38 Studios is Working on a Game, Apparently, Afterall (Kingdoms of Amular)

[UnSub]

My guess would be securities fraud in their fundraising.

In what way, potentially?

[Goumindong]

My guess would be securities fraud in their fundraising.

In what way, potentially?

Lying to investors about how much funds they have acquired is most likely.

Probably the most common form of this is when a person goes to a bank and asks for a loan, but doesn't say they already have a loan from someone else. But basically if there were any accounting errors too big to be missed or simply not explicitly informing people of all your obligations you've committed fraud. Another way to do it is to tell them all that their loan takes priority [which renegs on previous deals where you claimed that] in the event of a default.

I can think of no other way in which they have burned through over 65* through 450 million dollars in cash if there wasn't some sort of fraud going on. With "over 1000 investors" and Curt's initial 5 million dollar investment** they would have been leveraged > 20 to 1 before talking with any other investors besides RI. That leaves at least 1000 other people that invested into a 20 to 1 leveraged video game company.  Man i wouldn't invest into a bank at 20 to 1[though to be fair i probably would not use their equity ratio, but their deposit ratio for that]. If the company loses 5% of its value in one year at 20 to 1 they're broke. In order to pay back a 5% loan due after three years with no payments in between [because they have no revenue because they're making a game] they're going to need to make ~15.7% over current value in that year. This basically means that after three years 38 would have had to develop a project worth at least  NPV 133 million dollars. If they only made 128 million dollars they were broke. This assuming 20 to 1 ratio on only 115 million. And it looks like the total investment was higher than that!

*115 owed to RI minus maximum amount of assets held in bankruptcy document

**right?

[Abagadro]

Could be a lot of things. They could be selling unregistered securities (1000 investors is a lot for an unregistered company), lying about the financials, etc. etc. One red flag I have seen is that they apparently borrowed 8.5 million with the film tax credits as collateral (which they didn't even have, which could be bank fraud) and then sold those on a factor to someone else for the 1.1 million (again fraud and depending on how they did it could be wire fraud which is why the feds are interested).  All of this is just based on snipets and is highly speculative, but good god it looks like that place was a financial mess. 

On reflection if it was securities based I would think it would be the SEC climbing all over them though so it might be one of these types of fraud that has the FBI interested.

[UnSub]

Thanks.

I agree that 1000 creditors sounds nuts, but I wonder how many of those may be other companies that have outstanding invoices with 38 Studios for operational stuff (such as office cleaning, food and drink supplies, stationary, software licences) and how many have serious investment dollars involved.

Good thing is, apparently there is a list:

The companies are 38 Studios LLC, Mercury Project LLC and Precision Jobs LLC, all listed with an address of the company's Providence headquarters, One Empire Plaza. The fourth company is 38 Studios Baltimore LLC, at 1954 Greenspring Drive, Timonium, Maryland, according to Matt Yovino, a case administrator with U.S. Bankruptcy Court, District of Delaware.

The filings include about 45 pages worth of creditors, Yovino said, but initial paperwork does not indicate how much those creditors are owed.

[Numtini]

Upwards of $500 million in debt? How the fuck does that happen?

My guess would be theoretical future expenses already committed to. Leases on buildings. Commitments to pay Dingus The Dark Elf for his world building. Contracts that include marketing for both KoA and MMO-Fail. Ie, a lot of it is probably for services that were contracted for in the future but represent services not yet received. Given how poorly the business was run, the Gods only know what they committed themselves to.

[UnsGub]

Just over two months before Curt Schilling’s 38 Studios collapsed, the Providence lawyer whose connections to House Speaker Gordon Fox helped bring the video game company to Rhode Island was paid $232,800 by the company, according to filings with the U.S. Bankruptcy Court of Delaware.

Local coverage seems to the the latest and most detailed.

http://www.golocalprov.com/

[Outlawedprod]

http://m.golocalprov.com/186935/show/65008641fc761802c8be0681a5c1f363&t=mio7pu9r3fnpf3kb5khj2b67l6

On May 1, the same day the company failed to make its payment to the EDC, the company spent over $3,700 at Dave’s Fresh Marketplace in East Greenwich. 38 Studios also paid Coffee Express Ltd in Pawtucket over $8,000 between March 8 and May 1. On May 15, the company bounced a check to Coffee Express.

[HaemishM]

$232,000 for probably making a few phone calls to a buddy. I am in the wrong fucking business.

EDIT: Not concerned about the coffee or Dave's Fresh Marketplace expenses. Buying lunches, or coffee delivery service can be pricey, and those may have been annual contract renewals or something. However this:

Bill Thomas, the company’s chief operating officer, received a total compensation package of over $421,000, which includes a $130,000 payment last December to help Thomas relocate to Rhode Island. Jennifer MacLean, who served the 38 Studios’ chief executive officer until April, was paid over $253,000 in salary over the last year.

Is absolutely what the fuck is wrong with business in this country.

[Murgos]

$250K/yr doesn't seem out of line to me for CEO compensation.  130K for moving expenses though? That seems a bit much.

[kildorn]

The moving expenses are a bit much. The CEO compensation will only be interesting if it turns out the management team was paid while they were failing to make payroll or not. Also if any bonuses were awarded in the last 6 months.

[Numtini]

The salaries seem reasonable. The relocation even, because they had massive pressure to get people into RI to meet goals to get more millions and they were paying people's mortgages and so on. The catering, seems over the top, but quite familiar to me. I worked in a failing dot.com in DC. We were losing a million a year on 10 million in sales. We had the best coffee. We ate $50 a cover sushi lunches. We stopped work at 3pm on friday went out on the balcony and boozed it up. You know what all those employees were saying about 38 being a great place to work? So was that dot.com 

[HaemishM]

Executives making $200k and $300k at a company that is failing so hard it's bleeding money and can't make payroll even with $50 million in state-backed loans? Sure, it ain't Lehman Bros. or Goldman Sachs money, but it's certainly an indication to me where the company placed value. I reckon that $230k is about 3 or 4 times what the average worker was paid.

