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Rhode Island suing 38 Studios execs, state officials over $75M loan

Rhode Island suing 38 Studios execs, state officials over $75M loan

November 1, 2012 | By Eric Caoili

Rhode Island has filed a lawsuit against the numerous people involved in the state's mismanaged $75 million loan to Kingdoms of Amalur developer 38 Studios, which shut down in May after running out of money.

The suit (PDF download) was filed with the Rhode Island Superior Court by the state's Economic Development Corporation, which negotiated the loan that convinced 38 Studios to move from Massachusetts to Rhode Island two years ago.

The defendants named in the suit include the developer's founder/chairman and ex-baseball star Curt Schilling, CEO Jennifer MacLean, former EDC executive director Keith Stokes (who oversaw the negotiations and was fired following 38 Studios' closure), and other 38 Studios executives and EDC employees/lawyers.

Other companies that were involved in the loan deal such as Wells Fargo Securities, Barclays Capital, First Southwest, and Starr Indemnity and Liability were also named as defendants.

The complaint alleges that many of the "defendants knew or should have known, but failed to inform the EDC Board, that 38 Studios was destined to fail according to 38 Studios own financial projections."

It claims that 38 Studios' executives knew that, even with the loan, the studio would not have enough money to relocate and eventually complete its MMORPG project Copernicus, but they chose to conceal that financial shortfall from the board.

Schilling and the other defendants are accused of fraud, fraudulent misrepresentations and omissions, breach of fiduciary duty, breach of implied covenant of good faith and fair dealing, negligence, negligent misrepresentation, legal malpractice civil conspiracy, violation of the state's RICO statute, and numerous other counts.

The EDC includes in its list of damages the $75 million loan to 38 Studios, its reduced ability to issue bonds and other guaranties, its injured reputation and credit, and its increased exposure to potential liability to third parties. The group's lawsuit is seeking a juried trial to cover those damages, plus interest, costs, and attorneys' fees.

Rhode Island governor Lincoln Chafee, who spoke out against the taxpayer-guaranteed loan even before 38 Studios' troubles emerged and condemned the company many times after its closure, pressured the EDC board to begin reviewing a potential lawsuit against the developer in June, according to local news outlet WPRI.

"My message to Rhode Islanders is this. I know you work hard for your paychecks, and for your tax dollars to be squandered is unacceptable," said Governor Chafee in a video statement posted online today (above). "The board's legal action was taken to rectify a grave injustice put upon the people of Rhode Island."

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