FBI Launches Investigation Into Officially Bankrupt 38 Studios - HotHardware
FBI Launches Investigation Into Officially Bankrupt 38 Studios

FBI Launches Investigation Into Officially Bankrupt 38 Studios

38 Studios, the game developer behind Kingdoms of Amalur and the unfinished Project Copernicus MMO has filed for bankruptcy. The company is seeking to liquidate its assets in order to pay its debts in what's known as a Chapter 7 filing. 38 Studios claims $21.7M in assets, mostly personal property, and $150.7 million in liabilities to 1000 different creditors, including $110 million owed to the state of Rhode Island.

How bad does it look? Pretty bad. (PDF) Even if we ignore the $110M owed to Rhode Island over the estimated payback period of the loan, 38 Studios owed $300K to MoveTrek, the company that managed the employee relocation we've previously discussed, $116K to Atlas Van Lines, $715K to Blue Cross/Blue Shield, and $266K to a Citizen's Bank credit card. MoveTrek, the company that managed the properties 38 Studios left behind, has noted that there are "potential credit and title issues for the participating employees."


Schilling, who is famous for his outspoken opinions and love of the Internet, has refused to comment

Schilling himself never drew a salary at 38 Studios, but his corporate travel expenses topped $39,000, including $11,000 in April. His health care added another $16,000. The company's COO, Bill Thomas, was paid $421,000, which includes a $130,000 relocation package. Jennifer MacLean, the company's CEO, made $253,000 in the last year.

All of this is consistent with our prediction a few weeks back: The company was badly mismanaged and overspent. This is not a moral question. We're not claiming that Thomas or MacLean didn't "deserve" their salaries, or that Schilling is somehow evil because he billed the company for $54,000 in travel and medical expenses over the course of the past year. There's been some attention paid to the fact that 38 Studios spent $8,000 on coffee between March 8 and May 1. When you consider the size of the company (300+ employees) and the length of time, $8K isn't actually that much money. The bigger issue is that these aren't expenses 38 Studios should've been paying in the first place. Startup game companies with no continuing sources of revenue can't afford it.

Criminal Investigations

This is where the story turns from sad to potentially sordid. Two months before the company failed, it paid Michael Corso, the lawyer whose connections to House Speaker Gordon Fox helped make the RI deal happen, $232,000. As part of the bankruptcy filing, the company has also disclosed the existence of an $8.5M loan from the Bank of Rhode Island; said loan was issued on the promise of tax credits that never materialized. The FBI has opened an investigation, as has the US Attorney's office.

The politicans who approved the loan program expansion that got 38 Studios its $75M have repeatedly said they had no idea the funds were earmarked for a single company. The contractor who won the bid to decorate the office building had ties to Gordon Fox as well and won the contract despite having gone bankrupt within the past year.

It's not clear if Schilling or any other employee of 38 Studios was a party to the backroom deals that pushed the loan program through and earmarked the company as sole recipient, but the FBI has pledged to take a serious look at how and why funds were spent as they were in the coming months.

Frankly, we're not surprised. Big Huge Games' own bankruptcy filing showed that the company was paid ~$22 million by EA between 2010-2011 for its work on Kingdoms of Amalur, which means 38 Studios managed to blow through tens of millions of dollars in near record time. 38 Studios has indeed made its mark -- it'll go down as the Ion Storm of the 21st century.
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