38 Studios Case Brings New Fraud Claims

It seems it’s a dark day for video game developers. Not only did Lionhead Studios announce that it would be canceling its latest project and closing its doors, but now, 38 Studios – best-known for its tepid-at-best Kingdoms of Amalur: Recknoning and for being driven swiftly into the ground by baseball player-turned CEO Curt Schilling, is back in the news today as well.

The issue being brought to task is fraud, though the claim is directed not toward the defunct studio itself, but rather the organizations that loaned it money before it went belly-up. The U.S. Securities and Exchange Commission are pursuing legal action against the Rhode Island Economic Development Corporation and Wells Fargo, claiming that the organizations provided publicly-sourced securities bonds for the studio to fund its game without providing investors a clear picture of what they were signing on for.

Back in 2010, 38 Studios relocated from Massachusetts to Rhode Island, thanks to a $75 million loan from Wells Fargo and the RIEDC. Unfortunately, when the studio tanked almost immediately after the release of Amalur, the original plan – which was that the RIEDC would recoup the initial investment from sales of the game – fell short, leaving the taxpayer-funded loan money stranded in the ether.

“We allege that the RIEDC and Wells Fargo knew that 38 Studios needed an additional $25 million to fund the project yet failed to pass that material information along to bond investors, who were denied a complete financial picture,” SEC enforcement director Andrew Ceresney said in a statement, as reported by Gamespot.