Schilling lawyer argues for tossing lawsuit

PROVIDENCE, R.I. (AP) -- Curt Schilling and executives of his bankrupt video game company "disclosed everything" to Rhode Island's economic development agency before being granted a $75 million loan guarantee, a lawyer told a judge Wednesday in arguing he should dismiss a lawsuit against them.

Attorney Michael Connolly said the former Boston Red Sox pitcher and other 38 Studios executives "repeatedly and continuously" told top officials at the state Economic Development Corp., whose board approved the deal, about the company's finances.

Connolly said that included the fact that 38 Studios needed more money than it was getting from a bond sale to complete a video game it was developing and to relocate from Massachusetts to Rhode Island, a requirement of the deal.

Connolly and lawyers for others named in the lawsuit outlined their arguments before Judge Michael Silverstein in Superior Court in Providence on Wednesday. Schilling did not attend.

In arguing that the case should be allowed to go ahead, Max Wistow, a lawyer for the economic development agency, described a "fraudulent scheme" in which the defendants both withheld information and provided false information.

38 Studios had wanted the full $75 million in proceeds from the bond sale, but the EDC kept a significant amount in reserve; the company got just over $49 million. Wistow said financial documents the board relied upon in approving the loan guarantee in 2010 indicated the money 38 Studios was getting would be enough.

"Every defendant knew that affirmative misrepresentations were being handed up to the board," he said.

The quasi-public EDC sued Schilling, several executives at 38 Studios and some of its own former employees — including then-Executive Director Keith Stokes — in November. The company's collapse into bankruptcy several months earlier left the state on the hook for some $100 million, once interest is factored in.

The suit alleges fraud, racketeering and conspiracy, among other things.

38 Studios' relocation to Rhode Island was supposed to be a coup for the economically struggling state because it would create hundreds of high-paying jobs and bring millions of dollars in tax revenue. Critics maintained the state was making too big an investment in too risky a venture.

Gerald Petros, a lawyer for First Southwest, which served as a financial adviser to the EDC on the bond sale and is another of the defendants, also argued the EDC cannot bring a legal claim based on an alleged nondisclosure of information that even it admits that top agency employees knew.

During afternoon arguments, the defendants' attorneys offered other reasons for tossing the suit. They called it premature to claim damages because no one has suffered any loss yet — there has been no default on the bonds — and said the $75 million wasn't the EDC's money so it doesn't have the standing to sue anyway.

Wistow argued the EDC does owe the money and is the right party to file a suit because it arranged the bond sale for 38 Studios' benefit and turned the proceeds over to the company. He maintained the agency has already suffered damages, including to its reputation, which he said will make it more costly to conduct future bond sales.

Wistow said the EDC must protect taxpayers' interest: "It's not a good idea to treat the state or any of its agencies as any kind of feeding trough.

The judge has scheduled another hearing for June 4.