The SEC charged the Rhode Island state agency now known as the Rhode Island Commerce Corporation and its bond underwriter Wells Fargo Securities with defrauding investors in connection with a municipal bond offering to finance a start-up video game company called 38 Studios. The Rhode Island agency loaned $50 million in bond proceeds to 38 Studios. However, the bond offering documents produced by the agency and Wells Fargo failed to disclose that 38 Studios had conveyed it needed at least $75 million in funding to produce a particular video game. Therefore, investors were not fully informed that 38 Studios faced a funding shortfall even with the loan proceeds. When 38 Studios was unable to obtain additional financing, the company defaulted on the loan. The SEC also charged Wells Fargo’s lead banker on the deal and two Rhode Island agency executives with aiding and abetting the fraud. The SEC’s complaint further alleges that Wells Fargo and the lead banker on the 38 Studios deal failed to disclose that Wells Fargo had a side deal with 38 Studios which enabled it to receive nearly double the amount of compensation disclosed in offering documents. SEC
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