38 Studios investors accused of fraud by US government

Wells Fargo Securities and the Rhode Island Commerce Corporation allegedly didn’t tell lenders of the risks of backing Kingdoms of Amalur: Reckoning developer ahead of collapse in 2012
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Two companies that loaned fated developer 38 Studios $50 million have had fraud charged levied at them by the US government.

38 Studios declared bankruptcy in 2012 following the release of RPG Kingdoms of Amalur: Reckoning. It defaulted on a $1 million loan, later being unable to pay its staff and closing completely, along with Big Huge Games, which it acquired in 2009.

The company was later investigated by the Rhode Island police, US attorney’s office and FBI, with the state suing multiple backers in an attempt to recoup losses.

Now the saga has continued, with the Securities and Exchange Commission charging money lenders Wells Fargo Securities and the Rhode Island Commerce Corporation with defrauding investors.

According to the SEC, the two firms failed to make backers aware of the true cost needed to finish 38 Studios next game, Project Copernicus.

38 Studios reportedly made it clear that it required $75 million to finish the game, with only $50 million put forwards by investors. A return was promised from the revenue of the ultimately unreleased title.

"Municipal issuers and underwriters must provide investors with a clear-eyed view of the risks involved in an economic development project being financed through bond offerings," SEC Enforcement Division director Andrew Ceresney told the Providence Journal.

"We allege that the RIEDC and Wells Fargo knew that 38 Studios needed an additional $25 million to fund the project yet failed to pass that material information along to bond investors, who were denied a complete financial picture."

Wells Fargo lead banker Peter M. Cannava and RIEDC execs Keith W. Stokes and James Michael Saul were charged with aiding and abetting the fraud. Stokes and Saul paid $25,000 each to settle the charges, without admitting the allegations.

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