Published on November 1st, 2012 | by rowsdower1
Rhode Island: Let’s Squeeze Some More Blood Out of This Stone
Remember 38 Studios, that game studio set up by Curt Schilling? Remember how it was putting most of its money and effort into Project Copernicus, a MMO started before the free-to-play model really took off ? Remember how it got extensive loans and other financial inducements from the state of Rhode Island and how Schilling allegedly sunk large amounts of his personal wealth to put out that game? Remember how 38 Studios declared bankruptcy when the Rhode Island government refused to give them any more loans?
If you didn’t remember that, then you do now. And that brings us to the newest installment in the 38 Studios saga: the state of Rhode Island is suing Schilling, other high-ranking members of the defunct 38 Studios, and their financial backers. Rhode Island governor Lincoln Chafee made this video announcing the suit:
This mainly serves to remind us that Gov. Chafee kind of looks either a generic Founding Father or Walter Donovan in Indiana Jones and the Last Crusade just after he drank out of the wrong Grail. Something about that hair.
The full text of the legal action is available here. From my non-legal expert position, it looks like the state of Rhode Island funded 38 Studios through an organization called the Rhode Island Economic Development Corporation (RIEDC). The state is suing the heads of 38 Studios, the former heads of the RIEDC, and some of the companies that worked with and advised the RIEDC (i.e. First Southwest, Wells Fargo, Barclays, etc.) The crux of the state’s argument is that, to quote Section 25 of their action, “ 38 Studios failed because of risks that had not been disclosed to the EDC Board, but were or should have been known by all of these Advisors (ed.-referring to the companies named in the suit and the former RIEDC heads), and by 38 Studios, and Defendants Schilling, Zaccagnino, Wester, and MacLean.” In short, the state is alleging that most of the players involved in the deal–Schilling and 38 Studios, some of the RIEDC leaders, and their financial advisers–knew that 38 Studios couldn’t deliver on what it promised and consistently misled the rest of the board in order to get the deal through.
I can see why Rhode Island launched this lawsuit, even if it seems like an exceptionally bad idea. Gov. Chafee, who was elected after the RIEDC made its deal with 38 Studios, has always been critical of that deal. Rhode Island is out $75 million during rough times because of that deal, and it isn’t likely to recoup all of that money through selling off 38 Studios’ assets. So I can partially understand why they’re trying to sue the people who original made the deal (to really punish them) and the financial advisors (to actually get some money) in addition to, I don’t know, garnishing Schilling’s ESPN analyst money.
On the other hand, I have no idea if this lawsuit is even going to go anywhere. The state seems to have assembled a case, but I don’t know how difficult it is to prove that almost everyone involved in the 38 Studios deal was misleading the whole RIEDC board. It just seems like Rhode Island is trying to find new and exciting ways to squeeze blood out of a stone, and that those new and exciting ways of blood-squeezing may not pay off at all.