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EDC hired firm to respond to SEC on 38 Studios

PROVIDENCE, R.I. — Rhode Island’s economic development agency hired legal counsel to respond to an inquiry from the federal Securities and Exchange Commission about its $75 million loan guarantee to former Red Sox pitcher Curt Schilling’s failed video game company.

Economic Development Corp. spokeswoman Melissa Czerwein said Wednesday the agency retained a law firm to respond to the inquiry. She would not provide details about what the SEC asked for or say whether there is a formal investigation.

“The EDC doesn’t discuss ongoing matters related to 38 Studios and maintains a level of confidentiality as requested by the SEC,” she said.

A message left with the SEC’s regional office in Boston was not immediately returned.

WPRI-TV first reported on the inquiry.

The EDC filed suit last year against Schilling and other former executives at his defunct company as well as some of its own former officials, who were architects of the deal. The suit alleges fraud, misrepresentation and breach of fiduciary duty, among other things, and claims the defendants knew 38 Studios would run out of money by last year but concealed that from the agency’s board.

38 Studios filed for bankruptcy in June 2012. The state is now on the hook for about $90 million related to the deal, which was financed with bonds.

The federal bankruptcy trustee in the case also wants to explore possible legal action. The EDC board recently voted to allow the trustee to use up to $150,000 in assets recovered from the company to investigate potential claims against its former officers and directors and other parties.

Federal prosecutors investigated the 38 Studios deal but said last year they would not bring charges. Rhode Island State Police are continuing a criminal probe, Col. Steven O’Donnell said Wednesday.

The EDC would not provide information on the scope or status of the SEC inquiry. It also would not say whether the agency had received a formal order of investigation from the SEC or received subpoenas.

The EDC paid the law firm it hired to deal with the inquiry, Cohen & Gresser, over $100,000 for work over five months from October of last year to February.

On Wednesday afternoon, members of the General Assembly are continuing their look at what went wrong with the state’s investment in 38 Studios. The House Oversight Committee plans to continue reviewing documents, with a focus on the EDC’s supervision of the deal once the loan guarantee was approved.

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