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Defunct 38 Studios tries to dismiss R.I. lawsuit

The game development company went bankrupt, likely leaving the debt burden on state taxpayers

Curt Schilling, former Red Sox pitcher and founder of 38 Studios, called earlier this month for the dismissal of a lawsuit filed against him by the Rhode Island Economic Development Corporation.

The RIEDC filed the lawsuit last November, following 38 Studios’ bankruptcy.

38 Studios received a $75 million loan from the RIEDC in November  2010 as a part of the state’s Job Guarantee Program, legislation passed only weeks prior by the General Assembly to help stimulate the Rhode Island economy. Under the conditions of the loan, the company relocated from Massachusetts to Rhode Island to introduce hundreds of new jobs to the state. Less than two years after the company received the loan, 38 Studios filed for bankruptcy, leaving the company $100 million in debt to the RIEDC, a debt expected to fall on Rhode Island taxpayers.

The RIEDC filed a lawsuit against Schilling and other 38 Studios executives in November 2012, alleging that the company misled the agency about the amount of money it would need to produce its video game project, “Copernicus.”

The suit maintains the deal’s architects were aware that 38 Studios would require a figure larger than the initial RIEDC loan to complete the project.

Schilling has called the RIEDC’s allegations of fraud, racketeering and conspiracy “implausible,” according to a report from the Los Angeles Times.

Schilling’s motion to dismiss the suit claims he and the other defendants made it clear that 38 Studios would require the full $75 million to successfully complete the project, but under the loan agreement, the company received only $50 million, with the remaining $25 million kept in reserve.

The lawsuit also targets RIEDC officials Keith Stokes, former executive director, and Michael Saul, former deputy director, both of whom presided over the 38 Studios loan. Stokes resigned from his position soon after news outlets reported that 38 Studios halted loan repayments, following public pressure to step down.

Since then, three other members of the RIEDC board have resigned or chosen not to pursue another term. Providence business leader Jack Templin is resigning after two years of his four-year term. Cheryl Snead, president and CEO of Banneker Industries Inc., and David Dooley, president of the University of Rhode Island, have each completed three-year terms. Both informed Gov. Lincoln Chafee ’75 P’14 of their resignations last month. The 13-seat board now only has five members, including those waiting for replacement.

Chafee announced his nominations to replace Templin, Snead and Dooley in early March, which include Nancy Carriuolo, president of Rhode Island College and  Shannon Brawley, executive director of the Rhode Island Nursery and Landscape Association.

“This is a new direction for the RIEDC and, I believe, a more promising path to a stronger economy for Rhode Island,” Chafee said in a press release announcing the nominations.

Chafee said he hopes to emphasize changing priorities for the RIEDC but added that the board maintains a commitment to helping Rhode Island’s small businesses.

“The governor has obviously appointed people that he believes are representative of the business community of Rhode Island and understand the needs of that community,” said Christine Hunsinger, Chafee’s press secretary. “Rhode Island has a very high percentage of small businesses that create jobs here, so his focus is on that.”

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