38 Studios lawsuit draws subpoena from SEC

Securities and Exchange Commission serves papers to group responsible for green-lighting $75 million loan that brought Curt Schilling's game company to Rhode Island in 2010.

The United States Securities and Exchange Commission, the federal agency responsible for enforcing securities laws, has subpoenaed the Rhode Island Commerce Corporation for information related to the ongoing lawsuit against Curt Schilling's failed development outfit 38 Studios.

Image credit: Steven Senne, AP

Two lawyers confirmed the subpoena this week to The Providence Journal. The SEC originally requested depositions and exhibits related to the lawsuit in December, the paper reports.

The Rhode Island Commerce Corporation is the new name for the Rhode Island Economic Development Corporation (EDC), which orchestrated the controversial $75 million loan guarantee that brought 38 Studios to Rhode Island in 2010.

38 Studios went belly up in May 2012, leaving taxpayers on the hook for an estimated $100 million. The state of Rhode Island sued Schilling and other architects of the loan in November 2012, while the SEC investigation commenced in September 2013.

The Providence Journal reports that depositions in the lawsuit have begun, but only one has been completed so far--that of former EDC deputy director J. Michael Saul.

Efforts to recoup losses related to 38 Studios, including a liquidation auction of the company's assets last month, have gathered a lackluster response so far. Sequel rights to Kingdoms of Amalur: Reckoning and rights to the Project Copernicus MMO failed to sell, with Rise of Nations and Rise of Legends fetching a total of just $320,000 from an unspecified buyer.

After Project Copernicus found no buyer, Rhode Island governor Lincoln Chafee said the game now represents nothing more than "a lot of junk."

Written By

Eddie Makuch is a news editor at GameSpot, and would like to see the Whalers return to Hartford.

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57 comments
soul45
soul45

hopefully tax payers wont have to pay off the loan


pboontap
pboontap

now this i'm curious to see, its about time they took a look at the brain trust that approved this loan. also since when has a "loan" = "investment"


thesilverape
thesilverape

That game was destined to fail, it was so damn expensive and even though the combat was fun, the whole game felt like eating unseasoned steak. Way to bland to get excited about. 

nayce54
nayce54

Guys, if you just wanna chat, party chat, do missions whatever, just add me on PSN: "NateIsGod4"

Aeondeity
Aeondeity

I really liked Amalur.

I'm fairly certain they can make back quite a bit of their losses; if they were funded by kickstarter, were in indie bundles or on sale on steam.


Something to the effect of "Bail us out" "rewards included" on kickstarter, you'll probably pay off at least part of the debt.

Something as simple as DLC or a charity kickstarter.

Gelugon_baat
Gelugon_baat

More reason for game-makers to consider going for alternative funding sources, away from big-name publishers and taxpayer money.

(Too bad most alternatives would require the game-makers to have high profiles though.)

ferretshob
ferretshob

This is all bull. The game was great and it was a shame it did not sell as it should have due to lack and poor advertising. The RI Governor hated the fact that this money was lent out before he got in and therefor put considerable pressure on 38 Studios from the get go. If he shut his mouth and let the company do what they needed to do to be able to sell the game, I bet they would have come out ok.


Does anyone from RI think that Curt Schilling went into this to go broke?

dpclark
dpclark

I bought this game and enjoyed it.  I did my part to save the word, so what have you done but complain?

nyran125tk
nyran125tk

before you think 100 million is a drop in the bucket, consider this. theres 1 million people in Rhode island. They are asking for 100 million dollars. Theres 951'000 people that have jobs, 49'000 unemployed, (so bare in mind these people wont be paying anything)


So they are asking for $105 from every citizen that has a job in Rhode Island. Now you might think pfft whatever $105 what a joke, i make tons of money.


Well the people on $8/hr probably don't. Why should anyone give these people $105?


