The troubled video game company founded by retired Red Sox pitcher Curt Schilling, 38 Studios LLC, filed for Chapter 7 bankruptcy Thursday, leaving behind more than 1,000 unpaid creditors as government officials confirmed they launched criminal investigations this week into the company’s failure.
The Delaware court filing signals that Schilling, who set out to build an ambitious multiplayer online role-playing game, has given up his search for additional capital from Rhode Island or outside investors to revive the six-year-old company. Chapter 7 is the section of the bankruptcy code that companies use when they are liquidating assets.
“It’s a decision by the management and the owners to essentially throw in the towel,” said David Reier, a bankruptcy lawyer with Boston law firm Posternak Blankstein & Lund.
In its filing, 38 Studios indicated it has more than 1,000 creditors, including workers, who are owed more than $150 million. The firm estimated its assets are worth only about $22 million, suggesting most creditors have little hope of being repaid. Three of the Providence company’s affiliates also filed for bankruptcy.
In a brief statement, 38 Studios said it was “unable to find a solution to the current stalemate” after negotiating with the state, potential investors, and others.
The bankruptcy filing also confirms fears that Rhode Island taxpayers could be out tens of millions of dollars the state used to lure the company from Maynard, Mass., to Providence. The state guaranteed a $75 million loan to the company in exchange for 38 Studios’s promise to create 450 jobs in the Ocean State. The company laid off its entire staff — more than 400 full-time workers in Maryland and Rhode Island — two weeks ago.
The Rhode Island Economic Development Corp. appears to be the company’s largest creditor, according to the court filings. 38 Studios said it owed the agency $115.9 million, including interest and other payments over the life of the loan — though that’s partially offset by more than $23 million the state held back in reserve and any money recovered from the sale of 38 Studios’s remaining assets. The agency is likely to be among the first in line to be repaid from any of the company’s assets.
Governor Lincoln Chafee said Thursday at a press conference that the state already has had discussions with investors who might be interested in purchasing the remaining assets for tens of millions of dollars, which would help the state recoup at least part of its investment.
An attorney working for Chafee, Jonathan Savage, said, “There could be significant value to the assets.”
Meanwhile, state and federal authorities launched several investigations into the company this week amid questions about 38 Studios’ attempts to obtain and sell millions of dollars in tax credits, its failure to pay hundreds of workers, and the disposition of tens of millions of dollars in government-backed loans. The head of the Rhode Island State Police said his agency launched a joint inquiry on Wednesday with the Rhode Island attorney general, the FBI, and the US attorney’s office.
“We have decided to use our mutual state and federal resources to investigate and attempt to ascertain what happened, where the money went, and what it was used for,” said Steven G. O’Donnell, superintendent of the State Police. “We will look at everything.”