Game over for players in unusual municipal bond offeringReprints
Most people tend to think of municipal bonds in terms of financing bridges, tunnels and highways, but a Rhode Island state agency and Wells Fargo & Co. have run into trouble over financing a video game.
The Securities and Exchange Commission announced Monday it was charging Wells Fargo Securities, a unit of the San Francisco-based financial bank, and Providence-based Rhode Island Commerce Corp. with defrauding investors in a 2010 municipal bond offering to finance startup video game company 38 Studios L.L.C.
The SEC said in its statement that the bond offering document produced by the agency and Wells Fargo failed to disclose to investors that while it had loaned $50 million to Providence-based 38 Studios, the company actually needed $75 million in funding to produce a particular video game, and therefore the studio faced a funding shortfall.
The studio, whose chairman and majority shareholder was former Red Sox pitcher Curt Schilling, was later unable to obtain additional financing, the video game did not materialize, and the company defaulted on the loan. The company filed for bankruptcy in 2012.
The agency, Rhode Island Commerce Corp., said in a statement it was still reviewing Monday's filing, which occurred under a previous administration, and that it was working towards recouping money for the state of Rhode Island.
Wells Fargo said in a statement it “disputes the SEC's allegations in connection with the placement of these municipal bonds. We will respond to the specific allegations in the complaint in court.”
Who would have guessed finding ways to shoot up bad guys in a video game would cost so much?