Former top officials and lawyers for Rhode Island’s economic development agency have agreed to pay $12.5 million to settle part of a lawsuit brought to recoup the state’s investment in the failed video game company founded by former Red Sox pitcher Curt Schilling.
The agreement, filed in Rhode Island Superior Court Friday, is subject to approval by the judge overseeing the lawsuit. If approved, it would be the largest settlement to date in the state’s three-year campaign to recover the $75 million in loan guarantees it used to lure 38 Studios LLC from Maynard to Providence in 2011.
The suit was filed by the predecessor agency of the quasi-public Rhode Island Commerce Corporation, or RICC. It accused Schilling, along with several banks and the agency’s former officials and lawyers, of lying about the company’s financial prospects to secure the loans, ultimately defrauding taxpayers of millions of dollars when 38 Studios went belly-up in May 2012.
However, the settlement, first reported by the Providence Journal, would only end a portion of the suit. The RICC’s claims against the other defendants — including Schilling, other former 38 Studios executives, and several financial companies involved in the deal — are still outstanding.
At the time of the loans, industry analysts questioned whether the nascent 38 Studios could succeed in the notoriously fickle video game market. Schilling’s company released just one game, a modestly successful title called “Kingdoms of Amalur: Reckoning.” An ambitious project to produce a so-called massively multiplayer game with an elaborate backstory, code-named “Copernicus,” was aborted when the company went bankrupt.
Under Friday’s proposed settlement, former RICC executive director Keith Stokes and former RICC deputy director J. Michael Saul, along with the agency’s former outside council, Robert I. Stolzman, and his law firm, agreed to pay $12.5 million for their role in the alleged fraud. The payment would be due 30 days after the judge’s final order.
“Ultimately, it’s the taxpayers’ money, and any recovery here benefits the taxpayers,” Max Wistow, the attorney who is leading the RICC’s lawsuit, said in an interview.
The debt service on the loans to 38 Studios totaled around $112 million, Wistow said. After paying lenders with funds remaining in reserve when 38 Studios went bankrupt, he said, the state was still on the hook for about $89 million.
Friday’s $12.5 million proposed settlement — plus an earlier $4.4 million partial settlement with a law firm involved in the loan deal and named in the suit — would bring down the total Wistow must recover to $72 million. The RICC is also seeking punitive damages in the case.
Wistow said the recent deal would make it easier for him to go after the remaining money because there will be fewer defendants.
“This helps focus the remaining case,” he said. “It makes it easier to try in front of a jury because the issues are narrower.”
Mediation to end the lawsuit was recently suspended, Wistow said. But he said he was hopeful that talks would resume and the case would be resolved soon.
Attorneys for the defendants involved in Friday’s settlement did not immediately return requests for comment.