In court documents obtained by GoLocalProv, the former head of Rhode Island's Economic Development Corp. (EDC) accused RI Gov. Lincoln Chafee of forcing 38 Studios into bankruptcy last year by standing in the way of efforts to restructure its debt or raise additional funding. The accusations were part of a court filing responding to the state's lawsuit against Curt Schilling, former executives from the company, former Economic Development Corp. Executive Director Keith Stokes, and former EDC Deputy Director Michael Saul.
In response to the lawsuit, lawyers for Stokes allege that Chafee "stood in the way" of 38 Studios' attempts to restructure its debt or to raise more capital in late 2011 and early 2012. The filing also alleges that the governor refused to meet with 38 Studios executives in 2011 to discuss the issues and claims he "rebuffed" efforts to bring them before the EDC board for deliberation.
"These actions, among others, by Governor Chafee and as Chair of the EDC Board forced 38 Studios into bankruptcy, breached its fiduciary duties owed by the Governor to the EDC and State of Rhode Island, breached the EDC's obligations of good faith and fair dealing with 38 Studios, and breached the EDC's obligations to mitigate its damages and ultimately the damages to the State of Rhode Island."
The company filed for bankruptcy in June of 2012, leaving the state responsible for some $100 million related to the deal. The state has secured some tangible assets like office furniture and other miscellaneous real-world items from the company. It also secured the company's intellectual property, which will be auctioned off in November. IP for sale includes Kingdoms of Amular: Reckoning rights, rights to the unfinished MMO Project Copernicus, and Big Huge Games assets such as Rise of Nations and its game engine technology.
The state filed a lawsuit alleging that those involved in the 38 Studios deal knew the company would run out of money by 2012 but concealed those facts from the board. The suit alleges fraud, negligence and breach of fiduciary duty, and more.
Schilling's attorney also filed a response denying the allegations and said that the company fully disclosed its financial condition to the EDC. Schilling has also accused Chafee of damaging 38 Studios' chances of getting further financing and avoiding bankruptcy. They even went so far as to call him a "dunce of epic proportions."
We will have more on this story as it develops.