SEC files charges against RIEDC, Wells Fargo in 38 Studios debacle

PROVIDENCE – The Securities and Exchange Commission last week filed charges against the R.I. Economic Development Corp. and its bond underwriter Wells Fargo Securities, alleging fraud that stems from a 2010 municipal bond offering to finance the now-defunct video game company 38 Studios LLC.

The SEC is accusing Wells Fargo and the EDC, a quasi-state agency that’s since been renamed R.I. Commerce Corp., for defrauding investors during the issuance of $75 million in bonds for the company, which went bankrupt in 2012 and left Rhode Island taxpayers on the hook to pay back more than $100 million.

The SEC also charged former EDC executives Keith W. Stokes and James Michael Saul for “aiding and abetting the fraud,” according to a press release. Both Stokes and Saul agreed to settle those charges without admitting or denying guilt and are prohibited from participating in any future municipal securities offering. The duo also must each pay a $25,000 penalty.

38 Studios was owned and run by Curt Schilling, the famed former Boston Red Sox pitcher and ESPN analyst, who isn’t charged in the suit.

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The SEC says bond investors, who expected to be repaid from revenue generated from the video game, were not told that 38 Studios needed at least $75 million to produce a video game. The SEC alleges investors purchased bonds that weren’t sufficient for the full development of the video game. •

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