone, Schilling declined to comment.
"I know that you work hard for your paychecks, and for your tax dollars to be squandered is unacceptable," Rhode Island Gov. Lincoln Chafee said in a statement. "You have my commitment that I will continue fighting to protect the interest of all Rhode Islanders."
The 94-page complaint alleges that Schilling's company failed to disclose the risks that led to its demise, including that it was on track to be in the red by 2012.
The complaint alleges that Wells Fargo, which declined comment, was earning "nearly $500,000 in hidden commissions from 38 Studios at the same time" it had a fiduciary duty to disclose the company's problematic business plan to the board.
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