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Rhode Island Sues Schilling and Others over 38 Studios Deal

The R.I. Economic Development Corporation filed suit in R.I. Superior Court today against some of those involved in the deal that loaned 38 Studios $75 million in taxpayer money, reports WPRI (thanks VG247). This document offers the full complaint, and this video lays it out further. Here's a portion explaining that part of the problem was the developer not explaining clearly enough they were borrowing this money because they needed money, and another issue is an alleged conflict of interest:

The complaint says 38 Studios officials failed to disclose that the company was "undercapitalized by many millions of dollars" and therefore "was likely to run out of money in 2012." It also warns that EDC board members who approved the deal could be liable themselves if the legal discovery process uncovers evidence that they knew the risks and signed off on the $75 million loan guarantee anyway.

It quotes an email from an unnamed EDC loan analyst who told his bosses: "I don't think I can support a $75 million loan guarantee to any single company in this industry," referring to video games.

The EDC never ordered an independent assessment of whether 38 Studios would be able to finish the game after the board voted to approve the deal on July 26, 2010, even though board members were told the agency would do so, the complaint alleges.

It says Wells Fargo earned nearly $500,000 "in hidden commission from 38 Studios" that were not disclosed to the EDC board at the same time the bank was also supposed to be looking out for the agency's interests.

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23. Re: Rhode Island Sues Schilling and Others over 38 Studios Deal Nov 2, 2012, 20:14 xXBatmanXx
 
wtf_man wrote on Nov 2, 2012, 09:01:
Rhode Island Sues Schilling

Yeah... because squeezing blood out of a turnip is such a great idea.

I know right!? He even gave up PERSONAL EFFECTS and shit! hahahahah Sue his estate and put a lien on his house! HUZZAH!
 
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22. Re: Rhode Island Sues Schilling and Others over 38 Studios Deal Nov 2, 2012, 20:12 xXBatmanXx
 
Here's a portion explaining that part of the problem was the developer not explaining clearly enough they were borrowing this money because they needed money

huh!? Why else would you borrow money?
 
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21. Re: Out of the Blue Nov 2, 2012, 13:23 Rigs
 
Why whenever I hear something to do with this do I see ION STORM and John Romero sitting on a throne wearing a gaudy gold king's crown and long red cape, holding a large gaudy gold chalice overflowing with bubbly poured from a long-necked bottle held by Stevie 'KillCreek' Case while they both laugh menacingly in a large, long throne room on top of a long, high tower...and from somewhere, out of nothing, I hear...

'You're still my bitch, you know'...

*shudders*

Ah, probably nothing...


=-Rigs-=
 
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'Who am I?...I am the right hand of vengeance and the boot that is going to kick your sorry ass all the way back to Earth, sweetheart! I am death incarnate, and the last living thing that you are EVER going to see. GOD sent me.'
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20. Re: Rhode Island Sues Schilling and Others over 38 Studios Deal Nov 2, 2012, 10:57 Creston
 
Verno wrote on Nov 2, 2012, 09:14:
In a way I feel bad for Curt because he lost a pile of money and he was just a big dorky fan of games who wanted to make a great one. On the other hand I've played Amalur, seen the tech demos for Copernicus and heard about the management idiocy he exercised sooooo

Curt's a smart guy who should have realized he's not savvy enough to run a business of that size. (and he does realize that now, judging from interviews I've read.) So he's 100% to blame for losing his own money.

What really ticks me off is the "Let's just get more loans to fill these holes for a month!" mentality that he fell in to, especially when it started involving taxpayer money.

If he gets his ass handed to him over this, I sure hope that those bastards in government that okayed this go down with him.

Creston
 
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19. Re: Rhode Island Sues Schilling and Others over 38 Studios Deal Nov 2, 2012, 09:21 strong placebo
 
the R I EDC are paid non-elected staffers who are hired based on "who they know in the local govt." Some are lawyers of one sort of another but not all. It is an easy money job and completely partisan.

2 of the EDC's former lawyers are mentioned in the lawsuit, which imho is awesome.

The bottomline is that the lawsuit isnt completely specious, even if nothing great will come of it except some some finger-pointing.
 
"More turn-based please"
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18. Re: Rhode Island Sues Schilling and Others over 38 Studios Deal Nov 2, 2012, 09:14 Verno
 
In a way I feel bad for Curt because he lost a pile of money and he was just a big dorky fan of games who wanted to make a great one. On the other hand I've played Amalur, seen the tech demos for Copernicus and heard about the management idiocy he exercised sooooo  
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17. Re: Rhode Island Sues Schilling and Others over 38 Studios Deal Nov 2, 2012, 09:01 wtf_man
 
Rhode Island Sues Schilling

Yeah... because squeezing blood out of a turnip is such a great idea.
 
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16. Re: Rhode Island Sues Schilling and Others over 38 Studios Deal Nov 2, 2012, 08:48 Creston
 
.net_Drifter wrote on Nov 1, 2012, 20:47:
They didn't realize they were borrowing money because they needed money . . .
I find that hard to believe. If you didn't need money, why would you be borrowing it? Especially $75 million?

