Curt Schilling is a household name in New England. A former pitcher for the Boston Red Sox, Schilling helped lead three different Major League Baseball teams to the World Series. After retiring in 2008, Schilling went on to start a video game company. That is where this sad tail begins.
Schilling started a video game company called Green Monster Games named after the fabled wall at Boston’s Fenway Park. Later the company would be renamed 38 Studios.
Schilling decided to go all out and develop a new video game. 38 Studios worked Wells Fargo and the State of Rhode Island in the hopes to get their necessary funding. Everyone decided the company needed $75 million to get the game to market but both Wells Fargo and the Rhode Island Economic Corp. never told purchasers of a state bond offering that $25 million of $75 million bond offering was going to the bank, offering fees and reserves. The left only $50 million for the company, not enough to be successful.
Not only did the state and Wells Fargo not tell investors that there was probably not enough money to keep the company afloat, the SEC claims that Wells Fargo lied about its compensation. Their lawsuit claims that the bank told would-be investors that they were charging $50,000 in fees. The SEC says Wells Fargo was paid hundreds of thousands of dollars more.
Rhode Island wanted Schilling to move his business from Massachusetts to Rhode Island and Wells Fargo wanted the fees. No one bothered to protect investors, however, at least not according to the SEC. The Securities and Exchange Commission sued both Wells Fargo and the state.
The company folded shortly after getting the financing. The SEC blames Wells Fargo and the state. Because the bonds are backed by the state, taxpayers are left to foot the bill.
In announcing the lawsuit, the SEC's Enforcment Divison said in a prepared statement,
"Municipal issuers and underwriters must provide investors with a clear-eyed view of the risks involved in an economic development project being financed through bond offerings. 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."
No jobs, no video game, a bankrupt company and taxpayers paying for the entire mess.
The complaint was just filed. We expect, of course, that Rhode Island and Wells Fargo will deny these claims.
No matter what happens, the taxpayers in Rhode Island probably lose.
We like this case because it points out that banks can be held accountable when they lie or mislead investors. Schillings 38 Studios may have defaulted, but the bank knowingly participated in a scheme that was likely to fail. That is the SEC’s opinion.
It’s rare to see one branch of government sue another. And private parties suing big banks? Most of the true lender liability lawyers work for larger firms, charge high fees and defend banks. About the only lawyers willing to sue banks are foreclosure specialists. We aren’t knocking them; however, many don’t have experience beyond residential loan foreclosures.
If you are a business or individual with a claim against a bank, mortgage servicer or other financial service / professional and the claim is valued at $10 million or more, call us. We are two national boutique law firms that concentrate in fraud cases and suing banks. We aren’t afraid to go where others won’t.
Need more information? Contact attorney Chris Katers at [hidden email] or by telephone at (414) 777-0778. The author of this post, attorney Brian Mahany, can be reached at [hidden email].
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