Articles Tagged with RIEDC

The Securities and Exchange Commission (SEC) recently issued a complaint against The Rhode Island Economic Development Corporation (RIEDC) after it allegedly issued $75 million in bonds for the 38 Studios project. The project was intended to spur economic development and increase employment opportunities by loaning bond proceeds to private companies. The SEC alleged that RIEDC loaned only $50 million in bond proceeds to 38 Studios. Remaing proceeds were used to pay related bond offering expenses and establish a reserve fund and a capitalized interest fund. Wells Fargo offered the bonds and the brokerage firm allegedly failed to disclose to investors that 38 Studios had conveyed it needed at least $75 million in funding to produce a video game. Therefore, investors were not fully informed when deciding to purchase the bonds that 38 Studios faced a funding shortfall. Because they were unable to produce more funding, the video game did not materialize and the company defaulted on the loans.

Wells Fargo’s lead banker, Peter M. Cannava, and two RIEDC executives, Keith W. Stokes and James Michael Saul were charged with aiding and abetting the fraud. Stokes and Saul each paid a $25,000 fine. They were prohibited from participating in any future municipal securities offerings. SEC continues litigation against Cannava, Wells Fargo and RIEDC. The SEC complaint also alleged that Wells Fargo and Cannava misled investors in bond offering materials. Investors were not informed that the brokerage firm had a side deal with 38 Studios that enabled the firm to receive nearly double the amount of compensation disclosed in offering documents. Cannava was ultimately responsible for failing to disclose additional fees.

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