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Citizens Bank drops lawsuit it filed against Schilling over 38 Studios loan

CURT SCHILLING

Associated Press/File

CURT SCHILLING

Citizens Bank has dropped a lawsuit against retired Red Sox pitcher Curt Schilling, according to court records, but did not offer a reason for the action.

The bank sued Schilling in June in an attempt to recover $2.4 million in loans it made to his failed video game company, 38 Studios. Schilling cosigned the loans for the Rhode Island tech firm, which spent years building an ambitious multiplayer online role-playing game called Copernicus, but shut down operations and filed for bankruptcy protection last spring after running out of cash.

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The Providence-based financial institution, one of the region’s largest retail banks, declined to say whether it reached a settlement with Schilling or if it stopped pursuing legal action against him this month for other reasons. Schilling referred questions about the case to his attorney, Edward J. Hayes of Fox Rothschild in Philadelphia, who did not return calls seeking comment.

The failure of 38 Studios LLC has caused consternation in Rhode Island since its ­demise earlier this year. To lure the video game maker from Massachusetts, Rhode Island guaranteed a $75 million loan to the company, money that the state probably never will fully recover. It also raised questions about the Rhode Island ­Economic Development Corp., which handled the loan.

Governor Lincoln Chafee, who was critical of the loan guarantee when he was running for office two years ago, has pushed out many of the agency board members who ­approved the 38 Studios deal.

Chafee also commissioned a report by the Rhode Island Public Expenditure Council, which recommended Tuesday that the economic development agency be restructured and put under the purview of a new state commerce office. The report also ­indicated that the economic ­development agency has set aside $1 million to deal with the legal proceedings related to 38 ­Studios.

Meanwhile, a court-appointed receiver, Richard J. Land, is in the process of liquidating the company’s assets. The proceeds are not expected to yield nearly enough to pay off the company’s debts to Rhode Island or other creditors.

Officials from 38 Studios told the US Bankruptcy Court earlier this year that it owed more than $150 million, but had less than $22 million in ­assets. Schilling also said he poured $50 million from his baseball earnings into the company, funds he doesn’t expect to recoup.

Land has scheduled auctions of the company’s tangible assets, including computers, game consoles, flat panel television sets, leather chairs, employee lockers, Ping-Pong ­tables, and video game memorabilia signed by Schilling.

The auctions are scheduled to be held at the defunct company’s former offices in ­Timonium, Md., Oct. 16 and its Providence headquarters on Oct. 23. In addition, Land said he hopes to sell off the company’s intellectual property in the next few months.

Rhode Island’s economic ­development agency, which handled the $75 million loan to 38 Studios, is among the first in line to be repaid. The only other secured creditor is NFS Leasing of Beverly, which rented computers and other equipment to the company and said it was owed $1.1 million.

Hundreds of other creditors, including employees who weren’t paid for their last few weeks on the job, could wind up with nothing.

Todd Wallack can be reached at twallack@globe.com. Follow him on Twitter @twallack.
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