Now if they were asking for a spare quarter in case the vending machine down the hall ate theirs, I could see them not thinking they needed the money, but to ask someone for $75 million, but not because you need it?

There's a difference between borrowing money because you don't think you can finish the game otherwise, and may have to close the studio, but you're fully capable of creating enough revenue to be able to pay it back, and borrowing money just to plug another hole with. 38 Studios did the latter (and it was a never-ending spiral with them. Those tax credits they were so desperately chasing were going to be sold for cash, just to plug yet another hole.)

It's like using one credit card to pay off another. It's a never-ending spiral.

Of course, had the RI EDC actually bothered to do five minutes worth of research, they'd have known 38 studios was basically a giant, money-swallowing bottomless pit.

Creston
 
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15. Re: Rhode Island Sues Schilling and Others over 38 Studios Deal Nov 2, 2012, 08:44 Creston
 
It also warns that EDC board members who approved the deal could be liable themselves

Holy shit, seriously? We're FINALLY going to start holding those fucking asstards in government responsible if they just fucking blow away millions and millions and millions of dollars? (then again, IS the EDC part of the actual government? Or is it just another "consultant" that governments waste billions of dollars on to help them make fucking stupid decisions?)

I'm just stunned.

Creston
 
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14. Re: Rhode Island Sues Schilling and Others over 38 Studios Deal Nov 2, 2012, 08:20 strong placebo
 
I am glad some light is being shined on the RI EDC during Carcieri's time, since they clearly had the *direct* hand in pushing the deal thru. Several key EDC staffers left before the crap happened, and they may actually be the most "guilty" in all of this.

also, former governor Carcieri steered the deal and so far he remains utterly untouched.

RI govt is particularly corrupt; So pointing a finger at one person to blame is particularly hilarious to anyone hailing from R.I. Politics doesnt work like that there.
 
"More turn-based please"
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13. Re: Rhode Island Sues Schilling and Others over 38 Studios Deal Nov 2, 2012, 07:55 ^Drag0n^
 
Because if they were borrowing money and DIDN'T need it, it would have made hella more sense...(?)  
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12. Re: Rhode Island Sues Schilling and Others over 38 Studios Deal Nov 2, 2012, 03:12 dj LiTh
 
As far as the bank loan fees. There's nothing to sue in regards to that. If the state of RI had lent their own money then there wouldnt have been any fees. They didnt, they told Wells Fargo to issue a State backed loan to the company. If you were to buy a 75million dollar house you wouldnt bat an eye at a 500k commission (less than 1 percent) being doled out to the real estate agents, or likewise if you got a 75million dollar loan to the Mortgage broker's commission fee.

How it works is, the State told the bank give them this loan. That means no more bank mortgage guidelines, they are now guaranteed by the state of RI for the value of the loan. Now if the State or EDC analysts had a problem with that bank in particular (it would be nearly the same from any banks) fee's then they should of funded else where. Its the EDC loan analysts that should be sued whole heartily and be the 'scape goat' for making the decision on such a bad loan with tax payers money.

The sad part is, i'm sure nothing will come out of this than the taxpayers of RI being out 75million dollars. Which to me is an absurd amount to even make a game. What you want to bet you can take any one person of BluesNews, and come out with a more profitable game with much less money.
 
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11. Re: Rhode Island Sues Schilling and Others over 38 Studios Deal Nov 2, 2012, 02:20 Jivaro
 
I thought I understood this, or at least what had been released publicly, but now I am confused.

Rhode Island decides to back out of the deal, thus kicking the already fairly wobbly legs out from underneath the company. Now they are suing them because of a lack of money when they didn't have any money because RI backed out?

I am missing something..I know I am. Don't get me wrong, I understand that the company was in some trouble, but didn't RI basically nail the coffin lid down by backing out, thus insuring that they were in fact undercapitalized?
 
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10. Re: Rhode Island Sues Schilling and Others over 38 Studios Deal Nov 1, 2012, 23:12 NewMaxx
 
The excerpt does a good job of narrowing in on the fine points, although the "big picture" is simply a morass of legalities that for the most part will be worked out, although perhaps not appearing to be fair in nature; that is just the way of law. That being said,

Failure to disclose undercapitalization: again, government contractors/partners often undercap, but they have to disclose it! That's a small but crucial difference.

EDC loan analyst: like many of us have been saying, it's doesn't take an analyst (or apparently it does, but they have to listen) to see that a loan of this magnitude for a risky industry is insane.

Never ordered an independent assessment: this is unfortunately probably the sticking point that will decide the outcome of the case, again, despite what might be fair. Basically it means "find out who to blame as the scapegoat with the most legal backing and call it a day"; I'm usually not cynical, but no nice way to put that.

Hidden commission: typical finance/banking procedure that, yes, led to the recession and has created market collapses and lord knows what else, "nothing to see here," this case is not high profile enough to warrant more than at most a fine for them, the problem is proving it within a relative cost, which is not a high priority until the first point of the case is handled.