If these people came up to you on the street as a charity and said, give me $105 because we screwed up, would you give it to them?


jenovaschilld
jenovaschilld

Cipher is much more correct then nyran was, but just to clarify a little more. It was an old fashioned B$O (business and operation) loan. No matter what they are calling it now.  Which would be paid back with an (unspecified) amount of interest. -Means little to none. The loan would have to be paid back, but giving a first time video game company (with really no large assests) a guarantee loan that large is beyond irresponsible to the point of criminal - thus SEC. 


You give loans and build some roads, infrastructure to lure in businesses that not only pay OP, B&O, and exec taxes but give jobs (which they pay taxes) and sales (taxes). Not to mention those job holders then go on and spend money in your state. So yes bringing in business is always healthy for a state, unless of course that business goes belly up. Then you have all of those problems. 


And really cipher while the US government could absorb 100mill in loss on risk of gain, a small state like RI with a small population will take a huge hit. Loss of future incomes, expansions, and government services which in turn hurt your citizens ability to earn. Much like the sequestration mess that the US goverment is going through now. 


If a company like Activison, Ubisoft, Bioware, and even EA wanted to come my state a 100million (75 mlll + 25 mill in administration costs 'lol') investment LOAN makes good since. But curt schillings just launch new game company with no proven assets would be a ridiculous risk. And nothing you could show me behind closed doors would justify that kind of risk you are taking with tax payers money. Its just old people who know little about video games wanting to grab onto 'this video games for kids fad that seems so popular these days'

PlatinumPaladin
PlatinumPaladin

What a complete and utter farce this has become. Check out the EDC changing its name in an attempt to escape some of the bad publicity.

nyran125tk
nyran125tk

the taxpayer wasnt responsible for Kingdoms of Amalur. They took a risk, it failed. Corrupt people got screwed over, they taxpayer has nothing to do with it. The fact its even possible to make taxpayers or even entertain the idea in a legal court to pay these people 100 million tells you how FLAWED this bail out system is


If you decide to open up a factory, YOU are deciding to do that. Not us. If it goes to sht, thats not OUR fault, nor has it got anything to do with us. Did we have a say in the game? Was there a vote on HOW the game was made and what the expectations were? So wtf has it got to do with the taxpayer?


I dont understand this bail out system. The laws surrounding bail outs i think need to be looked into seriously. bankrupting  a whole city for , how many people worked on this game? a few hundred? How many people in Rhode Island?


quakke
quakke

I wished it was 38 individual studios that got sued (EA,Activision,Ubisoft..) but no :(

b74kd3th
b74kd3th

We all know public officials were laundering money through this company and when the well ran dry curt became the scapegoat

DaRq_MiNoS
DaRq_MiNoS

Can't believe they would go after 38 Studios, when they never went after the people responsible for the recession.

Riddick123
Riddick123

LOL  "Curt Schilling's failed development outfit 38 Studios."


Instead of a company it's an outfit...which isn't complimentary and insinuates it is a criminal enterprise.

Thanatos2k
Thanatos2k

Sorry Rhode Island, you gambled with your money and lost.  Let someone buy Amalur at what its really worth and move on.

nparks
nparks

Wait a second.  This article looks suspiciously like actual news.  What's going on, Gamespot?  Your Twitter feed break down?

Barighm
Barighm

I wish I could sue people for the mistakes I've made to recoup my losses. Must be nice to be rich enough to hire an army of lawyers.

MJ12-Conspiracy
MJ12-Conspiracy

To me this whole thing is a bunch of morons got together and decided to take advantage of a new developer in a pyramid get rich quick scheme and when that failed shifted the blame so they didn't have to face the music....

KOA wasn't all that great, it was vastly overhyped but roughly 10-15% of people who bought the game genuinely liked it....that's a pretty small crowd if true and it's these folks who swear by it the most.....

Honestly the RI gov don't deserve the money back, they took a risk and and it backfired, if this was a citizen that person would be told tough luck Average Joe, suck it up and invest smarter next time......maybe RI should do the same.....

