Rhode Island sues Schilling over failed 38 Studios deal

BOSTON Thu Nov 1, 2012 2:29pm EDT

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BOSTON (Reuters) - Rhode Island is suing former Red Sox pitcher Curt Schilling and the former head of the state's economic development agency over a $75 million loan guarantee the agency made to the baseball player's failed video game company 38 Studios.

The suit was filed in Superior Court on Thursday and listed Schilling, who named the company after his former jersey number, Keith Stokes, the former head of the state's Economic Development Corporation (EDC), several banks and law firms as defendants in the case.

EDC, a quasi-state agency, made the loan in 2010 to lure Schilling who was promising to bring 450 jobs to the economically depressed state from neighboring Massachusetts. The deal was brokered by Donald Carcieri, the state's governor until January, 2011.

38 Studios filed for bankruptcy in June leaving the state's taxpayers responsible for repaying roughly $100 million, with interest included, to private investors who had bought the bonds the state issued on behalf of the company.

The suit charges that some of the defendants committed larceny and permitted the video game company to rely on financial assumptions that were based on "known false assumptions".

Governor Lincoln Chafee, who authorized the suit, issued a video statement saying taxpayers should not be asked to pay for this. "My message to Rhode Islanders is this: I know that you work hard for your paychecks, and for your tax dollars to be squandered is unacceptable," Chafee said, adding that the suit was being filed to "rectify a grave injustice put upon the people of Rhode Island".

From the beginning, the loan guarantee was highly controversial. Massachusetts failed to give the former Red Sox star, who had helped the hometown team win its first World Series championship in 86 years in 2004, the same loan guarantees.

The case is State of Rhode Island Providence, SC v. Wells Fargo Securities, LLC; Barclays Capital, Plc; First : Southwest Company; Starr Indemnity and Liability Company; : Curt Schilling; Thomas Zaccagnino; Richard Wester; Jennifer Maclean; Robert I. Stolzman; Adler Pollock & Sheehan, P.C.; Moses Afonso Ryan ltd.; Antonio Afonso, Jr.; Keith Stokes; and J. Michael Saul, Superior Court.

(Reporting By Svea Herbst-Bayliss; editing by Andrew Hay)

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