Game over: Big bank, state agency face SEC charges in video game debacle

by Ryan Smith09 Mar 2016
The Securities and Exchange Commission has charged one of the nation’s largest mortgage lenders with securities fraud over a bond deal for a now-bankrupt company founded by retired Boston Red Sox pitcher Curt Schilling.

Wells Fargo, along with Rhode Island’s economic development agency, is accused of defrauding investors to finance video game company 38 studios, according to a Reuters report. The company was named after Schilling’s jersey number.

The SEC said that the charges concern a $75 million bond offering in 2010 that was part of a program intended to jumpstart economic development in Rhode Island, according to Reuters. The Rhode Island Commerce Corp used the bond issue to loan 38 Studios $50 million, but the company needed another $25 million to produce a video game. Without the extra money, the company folded and defaulted on the loan, Reuters reported. The SEC alleged that the agency didn’t tell its investors that 38 Studios was facing a $25 million funding shortfall.

Wells Fargo, meanwhile, is accused of not disclosing information about the deal to its board and investors, Reuters reported. According to the SEC, the bank receive nearly double the amount of compensation it disclosed to investors in offering documents.

Peter Cannava, Wells Fargo’s lead banker in the offering, is also charged in the case. His lawyer, Brian Kelly, said the allegations “lack merit,” according to Reuters.

When 38 Studios folded in 2012, it owed more than $150 million and had less than $22 million in assets, according to Reuters. Schilling said the company’s failure personally cost him $50 million.