CidX1
CidX1

@pboontap Since nearly the beginning of loan history. If someone gives you money with the expectation that you will use it to make profit and then pay back the amount loaned plus interest, that is an investment, they invested their money in you expecting to see a return.

gargungulunk
gargungulunk

@pboontap 

This really was a risky loan.  Aside from business practices & making an MMO on the side, this game is massive...and detailed.  The state really should have checked in more.  (I'm searching for a date, but) this game took years to make...at any point the State could have stopped by to see what's going on. 



---Cipher---
---Cipher---

@pboontapIt's not exactly an investment, but in some regards, it is. The loan was given to bring jobs to RI. RI gave 38 studios the money in exchange for interest, plus (and correct me if I'm wrong) it required 38 studios to employ X number of people. It was given on the basis that RI would receive more back, which to me, is an investment. A really really bad investment...

blackace
blackace

@AeondeityThey would need a a developer to make the sequel before they could put it on Kickstarter. If they acquired a different developer to make the sequel, then they could put it up on Kickstarter and set a goal of like 10 million or something. I doubt they would get it though. Star Citizen made millions, but it's being run by one of the most respect developers in the business. Who is Rhode Island CC going to get? I'm sure they would love to get $25-$30 million for the 2 games, but that ain't going to happen. If they get $5 for them they'll be lucky. 38 Studio Exec took that money and ran with it. Right after they saw 38 Studio/Big Huge Games was about to go bankrupt, they left the company and took millions with them. All of them are being sued now. lol!!

---Cipher---
---Cipher---

@ferretshobpoor advertising didn't help, but the game cost a fortune to develop. It would have taken a miracle to make money off of it. The company was doomed with or without RI governor. 

38 studios was mismanaged and hemorrhaging money, making AAA cost games as new (and first) IP's in incredibly competitive markets, and (probably most d**ning) took a deal from the devil when it took a loan from RI. When the RI governor threw 38 under the bus, 38 was looking for investors again. They were never going to be ok. They were up to their eyes in debt, no money, and insane costs. Just in terms of staff, a company without anything to its' name to have that many people was insane in and of itself.

RI and 38 studios were to blame for this mess. 38 Studios knew the terms when they took the loan and should have known better.


Curt Schilling didn't go into it to go broke but he sure ran it like he did.

ACMC85
ACMC85

@nyran125tk I can't believe there's only 1 million residents in Rhode Island. The deal was a joke from the start though, I never felt confident when people pick "winners." The game itself looked promising, so I was really surprised when it failed.

WolfgarTheQuiet
WolfgarTheQuiet

@nyran125tk People pay more taxes for oil wars, also i think some of the richest game companies could join and offer help to former 38, shame, it was a great game as well

---Cipher---
---Cipher---

@nyran125tk100 million is a drop in the bucket in the "overall government waste" category. I didn't mean to make it sound as if it wasn't bad or should be ignored. Sorry for the miscommunication.


However, they aren't asking for anything here. The money is spent (past tense). It was spent years ago when RI tried to get 38studios to move there. Right now RI is trying to recoup their losses on that deal by selling off the IP's 38s had. Imo, RI is better off not even trying. No one wanted the big items at sale, the state called those items "junk" and they are spending a ton just trying to make it back. RI is spending (I'm guessing here) more to get back as much of the $100 million than they'll actually get back. Pursue criminal charges if shady business was done, but cut the losses and learn from it the next time your State wants to invest in a new untested untried inexperienced company.


Basically, this whole ordeal is just the RI government trying to save face. The money is gone. They aren't "asking" for anything, those people already paid their $105 expecting to get $127 later but with 38 studios gone, they can't get much of their money back.

nyran125tk
nyran125tk

If you are on $8/hr thats $320 a week (barely enough to scrape by), $105 is a lot of money to those people.

---Cipher---
---Cipher---

@nyran125tkit wasn't a bail out. RI wanted 38 studios to move to RI and convinced them to move there with 100mil of taxpayer money. RI was trying to bring jobs to the state in a very very stupid and misguided way. Many states do this sort of thing, they try to convince big companies to move to their state and provide jobs by providing tax incentives/etc. 38 studios is just a great example of when that goes incredibly bad.


