Report: SEC Investigating Rhode Island Loan To 38 Studios

by Mike Futter on Sep 11, 2013 at 11:41 AM

It's been over a year since the collapse of Curt Schilling's 38 Studios, but the loan money that eventually exposed the company's financial shortcomings is still a sore point. Today, WPRI reports that the Securities Exchange Commission (SEC) has been investigating the Rhode Island Economic Development Corporation deal that invested $75 million of taxpayer money in the hands of 38 Studios.

The SEC conducted the bulk of its investigation last fall and winter. The EDC declined to comment when approached by WPRI, citing "confidentiality as requested by the SEC."

The $75 million deal was left to current Governor Lincoln Chafee by his predecessor, Don Carcieri. Rhode Island is currently paying back the loan. The fallout saw the exodus of many of the EDC officials responsible for approving the loan, which was intended to help spur job growth in Rhode Island.

38 Studios' first and only game, Kingdoms of Amalur: Reckoning was published via EA's now-defunct Partners program. Even an 80 Metacritic score wasn't enough to save the company, which had burned through its cash while preparing an MMO set in the Amalur universe.

In the wake of the 38 Studios' collapse, the company also left staff members at Big Huge Games in Maryland out of work. That studio was reconstituted as Epic Impossible Studios and until it was cut loose, those developers were working on an action RPG called Infinity Blade Dungeons.

[Source: WPRI via Joystiq]


Our Take
The legacy of 38 Studios is a crushing debt burden on the citizens of Rhode Island. Economic Development Corporations have immense power to incentivize business and spur job growth (which helps the state economy). In this case, there are indications that due diligence wasn't conducted or, worse, financial warning signs were flat out ignored. Things were bad at 38 Studios long before the financial problems came to light with a missed loan payment. 

Curt Schilling went on the record, blaming the government and for making the situation untenable for investment. What the former Red Sox pitcher is ignoring is that if the company were in good shape (and had interested investors), there likely wouldn't have been anything to report on.