SEC charges RI economic agency, Wells Fargo with fraud in 38 Studios
WASHINGTON, D.C. – The Securities and Exchange Commission has charged the Rhode Island Commerce Corporation (formerly the state’s Economic Development Corporation) and its bond underwriter Wells Fargo Securities with defrauding investors in the municipal bond offering that financed former Red Sox star Curt Schilling’s 38 Studios video-game company.
The SEC filed a complaint Monday in federal district court in Providence, the agency has announced.
"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,” said Andrew Ceresney, Director of the SEC Enforcement Division. “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.”
The SEC complaint outlines how the EDC loaned about $50 million in bond proceeds to 38 Studios and put the rest of the $75-million bond proceeds into reserve funds and to pay related bond-offering expenses. The loan was to be paid off with revenue generated by video games 38 Studios was creating.