The U.S. Securities and Exchange Commission filed a lawsuit against Wells Fargo and Rhode Island agency detailing that the companies for defrauding investors. The charges were brought up from the deal made with a now-bankrupt video-game company owned by Curt Schilling.
Wells Fargo and a Rhode Island agency will face legal actions on their misdeeds being followed by the SEC, as written by Reuters. The SEC said Wells Fargo Securities and Rhode Island's Economic Development Agency defrauded investors after financing the company, 38 Studios. The company is owned by former Red Sox pitcher Curt Schilling.
The charge was rooted from the 2010 bond offering of $75 million which was intended to grow the Rhode Island program in economic development.
However, Wells Fargo appealed a different tale. According to Wealth Management, Wells Fargo disputed the SEC's allegations and is ready to face them in court battle. Moreover, the Rhode Island Commerce Corp, said development agency, is making actions to review the SEC's complaint. The agency didn't tell the investors that 38 Studios faced a shortfall in money to complete a video game.
The SEC's complaint and its connection with 38 Studios were detailed by Baltimore Sun. The complaint said that officials knew that 38 Studios will be needing atleast $75 million to finish "Project Copernicus." However, on the deal with the state, 38 Studios is getting only $50 million of proceeds from the bond offering.
The complaint also said that "38 Studios' funding gap was known at the time the Bond Placement Memo was sent to investors. It was not speculative. It was an existing risk that should have been disclosed to potential investors in the offering."
It focuses on Wells Fargo's Peter Cannava, claiming he's misled investors about the 38 Studios. However, Cannava's lawyer dissed this allegation saying it "lacks merit."
38 Studios has filed for bankruptcy and closed its doors on 2012. The company have been in debt of $150 million and had less than $22 million in assets. Following the loss of the company, Schilling said that the company cost him $50 million.
