In 2010, the EDC issued $75 million in taxable bonds to investors, and loaned most of the money to 38 Studios.
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The SEC said it used a separate administrative proceeding to settle a case with the RIEDC’s financial advisor for the bond offering, First Southwest Company LLC.
Curt Schilling founded the studio, and then Rhode Island invested $75 million in bonds for the company to relocate to the state and increase jobs.
The Securities and Exchange Commission has filed charges against Wells Fargo and a Rhode Island state agency for defrauding investors when it came to investing in a video game company.
According to the SEC, the two firms failed to make backers aware of the true cost needed to finish 38 Studios next game, Project Copernicus. He was chairman of the board of the video company, 38 Studios, and its majority shareholder. A return was promised from the revenue of the ultimately unreleased title.
“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”, Ceresney said.
The offering document also failed to disclose the full amount of compensation that the offering’s lead placement agent, Wells Fargo, was receiving from the transaction, the SEC charged. Plus, it created a conflict of interest that Wells Fargo should have disclosed to bond investors, according to regulators, who also say that Cannava “was responsible for Wells Fargo’s failure to disclose its additional fees”. Each will pay a $25,000 penalty and are prohibited from taking part in any future municipal securities offerings, the SEC said.
A spokeswoman for the Commerce Corp. said the allegations against Wells Fargo and others are consistent with what the agency has alleged in its lawsuit, but she didn’t address the specific allegations the SEC brought against it.
Schilling and others, including Wells Fargo, are also being sued by the agency in state court, and the case has so far netted nearly $17 million in settlements.
Therefore, investors weren’t fully informed when deciding to purchase the bonds that 38 Studios faced a funding shortfall even with the loan proceeds and could not develop the video game without additional sources of financing. Despite that, the bond offering documents failed to disclose the funding gap, the complaint alleges.
Cannava’s lawyer, Brian Kelly, disputed the SEC’s contention that Cannava was the lead banker on the matter. “The SEC is trying to scapegoat a mid-level banker instead of focusing on the mistakes of Rhode Island politicians” .
While Wells Fargo is planning to fight the allegations in court, Governor Gina Raimondo is anxious to put the 38 Studios drama in the past.
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The company’s closure made headlines due to Schilling’s status as a star pitcher, television commentator and 2001 World Series MVP.