Also, to add more to my commentary, this situation is similar to why video game movies are a crapshoot. The movie industry and the game industry are just totally two different type of entities; likewise, government and game industry, here. Read about Microsoft's failed Halo movie and you'll see marked similarities (read paragraph 8, next to enlarged quote):

http://www.wired.com/gamelife/2012/04/halo-movie-generation-xbox/

This comment was edited on Nov 1, 2012, 23:18.
 
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9. Re: Rhode Island Sues Schilling and Others over 38 Studios Deal Nov 1, 2012, 22:48 Cutter
 
And why isn't Wells Fargo getting sued? They sound entirely complicit in this. Regardless, as others have said, they definitely overreached trying to make a CRPG and MMO at the same time when they had nothing proven to begin with. From the looks and sounds of it it really seems that Rolston, Salvatore, and McFarlane did little more than dial it in for the outrageous money they made. And there sounds like there was a ton of serious mismanagement going on - wasteful spending, nepotism, etc.

I too have a bit of sympathy for Curt, but damn, this falls under the 'How hard can it be?' school of business where the excitement of doing a thing was obviously not really thought out versus the reality. I mean who the hell says 'Oh we've never made a game before but we're going to blow 75 mil right out of the gate on the super awesome lucky best game evar!!!' There has to be some accountability in there somewhere. You pay your money, you take your chances.

 
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8. Re: Rhode Island Sues Schilling and Others over 38 Studios Deal Nov 1, 2012, 22:18 NewMaxx
 
Considering the amount of athletes who are rich and impressionable, the number of sketchy investment scheme salesmen, and the state of not only the general economy (bring us jobs!) but the risky video game entertainment business, none of this comes as a surprise. I've seen far worse plans and execution, but when you toss in government dollars you need to expect either oversight (which is always inefficient) or legal recourse (if expectations are not financially met).

The irony of this is, of course, that contractors for the government NEVER come in at their quoted cost, or often even close, but this goes both ways as the government usually slashes the number of units or features or something else to curtail the program. Now, knowing this and being aware of the circumstances I mentioned above, who in their right mind couldn't foresee a MMO becoming a regular RPG while also costing more money than expected?

These are two entities (video game industry + government) that should never work together, outside of the educational and tax benefits seen in places like Canada and Europe (and to some extent, Texas and parts of Asia). The only successful cohesion of another nature had oversight (America's Army) and we all know what that was about, and it matches the expectations I had above when it comes to oversight.

This comment was edited on Nov 1, 2012, 22:25.
 
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7. Re: Rhode Island Sues Schilling and Others over 38 Studios Deal Nov 1, 2012, 22:12 .Drifter
 
Flatline wrote on Nov 1, 2012, 21:38:
It's not a matter of "needing" money, it's a matter of "If we don't get this money we go away" desperation. Which means that if the EDC is legit in this case, 38 studios said "We're doing fine, but with this money we could expand, bring on more people, and make more/bigger games".

But it sounds like it's possible that 38 studios was sending graft back to the EDC. Which again would answer your question.

"Hey, I need money. Say 70 million. Give us a loan for 75 and 5 of it will get 'reinvested in the community' if you know what I mean."

So, basically, they didn't need to expand . . . but if they did expand, they would need money to do it?

My point was, basically, $75 million is a LOT of money to borrow in a "just because it's useful to have" sense. I find it highly doubtful no one would have been suspicious.
This isn't like me going up to a friend and saying "Hey man, I'm doing fine, but with $20 thousand I could be doing better, ha ha."
 
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6. Re: Rhode Island Sues Schilling and Others over 38 Studios Deal Nov 1, 2012, 21:39 Panickd
 
Wow. I feel a small bit of compassion for Curt Schilling, but only a small bit because he decided to jump into the deep end instead of testing the water a bit first the way sensible people do. I also feel a bit bad because the game they produced (Kingdoms of Amalur: Reckoning) wasn't a bad game. Done by a bigger name dev it would have been a triple A title. It was let down by a bad demo from a bad publisher.

But yeah, Rhode Island fell all over themselves to lend money to an unproven company in a cutthroat industry and now they're surprised it didn't all work out? And they want their money back? Cry me a river.
 
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5. Re: Rhode Island Sues Schilling and Others over 38 Studios Deal Nov 1, 2012, 21:38 Prez
 
You had to figure it would end up as a lawsuit. While Schilling and gang totally screwed the pooch (and the RI taxpayer), the RI government isn't exactly blameless in this. It's the taxpayers who ought to be suing everyone involved.  
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4. Re: Rhode Island Sues Schilling and Others over 38 Studios Deal Nov 1, 2012, 21:38 Flatline
 
It's not a matter of "needing" money, it's a matter of "If we don't get this money we go away" desperation. Which means that if the EDC is legit in this case, 38 studios said "We're doing fine, but with this money we could expand, bring on more people, and make more/bigger games".

But it sounds like it's possible that 38 studios was sending graft back to the EDC. Which again would answer your question.

"Hey, I need money. Say 70 million. Give us a loan for 75 and 5 of it will get 'reinvested in the community' if you know what I mean."
 
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