38 Studios declares bankruptcy, federal investigation underway

In a move that seemed inevitable, 38 Studios has finally declared bankruptcy. To make matters worse, various state and federal agencies have reportedly launched an investigation into the company in light of recent events surrounding its money woes.

In a statement to The Providence Journal, a spokesperson said, "This action comes after several weeks when the company has reviewed, considered and received the recommendations and advice with respect to potential avenues for relief that are currently available. After ongoing negotiations with the State of Rhode Island and potential investors and other interested parties, the Company has been unable to find a solution to the current stalemate."

WPRI reports this means the company and its subsidiaries will be liquidated. The company had already laid off its entire staff.

Meanwhile, Rhode Island State Police superintendent Colonel Steven O'Donnell says that his police, the FBI, the U.S. Attorney's office, and the Rhode Island attorney general are all working together to investigate the company. O'Donnell said the investigation is into "activities that have recently come to light at 38 Studios." Namely, the investigation centers around the large Rhode Island loan to the company, along with an $8.5 million loan from Bank RI that was reportedly borrowed against state film tax credits which hadn't been issued.

The situation has been tense between 38 Studios founder Curt Schilling and the Rhode Island government, with Schilling accusing state Governor Lincoln Chafee of scaring investors. EA had passed on publishing a sequel to Kingdoms of Amalur: Reckoning, and the company was attempting to find a new publisher. Chafee disputed the account.

The fallout has ended happily for some people, though. Some displaced employees of Big Huge Games were hired on to form a new Epic studio in Baltimore.