Lawful Neutral: The long fall of Project Copernicus’ 38 Studios


There are some MMO stories that are just unbelievable. They are so warped convoluted and confusing that we think there’s no possible way it can be true. Unfortunately, that’s not the case. Curt Shilling, the baseball player whose game studio implosion was so notoriously cataclysmic you could see it from space, is in the news again, although not for video games this time – this time, it’s for politics.

I’ve had the 38 Studios debacle in my backlog of stories to cover here in Lawful Neutral, and I thought that now was a good time to take a jaunt down memory lane, with a story that started in 2006 and (hopefully) ended earlier in 2019.

Let’s recap

I’m not going to rehash the full history here; you should check out our recent article with approximately a metric crap ton of references about this whole saga and our Game Archaeologist on Project Copernicus from earlier this year. But here’s the basic run-down: Curt Shilling, a decorated former professional baseball player and MMO fan, decided to start an MMO studio and recruited some big names to help out. The Rhode Island government then offered him an unsecured $75 million dollar loan as part of its effort to create a tech hotspot in the state, so he relocated his studio there. A year and a half later, 38 Studios launched its first game, Kingdoms of Amalur, but its sales weren’t enough to break even or finish its MMO called Project Copernicus, so it went bankrupt three months later.

Let’s take a look at what actually happened in the fallout of the studio collapse.

All the monies

As with any good story, we’ll begin in the middle. At the time of the bankruptcy, 38 Studios was in debt to the tune of $150 million: $110 million of that was owned to the state of Rhode Island – the interest and principal on the $75 million loan that had enticed 38 Studios to Providence in the first place. The remaining $40 million in debt, give or take, was divided up among 38 Studios subsidiaries like Big Huge Games, which 38 Studios had acquired in 2009 from THQ. Big Huge Games was responsible for the single-player Kingdoms of Amalur: Reckoning, which launched in February of 2012 to a critically warm reception but insufficient sales. (Big Huge Games went under with the rest of the 38 Studios ship in 2012, though Nexon purchased and revivified it a few years later.)

38 Studios claimed only about $22 million in assets available to help pay off creditors, which left a shortfall of around $130 million. Oh, and I shouldn’t forget the $320 in petty cash (yes, $320).

Now that we’ve got the basics out of the way, let’s take a gander at the various legal pieces at play. I’ve broken them up by agency because otherwise all of these different groups suing the same people and the outcomes gets super confusing super fast.

State and federal criminal investigations

These two are the easiest because the least happened with them. Both Rhode Island state and US federal authorities opened investigations into 38 Studios within weeks of the company’s collapse. Despite the fact that it superficially appeared to be an absolute shit-show, by September of 2012 the federal criminal investigation was closed with no charges. Meanwhile, the Rhode Island state inquiry took until a bit longer, and it wasn’t until July 2016 that it arrived at the same conclusion: that as shady as the 38 Studios deal seemed to be, nobody had actually done anything criminal.

We should also point out that Citizens Bank brought a lawsuit for $2.4 million against Shilling in June, as he had cosigned on the loan with 38 Studios. However, the bank dropped the suit in September of 2012 and declined to say why.

My name is might have been.

The Rhode Island state civil case

This is where things get messy. Rhode Island and the Rhode Island Economic Development Corporation (now called the Rhode Island Commerce Corporation or RICC for short), brought a civil lawsuit against 14 people who were involved in making the $75 million loan happen in November 2012. The suit, found on the wayback machine here, alleges that these people knew that the $75 million wasn’t enough to complete the MMORPG Project Copernicus and in fact hid that knowledge from investors.

Naturally, in March 2013 Schilling and others asked the judge to dismiss the lawsuit, calling it politically motivated and laying the blame on Rhode Island Governor Lincoln Chafee, who had publicly denounced the deal, which was brokered by the preceding government, and who had prompted the lawsuits in the first place; Schilling claimed Chafee had made rescuing the company (say, by another publisher) impossible. This argument was somewhat weakened the following month with the revelation that during negotiations for the loan, many people knew that the $75 million wasn’t enough to actually finish the game and seemingly misrepresented that to the RICC board that approved the loan.

The lawsuit kicked off in May of 2013 with opening arguments, and then it was silent until August 2013, when the judge overseeing the case denied a motion to dismiss, allowing the case to move forward. Everything went quiet again until February 2014, when the Rhode Island legislature passed a bill to incentivize those named in the 38 Studios lawsuit to settle. The bill stated if the defendants settled, they would be granted immunity from any new litigation brought against them over these events. It was basically, “If you settle now, neither we nor anyone else can sue you about this again.” Not a bad deal, all things considered. The idea was to pressure the defendants to settle in an effort to recoup at least some of the money the state was out.

The first settlement came in at $4.4 million in June 2014; in May 2015, the next batch of four settled for $12.5 million. This was followed by another $25.6 million settlement in August of 2016, then Shilling and others settled for $2.5 million in September of 2016, and the final settlement was inked in February 2017 to the tune of $16 million.

Attempts to auction off 38 Studios assets over that period met with limited success. When all was said and done, settlements had netted about $61 million in funds, and according to a local CBS affiliate for Providence, Rhode Island, that left taxpayers on the hook for just shy of $34 million as a result of the debacle. As of 2018, most of that has already been paid back. With the final settlement in February 2017, the civil case was officially closed.

The SEC case

The final legal proceedings stemming from the 38 Studios trainwreck comes in the form of the Securities and Exchange Commission case. In September of 2013, the SEC opened an investigation into 38 Studios and filed charges against the RICC and Wells Fargo in March 2016 for defrauding investors. Shortly after, the RICC settled the case with the SEC for $50,000 while making it clear that it wasn’t acknowledging wrongdoing. Wells Fargo settled with the SEC in January of 2019 (2019!) to the tune of $800,000 for its part in the fiasco.

What about the games?

Kingdoms of Amalur and Project Copernicus, which originally couldn’t find a buyer at all, were finally picked up by THQ late last year, though it doesn’t seem likely that the Copernicus MMO will ever release as THQ seemed mostly in it for the IP. I think that’s the worst part of all of this: The MMO, or what we saw of it, looked good. I think the only acceptable end to this story is for all the hard work of the innocent rank-and-file devs at 38 Studios to finally see the light of day.

Every other week, Andy McAdams braves the swarms of buzzwords and esoteric legalese of the genre to bring you Massively OP’s Lawful Neutral column, an in-depth analysis of the legal and business issues facing MMOs. Have a topic you want to see covered? Shoot him an email!
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