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U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23796 / April 3, 2017

Securities and Exchange Commission v. Rhode Island Commerce Corporation (f/k/a Rhode Island Economic Development Corporation), et al., No. 1:16-cv-107 (D.R.I. filed Mar. 7, 2016)

SEC Obtains Final Judgment Against Rhode Island-Based Issuer of 38 Studios Bonds

The Securities and Exchange Commission announced that it has obtained a final judgment against defendant Rhode Island Commerce Corporation (RICC) in a previously-filed enforcement action.

In March 2016, the SEC charged the RICC with defrauding investors when it served as the issuer in a bond offering to finance startup video game company 38 Studios. The SEC's complaint against the RICC and four other defendants, including the underwriter of the bonds, the lead banker for the underwriter, and two then-RICC executives, alleged that the RICC issued $75 million in bonds for the 38 Studios project as part of a state government program intended to spur economic development and increase employment opportunities by loaning bond proceeds to private companies. The SEC alleged that the defendants failed to disclose, among other things, that the project being financed by the bonds, the development of a video game, could not be completed with the financing the bonds would provide. The SEC also alleged that the defendants did not disclose that even with the proceeds of the loan financed by the 38 Studios Bonds, 38 Studios faced a known shortfall in funding.

The RICC consented to the entry of the judgment without admitting or denying the allegations. The judgment, entered on April 3, 2017 by the Honorable John J. McConnell, Jr. in federal court in Rhode Island, enjoins the RICC from violating Sections 17(a)(2) and (a)(3) of the Securities Act of 1933 and orders the RICC to pay a $50,000 penalty.

The SEC's litigation continues against the underwriter and the underwriter's lead banker. The SEC's investigation was conducted by its Public Finance Abuse Unit, including Louis Randazzo, Joseph Chimienti, Jonathan Wilcox, Kevin B. Currid, and Deputy Chief Mark Zehner. The SEC's litigation is being led by Kathleen B. Shields, Rua Kelly, and Mr. Randazzo of the Boston Regional Office.

 

https://www.sec.gov/litigation/litreleases/2017/lr23796.htm


Modified: 04/03/2017