Schilling Woes Preceded Chafee Remark

Curt Schilling's video gaming company had already taken the first step toward filing for bankruptcy by the time Gov. Lincoln Chafee made his first public comments about 38 Studios' troubles - remarks the former Boston Red Sox pitcher has blamed for his company's demise, documents show.

A confidential memo obtained by The Associated Press under a public records request shows that the 38 Studios board had given the firm the green light to seek bankruptcy protection sometime on or before May 14, the same day Chafee first spoke out about its financial troubles.

Schilling has blamed Chafee for worsening the company's financial situation with his public comments. The company, lured to Rhode Island from Massachusetts in 2010 by a $75 million loan guarantee approved by a state agency, laid off its entire workforce in Rhode Island and Maryland last month and filed for Chapter 7 bankruptcy protection on June 7.

As a candidate for governor, Chafee, an independent, opposed the deal with the Economic Development Corp.

The decision by the 38 Studios board to let the company seek bankruptcy protection is detailed in a May 14 memo to development corporation board members from the agency's then-executive director, Keith Stokes, who has since resigned. The memo was written two weeks after 38 Studios missed a $1.1 million payment to the Economic Development Corp. The company later made the payment.

"EDC has been informed by 38 Studios that it is also unable to make this week's payroll for its employees, and consequently its board of directors has authorized it to file for bankruptcy protection," Stokes wrote. "Unless something changes today, we expect 38 Studios to file for bankruptcy as early as today."

The same day Stokes wrote that memo, Chafee said he was trying to keep 38 Studios "solvent."

38 Studios owes $150.7 million and had assets of $21.7 million, according to bankruptcy filings. An affiliate, 38 Studios Baltimore, owes more than $121.4 million and has assets of more than $335,000. Rhode Island is by far the company's largest creditor.

Schilling told WEEI last week that Chafee's comment about keeping the company "solvent" was harmful as 38 Studios tried to raise private capital.

"That word, it was an enormous problem immediately for us," he said.

Schilling conceded that he had "absolutely" made mistakes himself. But he accused Chafee of having an "agenda." He also said Chafee failed to work with an investor who was ready to put $15 million to $20 million into the company to help it succeed; Schilling said the investor, whom he has declined to name, walked away because of Chafee's inaction.

In an earlier interview with The Providence Journal, Schilling likewise described Chafee's comments about 38 Studios' troubles as "devastating."

"The governor is not operating in the best interest of the company by any stretch, or the taxpayers, or the state," Schilling told the newspaper. "We're trying to save this company, and we're working 24/7. The public commentary has been as big a piece of what's happening to us as anything out there."

Messages were left Thursday for a public relations firm representing 38 Studios and with a publicist for Schilling.

Chafee has described Schilling's comments as inaccurate.

Chafee spokeswoman Christine Hunsinger said Thursday that Schilling's timeline is "off." She said she did not know when Chafee became aware that the 38 Studios board gave the company the OK to seek bankruptcy protection.

"The governor has repeatedly stated that he and the EDC and the state did everything possible to work in partnership with 38 Studios to find a viable solution," Hunsinger said.

On Tuesday, Chafee announced the Economic Development Corp. retained the firm of Wistow & Barylick to determine whether the state could recover any money from individuals or groups involved in the state's $75 million loan guarantee to the company.

Federal and state authorities have also launched investigations into financial transactions at 38 Studios.