[schild]

I reckon that $230k is about 3 or 4 times what the average worker was paid.

You know shockingly little about the costs of dev teams.

[Outlawedprod]

I found the fresh market expenses funny because they didn't have much money for excess things.  Mind you the coffee makes sense.  Gotta keep them working bees energized.

[HaemishM]

I reckon that $230k is about 3 or 4 times what the average worker was paid.

You know shockingly little about the costs of dev teams.

No, I do. I'm expecting that the average worker in RI is going to be paid about $60 or $70k a year. They'd make more in Silicon Valley. I think executive compensation is too high across the board, personally. That may not be out of the ordinary for that area of the country, or the industry or even in general. I still think it's too much money for a company that fell on its dick.

[schild]

Getting engineers, the bulk of their workforce, to move like that costs a good deal more than 60-70k.

[HaemishM]

Engineers aren't the average worker. QA is on the low side of 60-70k and engineers are on the high side.

[schild]

QA is $10-13 an hour and don't even figure into this sort of average. They are literal slaves.
 Look, I'm just saying you don't have an inkling of a notion what it costs to run a dev studio and how much any given worker costs in total.

[Chimpy]

Or what the cost of living/average salary is in the NE.

[HaemishM]

Actually, I do, because I've look at living in that area in the past and realize I'd need to make between $60-$70k to maintain my current lifestyle.

QA would figure into it if I'm talking about AVERAGE SALARY.

Regardless, I still think the execs were paid too much money, especially considering the results.

[schild]

Actually, I do, because I've look at living in that area in the past and realize I'd need to make between $60-$70k to maintain my current lifestyle.

QA would figure into it if I'm talking about AVERAGE SALARY.

No you don't, you are neither a highly-sought after engineer nor some well known industry artist.

No, QA is not figured into average salary. They're not fucking paid salary. QA as a whole is figured into the budget.

Just stop, you're seriously out of your element. There's better things to rail on 38 for that are actually based in reality.

[Merusk]

Funny, I thought it was low for CEO pay since I know salespeople who make that.

[schild]

It is low. And she wasn't CEO.

Jennifer MacLean, who served the 38 Studios’ chief executive officer until April, was paid over $253,000 in salary over the last year.

Reading comprehension brosefs - she was a motherfucking assistant or sommat.

http://38studios.com/staff/jennifer-maclean

That article is shit and the writer doesn't know how to write. Ignore what I wrote. She was CEO, and it sounds like she got paid exactly what she deserved. I hope she got a lot of equity worth precisely fuckall.

[Chimpy]

It is interesting that the COO made almost twice what the CEO did.

[schild]

That was just her salary. And $250,000+ could be anything.

[Numtini]

The minimum salary to qualify as a "job" under the job requirements of the loan was $67k. The average salary has been reported as $83k. That's a lot of money for RI and SE Mass--this is not Boston.

[Abagadro]

I wonder if that is salary or total comp. If it is total comp deduct 30% and that is what they were actually getting paid.

[HaemishM]

So she made almost 3 times that of the average salaried worker. My opinion is that's too much, and my point was that this country thinks executives should get paid MORE than 3 times the average salary worker - a lot more. I think that's wrong. The market obviously doesn't agree with me, but that's because the market is full of assholes plundering every bit of money they can out of their businesses before jetting out on a parachute made of twenty dollar bills.

[Ingmar]

3x is ... I dunno, it doesn't bother me that much. It isn't so much that it puts you in a completely alien social class from the people you work with, particularly at a tech company where you're already talking about people making a good living for the most part. The real problem comes at places where the C levels are making 10-20x+ normal salaries and even the run of the mill VPs won't get out of bed for less than a thousand bucks, that is where things get fucked.

[Murgos]

Funny, I thought it was low for CEO pay since I know salespeople who make that.

I know principal engineers (in Boston but yeah, not much different than RI) who make around that as well.  Like I said, it didn't seem that off to me, assuming there were some big fat backend payouts in bonuses if they ever turned a profit.

60-70K is entry level for software engineering.  Heck, I know a kid who interned in my office last summer who Microsoft just picked up for low 6 figures fresh out of college.

[Numtini]

in Boston but yeah, not much different than RI

Boston and Providence are both major cities in New England like California and Mississippi are both big states in the USA.

[Sjofn]

3x is ... I dunno, it doesn't bother me that much. It isn't so much that it puts you in a completely alien social class from the people you work with, particularly at a tech company where you're already talking about people making a good living for the most part. The real problem comes at places where the C levels are making 10-20x+ normal salaries and even the run of the mill VPs won't get out of bed for less than a thousand bucks, that is where things get fucked.

And you call yourself a communist!

[deb]

I have zero insight to 38 Studios' situation, but I've worked as a software engineer and equity partner in startups both in Europe and North America, and $250k for a CEO is very much reasonable, in my opinion, even in a company that's ten times smaller than 38. The amount of funding, an the investors' vision dictate a lot, though.

And $70k isn't enough to even hire a competent front end web engineer. At least I've yet so see one who's really fucking good and ready to work crazy hours, and takes less than $100k.

[Khaldun]

I have to say that I'm the first to rag on dumb executive salary packages but these seem perfectly ok to me.

[HaemishM]

I realize I'm in the minority of one on the executive salary packages, but that's just me. I think executives get paid too much for too little work as a general rule, especially when compared to the pay of people who do produce things.