BOSTON/NEW YORK 38 Studios, the video game company owned by former Boston Red Sox pitcher Curt Schilling, filed bankruptcy papers on Thursday, less than two years after it won a $75 million loan guarantee from Rhode Island, and now faces a federal and state investigation.
The Chapter 7 filing indicates that the Providence-based company plans to liquidate.
Last month, 38 Studios decided to lay off most of its roughly 400 employees. It recently had its funding cut off by Rhode Island, which had been its major financial benefactor but declined to provide additional support.
Governor Lincoln Chafee said at a hastily-arranged press conference in Providence that the filing was not a surprise, but that he had not received advance notice of the move.
Rhode Island is trying to help make the best of "very, very bad situation," said Chafee, who inherited the 38 Studios deal from his predecessor.
The company said it had $21.7 million in assets, mostly personal property, and $150.7 million in liabilities, including $115.9 million owed to Rhode Island.
Schilling, an avid video gamer who said last year he had invested $35 million of his own money into the company, owns an 82.9 percent stake in 38 Studios, a court filing shows. The company's name derives from Schilling's baseball uniform number.
"This action comes after several weeks when the company has reviewed, considered and received the recommendations and advice with respect to potential avenues for relief that are currently available," the company said in a statement.
"After ongoing negotiations with the State of Rhode Island and potential investors and other interested parties, the company has been unable to find a solution to the current stalemate."
Jim Martin, a spokesman for the U.S. Attorney's office in Providence, said his agency had "been in touch with the FBI and the Rhode Island State Police regarding 38 Studios" but declined to comment further.
Those agencies, as well as the Rhode Island Attorney General's office, are "coordinating an effort to look into what the monies were used for" as well as "banking issues," said Steve O'Donnell, spokesman for the state police.
"The FBI will want to know where the money went and how the company folded so quickly," said Anthony Figliola, a vice president at Empire Government Strategies, a company that helps businesses apply for government loans and grants.
Officials from 38 Studios did not respond to calls and emails for comment.
Schilling's company received a $75 million taxpayer-backed loan guarantee from Rhode Island in 2010, as an incentive to move its headquarters, and hundreds of well paying jobs, to Providence from Maynard, Massachusetts.
It had received almost $50 million of those funds through late May, the state has said.
In May, 38 Studios was more than two weeks late on a $1.4 million loan repayment to the state and failed to make payroll.
The liquidation could leave Rhode Island holding the collateral pledged against 38 Studios' loan.
This includes current and future rights to "Kingdoms of Amalur: Reckoning," a video game launched in February, and to an elaborate, multi-player game code-named "Project Copernicus," which has had a tentative 2013 release date.
Rosemary Booth Gallogly, Rhode Island's director of revenue, said her office had been in contact with ratings agencies Moody's and Standard & Poors about the 38 Studios filing.
"The state fully understands the moral obligations of this," Gallogly said at the press conference.
In an interview with Reuters this week, Chafee called the 38 Studios fiasco "a black eye" for the state.
"I hope we never make any kind of mistake like that again," Chafee said of the loan guarantee. "It just defied all common sense. ... You look back, how could it have happened?"
On Thursday Chafee said that 38 Studios never really had a chance to be a going concern. "The amount of money to be successful in this industry is not tens of millions of dollars, it's hundreds of millions of dollars," he said.
Figliola said authorities might also scrutinize the speed at which the loan to 38 Studios was approved in 2010 by the Rhode Island Economic Development Authority. Several members of the agency have resigned in the past month.
"This project went through so fast it begs the question, 'was it fully vetted first?' Figliola said. "Deals this big don't go through this fast unless they haven't been properly vetted."
Schilling, a vocal backer of conservative politicians, has avoided talking to media in recent weeks, though he has at times taken to Facebook to praise the "resilience" of his company. He was not available for comment on Thursday.
The 45-year-old was a six-time All-Star and won three World Series championships with the Red Sox and Arizona Diamondbacks.
In 2004, he became known for pitching a game with blood stains on his sock after a procedure on his injured ankle, as he helped the Red Sox bring a World Series championship back to Boston for the first time in 86 years.
Schilling last pitched in the major leagues in 2007, and ended his career with a 216-146 record, a 3.46 earned run average and 3,116 strikeouts.
The case is In re: 38 Studios LLC, U.S. Bankruptcy Court, District of Delaware, No. 12-11743.
(Additional reporting by Hilary Russ and Toni Clarke; Editing by David Gregorio and Maureen Bavdek)