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Chafee stands firm against Schilling accusations

PBN FILE PHOTO/RUPERT WHITELEY
GOV. LINCOLN D. CHAFEE responded Tuesday to comments made by 38 Studios founder Curt Schilling, who accused the governor of torpedoing efforts by the beleaguered video game developer to find new sources of capital.
Posted 5/29/12

PROVIDENCE – Gov. Lincoln D. Chafee Tuesday rejected 38 Studios LLC founder Curt Schilling’s suggestion that the governor sabotaged the beleaguered video game company and drove potential investors away with public comments about its potential demise.

“Investors are not going to be scared away by a governor’s comments,” Chafee said at his daily afternoon news conference to address 38 Studios and the state’s $75 million loan guarantee to the company, which laid off its entire workforce last week.

“I wanted to return the investment to the taxpayers of Rhode Island – I know the tens of millions of dollars we have on the hook,” Chafee said. “Of course I wanted it to succeed, but I had to be honest in my dealings with taxpayers and tell them what was going on the best of my ability.”

In an interview with The Providence Journal, Schilling said Chafee’s revelations that the company was burning through $4 million a month and would not release its next game until June 2013 had derailed a tentative agreement for $35 million in private investment.

While not going so far as to say the investment did not exist, Chafee indicated that he had seen no proof of such interest from investors and that an unnamed “industry analyst” had told him that the company faced long odds on finding new capital.

38 Studios, which was two weeks late on paying a $1.1 million loan guarantee fee due May 1, remains in default for failing to notify the state of mass layoffs, Chafee said, despite sending a letter attempting to cure the issue last Friday.

38 Studios has applied for $14.1 million in state film tax credits, which Schilling said he had hoped to use to pay the guarantee fee. Chafee said he does not want any further taxpayer dollars to go into the teetering company and his administration has declined to issue any credits.

While disputing Schilling’s account of why 38 Studios failed, Chafee defended his administration’s oversight of the company. He said the R.I. Economic Development Corporation had monitored the company’s progress and it had been meeting all benchmarks right until the default, although he declined to provide any specifics, citing company confidentiality.

Chafee was not the only person skeptical of Schilling’s version of events. In his Fortune.com e-newsletter, Dan Primack asked “Who scared off private investors in 2007 and 2008, when Schilling was seeking $30 million (and then more) to get the company launched?”

Primack echoed the point that Chafee made, saying that it was unlikely that investors would be spooked by his public remarks. “Professional investors can do their own fiscal due diligence,” he said.

Asked when the EDC first realized 38 Studios was in trouble, EDC Finance Director Earl Queenan was advised not to answer by EDC legal counsel David M. Gilden.

Chafee said the state could begin a forensic audit of 38 Studios’ financial records as early as Wednesday.

Chafee has asked for resignations from each member of the EDC board of directors who voted for the 38 Studios loan guarantee and on Wednesday the governor said Providence Performing Arts Center President L.J. “Lynn” Singleton had submitted his resignation.

Chafee spokeswoman Christine Hunsinger said the governor has not been able to reach board member Stephen Lane, founder of Ximedica, about his future on the board.

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