Metro

EDC hires counsel in face of SEC inquiry

The inquiry comes after 38 Studios went bankrupt and defaulted on a $75 million state loan

By
City & State Editor
Tuesday, September 17, 2013

Documents made public last week reveal that the Rhode Island Economic Development Corporation hired legal representation last fall in response to inquiries from the U.S. Securities and Exchange Commission regarding the state’s $75 million loan to now-defunct 38 Studios, a video game development firm founded and led by former-Red Sox pitcher Curt Schilling.

The documents indicating the transaction had occurred were acquired by local news outlet WPRI.

Schilling’s company defaulted on its loan in 2012 — two years after receiving the funds and moving its headquarters to Rhode Island as a part of the loan agreement. The company subsequently declared bankruptcy, and the state now owes upwards of $100 million on bonds used to fund the loan, a burden many speculate will ultimately fall on the state’s taxpayers.

The EDC’s financial records show the state spent more than $100,000 on services from the law firm Cohen & Gresser LLP over a five-month span at the end of 2012, WPRI reported, but neither the EDC nor the SEC has commented on the nature of the legal proceedings. The SEC has not launched a formal investigation into the state agency.

Overall, the state spent more $700,000 on legal representation associated with the 38 Studios case last year, according to EDC records. Approximately $520,000 was spent on general counsel, with the remaining $87,000 going to the local Providence firm working on the open case against 38 Studios executives and former top-ranking EDC officials. The suit claims individuals on both sides of the loan deal continued with the agreement, despite knowing 38 Studios would be unable to turn its ambitious agenda into a functional business.

Gov. Lincoln Chafee ’75 P’14 P’17 and other top-ranking politicians have previously supported the lawsuit against the leaders of the deal in hopes of claiming funds to offset the state’s loan debt.

This summer the General Assembly approved $2.5 million of this year’s state budget to begin to repay the 38 Studios bonds. Under the approved plan, the state would have to continue payments every year until 2020.