Joel R. Glucksman
November 22, 2012
Former professional baseball player Curt Schilling and the banks that funded his failed venture, 38 Studios, are now facing a lawsuit
from the Rhode Island Economic Development Corporation that may add further strain to the bankrupt company.
The state agency has accused Schilling, Wells Fargo and Barclays of failing to disclose risks that resulted in 38 Studios – a video gaming company – filing for bankruptcy earlier this year. The state’s economic development organization said in a court filing that the former Boston Red Sox pitcher and the banks did not provide it with information regarding the company’s negative financial projections or business plan issues
. The organization asserted that Schilling and the banks purposely misled it into approving a $75 million loan guarantee to the now-bankrupt company.
“38 Studios failed because of risks that had not been disclosed to the EDC board, but were or should have been known by [the defendants],” the organization said in the filing, according to Bloomberg.
The EDC board approved the issuance of $75 million in bonds to finance the company’s relocation from Massachusetts to Rhode Island. After 38 Studios filed for protection under bankruptcy law
, Rhode Island was left on the hook for roughly $100 million.
Wells Fargo and Barclays served as placement agents for the loan, and are therefore included in the lawsuit. Barclays and Schilling declined to comment on the lawsuit, while Wells Fargo said in an emailed statement to Bloomberg that it is reviewing the issue. Rhode Island Governor Lincoln Chafee supports the lawsuit, noting that the company’s alleged fraud has had a direct impact on its residents.
“For your tax dollars to be squandered is unacceptable,” Chafee said in a statement. “The board’s legal action was taken to rectify a grave injustice put upon the people of Rhode Island.”