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Former Rhode Island Official Says Governor Forced Schilling Company Into Bankruptcy

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38 Studios Logo (Photo Credit: 38 Studios http://38studios.com/)

38 Studios Logo (Photo Credit: 38 Studios http://38studios.com/)

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By ERIKA NIEDOWSKI,  Associated Press

PROVIDENCE, R.I. (AP) _ The former head of Rhode Island’s economic development agency is accusing Gov. Lincoln Chafee of forcing the video game company of former Red Sox pitcher Curt Schilling into bankruptcy last year by impeding its efforts to restructure its debt or raise additional money.

In court filings, an attorney for former Economic Development Corp. Executive Director Keith Stokes alleges that Chafee “stood in the way” of 38 Studios’ attempts to restructure its debt or raise more capital in late 2011 and early 2012.

The filing also alleges the governor refused to meet with 38 Studios executives in 2011 to discuss the issues and says he “rebuffed” efforts to bring them before the EDC board for deliberation.

The company filed for bankruptcy in June of last year, and the state is now responsible for some $90 million related to the deal.

Christine Hunsinger, Chafee’s spokeswoman, had no immediate comment Thursday. Chafee, a vocal opponent of the 38 Studios deal while he was campaigning for governor, has insisted he did everything he could to help the company.

The EDC board in 2010 approved a $75 million loan guarantee for 38 Studios as an incentive for it to relocate from Massachusetts to Providence. Stokes and then-Gov. Don Carcieri said at the time the deal would bring tremendous benefit to the economically struggling state.

In an effort to recoup the money Rhode Island stands to lose on the deal, the EDC in November sued Stokes, EDC Deputy Director Michael Saul, Schilling and 11 other parties, claiming they knew the company would run out of money by last year but concealed that from the board. The suit alleges fraud, negligence and breach of fiduciary duty, among other things.

In Stokes’ response to the suit, filed in Superior Court last week, attorney David Martland denied that Stokes misled the board or failed to disclose information.

Schilling’s response also denies the allegations and says 38 Studios fully disclosed its financial condition to the EDC. Schilling has accused Chafee of having an agenda that hurt 38 Studios and called him a “dunce of epic proportions.”

As part of a separate filing, Saul’s attorney, Bruce Gladstone, alleges that the EDC board’s decision to approve the loan guarantee was primarily influenced by Carcieri and “key proponents” House Speaker Gordon Fox and Senate President Teresa Paiva Weed. As governor, Carcieri was board chairman of the EDC at the time.

Fox has repeatedly distanced himself from the deal, saying that while he was aware of Schilling’s interest in bringing 38 Studios to Rhode Island, he had no role in the EDC’s approval of the loan guarantee.

Messages were left Thursday with spokesmen for Fox and Paiva Weed.

Many rank-and-file lawmakers have said they didn’t know 38 Studios stood to benefit when they created the loan guarantee program in 2010, though Fox’s critics accuse him and other leaders of pushing the bill to help the firm. Fox has said the initiative was “a program to create jobs. It did not earmark funding specifically for any one company.”

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Associated Press writer David Klepper contributed to this report.

  (© Copyright 2013 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.)  

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