Again, the 100 million wasn't a bail out, it was an incentive (basicly an investment) for 38 studios to set up shop in RI. Somecrazyhow thought it was a great investment and got screwed over by it. Now it's an investment turned witch hunt.


Besides, 100million is nothing for the government to waste money on, it's just a drop in the bucket!

---Cipher---
---Cipher---

@SteamyPotatoesThey've tried taking new pictures of him but can't. He got turned into a vampire and won't show up anymore...


it's the only explanation...

Senor_Kami
Senor_Kami

@MJ12-ConspiracyPretty insane that you look at the state who loaned money to a seemingly business vs a dev who was making some failed nonexistent mmo and threw together a rpg and say it's the state that was preying on people.

Carpetfluff
Carpetfluff

@---Cipher--- @ferretshob Surely the lack of advertising etc come down to EA, who have a habit of letting games out to die with little press or fanfare when they don't have total faith.

nparks
nparks

@---Cipher---@ferretshob 38 came begging for the loan guarantee from the state because they couldn't get the capital they needed from private investors without it.  Without those loans, they would have shut down a lot sooner.  So Curt Schilling holds a fundraiser for the governor, asks to have his back scratched, the governor tells the EDC to make it happen, and they do, ignoring all the warning signs.  But now the citizens of the state have to pay for that bit of graft.

---Cipher---
---Cipher---

@ACMC85@nyran125tkit wasn't KoA that "failed" so much as the MMO they tried to make and the money they were hemorrhaging from not know what they were doing. That and making KoA a AAA priced development didn't help.

jenovaschilld
jenovaschilld

@---Cipher--- @nyran125tk  Cipher is much more correct then nyran was, but just to clarify a little more. It was an old fashioned B$O (business and operation) loan. No matter what they are calling it now.  Which would be paid back with an (unspecified) amount of interest. -Means little to none. The loan would have to be paid back, but giving a first time video game company (with really no large assests) a guarantee loan that large is beyond irresponsible to the point of criminal - thus SEC. 


You give loans and build some roads, infrastructure to lure in businesses that not only pay OP, B&O, and exec taxes but give jobs (which they pay taxes) and sales (taxes). Not to mention those job holders then go on and spend money in your state. So yes bringing in business is always healthy for a state, unless of course that business goes belly up. Then you have all of those problems. 


And really cipher while the US government could absorb 100mill in loss on risk of gain, a small state like RI with a small population will take a huge hit. Loss of future incomes, expansions, and government services which in turn hurt your citizens ability to earn. Much like the sequestration mess that the US goverment is going through now. 


If a company like Activison, Ubisoft, Bioware, and even EA wanted to come my state a 100million (75 mlll + 25 mill in administration costs 'lol') investment LOAN makes good since. But curt schillings just launch new game company with no proven assets would be a ridiculous risk. And nothing you could show me behind closed doors would justify that kind of risk you are taking with tax payers money. Its just old people who know little about video games wanting to grab onto 'this video games for kids fad that seems so popular these days'

MJ12-Conspiracy
MJ12-Conspiracy

@Senor_Kami it's not insane if you actually followed the whole story as it happened.....it's clear the state was up to no good and now they're throwing a tantrum because they lost money.....

---Cipher---
---Cipher---

@ACMC85@---Cipher---@nyran125tkwho? 38 studios and Curt Schilling are already bust (Curt apparently sold a bloody sock baseball fans wanted). It was a loan, true, but everyone that could be on the hook is already done. All assets went to the state, Curt is done for from what I've heard. It doesn't matter if anyone is on the hook or not, there is no way they'll get that 100mil back (not even close). No one wanted KoA rights which was their biggest item. Everyone that could be on the hook has already been hooked.

Yomigaeru
Yomigaeru

@---Cipher---@Thanatos2k@MJ12-Conspiracy...but what percentage of that kitten hating 90% has actually tried them? A little soy sauce and some sugar...and they're delicious...