SEC, Wells Fargo ink 38 Studios settlement, will be delayed

PROVIDENCE, R.I. — The Securities and Exchange Commission and Wells Fargo Securities said in a joint court filing Thursday that they have agreed in principle to settle a lawsuit over Rhode Island's failed $75 million deal with former Boston Red Sox pitcher Curt Schilling's videogame company.

But the parties said final approval has been delayed due to the government shutdown. They asked a federal judge to put the case on hold until after the shutdown is over "to give the SEC and its relevant divisions and offices time to consider and approve the settlement-in-principle," lawyers for the two wrote.

"In connection with the shutdown, all but a limited number of SEC staff members have been furloughed, and the SEC and its staff are unable to conduct most normal activities," they wrote.

They did not disclose details of the proposed settlement.

Messages seeking comment were left for lawyers for Wells Fargo and the SEC. Some SEC lawyers responded with out-of-office emails citing the shutdown and saying that the SEC "is currently closed."

The SEC sued Wells Fargo and Rhode Island's economic development agency in 2016, accusing them of making misleading statements about bonds that were offered to investors and used to fund the deal with 38 Studios.

The economic development agency previously settled, paying a $50,000 penalty without admitting wrongdoing.

Schilling moved the company from Massachusetts to Rhode Island in 2010, after the Rhode Island Commerce Corp. agreed to give it a $75 million loan guarantee. The SEC said Wells Fargo and the Commerce Corp. failed to disclose that 38 Studios needed at least $75 million but would receive only $50 million of proceeds from the bond offering, leaving a $25 million gap.

38 Studios ran out of money and filed for bankruptcy less than two years after the move, sparking investigations and lawsuits.

The SEC also alleged that Wells Fargo received substantial fees for representing 38 Studios, while also representing the Commerce Corp. as bond placement agent and failed to disclose that.

The SEC's lawsuit is still pending against a Wells Fargo employee, who did not object to the delay, according to Thursday's filing. The SEC action is the last lawsuit pending in the fallout from the deal.

A separate lawsuit brought by the state ended in 2017 after settlements with several people and companies involved in the deal, including Schilling and other 38 Studios executives and officials at the economic development agency. The settlements in the state case totaled about $61 million.

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