A flawed deal but not a crime.
After a four-year investigation, that's how Rhode Island authorities summed up a $75 million financing package used by the state in 2010 to lure Curt Schilling's video game company from Massachusetts. Two years later, Schilling's 38 Studios was in bankruptcy, and it owes $89 million on the loans it received.
"A bad deal doesn't always equate to an indictment," said Steven G. O'Donnell, superintendent of the Rhode Island State Police.
O'Donnell and Rhode Island Attorney General Peter F. Kilmartin said their probe, which included interviews with more than 140 people and a review of hundreds of documents, found problems with the deal but no criminal violations. Kilmartin said the case would remain open in case new evidence arises out of a civil lawsuit and a fraud case that the Securities and Exchange Commission is pursuing over allegations that a state economic development agency and Wells Fargo Securities misled investors over the municipal bonds issued to finance the project.
The 38 Studios implosion outraged Rhode Island residents. Nearly 400 employees lost their jobs, and the state was on the hook to repay bond investors or risk its reputation and credit rating. Kilmartin said he understood that the results of the criminal case would not satisfy some state residents.
"I, we all, share the frustrations of all Rhode Islanders when it comes to the entire 38 Studios," he said.
Schilling took to Twitter after the press conference was announced and ridiculed the investigation as a waste of money.
"Disgusted to see officers sent on a fake ass witch hunt," Schilling wrote.
Schilling launched his video game marketing and development company in Maynard and was attempting to build a complex multiplayer game in the style of "World of Warcraft." In 2010, with unemployment in Rhode Island at above 11 percent, state officials, under then-Governor Don Carcieri, agreed to issue the $75 million in bonds as part of a package to lure 38 Studios. Schilling's company received about $50 million in payments in the first year, and the rest of the money was set aside for reserves and to pay banking and other fees.
In May 2012, 38 Studios defaulted on its $1.1 million interest payment, according to investigators. By the following month, it had shut its doors and declared bankruptcy.
State Police investigators found that Rhode Island officials were less than transparent during the legislative process to set aside these funds for the deal and failed to do enough due diligence into the project, O'Donnell said.
Schilling's celebrity likely contributed to the lack of review, he said.
The SEC continues to investigate alleged fraud. Two former Rhode Island economic development executives, Keith W. Stokes and James Michael Saul, have agreed to settle charges and pay a $25,000 penalty without admitting or denying allegations that they aided in the fraud.