(Updated, 5:00 p.m.)
PROVIDENCE – The state and R.I. Economic Development Corporation sued 38 Studios LLC founder Curt Schilling and 13 other institutions or individuals connected with the failed $75 million loan guarantee to the video company for allegedly misleading state officials about the deal’s risks.
Those named in the suit, filed in R. I. Superior Court Thursday, include former EDC Executive Director Keith W. Stokes and Deputy Director J. Michael Saul, who shepherded the loan guarantee through the quasi-state agency in 2010. It also names former 38 Studios executives, lawyers who advised the state in the deal and financial institutions that brokered it.
The suit asks the court to make the defendants liable for what is now the state’s responsibility to pay back 38 Studios bondholders.
“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, and by 38 Studios, and Defendants…” the suit alleges.
“The undisclosed risks included the express admission, made by 38 Studios’ directors and chief executives directly to these Advisors, and by 38 Studios’ own financial projections that were disclosed to the Advisors,” the suit continues, “that, even with the loan from the EDC, 38 Studios was undercapitalized by many millions of dollars and would not have nearly enough money to relocate to Rhode Island and complete Copernicus, and that, as a result of this cash shortfall, 38 Studios was likely to run out of money in 2012.”
EDC board members who voted in favor of the $75 million loan guarantee were not named in the suit.
In a statement released Thursday, Gov. Lincoln D. Chafee said the R.I. EDC Board of Directors had voted unanimously to take legal action to recover any possible public dollars exposed to the 38 Studios debacle.
“When it became clear that the company would not survive, I publicly stated my commitment to you that my primary goal would be to do everything within my power to protect the taxpayers of Rhode Island,” Chafee said in the statement. “My message to Rhode Islanders is this: I know that you work hard for your paychecks, and for your tax dollars to be squandered is unacceptable. The Board’s legal action was taken to rectify a grave injustice put upon the people of Rhode Island.”
Representing the state and EDC in the suit is attorney Max Wistow of Wistow & Barylick Inc., which was retained on a contingency that would pay the firm 16.66 percent of any funds recovered.