Judge in SEC 38 Studios case steps aside

PROVIDENCE, R.I. (WPRI) – The judge originally assigned to handle the U.S. Securities and Exchange Commission’s civil fraud case over 38 Studios has recused himself.

In a one-page filing on Monday, U.S. District Court Chief Judge William Smith wrote: “I hereby recuse myself from participation in the above-referenced matter.”

According to a docket entry, the case has been reassigned to U.S. District Court Judge John “Jack” McConnell.

Judge Smith did not give a reason for the recusal in his order, but his wife, Christine Smith, works for the R.I. Commerce Corporation, formerly the Economic Development Corporation (EDC), which is a defendant in the case.

The clerk of federal court, David DiMarzio, said it is not unusual for a judges to recuse themselves from a case.

“The judge does not need to disclose a reason,” DiMarzio said. “There was obviously something in the case that Judge Smith felt fell into the category of actual, potential, probable or possible conflict of interest.”

DiMarzio said judges decide to recuse if they feel their impartiality may be in question for any proceedings.

The SEC complaint, filed last week, alleges the EDC and Wells Fargo Securities defrauded investors when they sold $75 million in bonds in November 2010 to fund 38 Studios, the game company founded by former Red Sox ace Curt Schilling. Wells Fargo was the lead underwriter on the bond transaction.

The document provided to 38 Studios bond investors was “a misleading half-truth,” SEC lawyers wrote in the complaint, caused by the “recklessness or negligence” of EDC and Wells Fargo employees, who failed to make clear the company was not going to net enough money from Rhode Island to finish its game project.

WPRI.com first broke the news of the SEC’s 38 Studios investigation back in September 2013.

DiMarzio said judges are initially assigned to cases randomly using a computerized system.

“What happens is we have two case assignment wheels: one for civil and one for criminal,” DiMarzio said. “Judges’ names are put into equal numbers in the categories and it’s a computerized random draw that makes the assignment.”

Tim White ( twhite@wpri.com ) is the Target 12 investigative reporter for WPRI 12 and Fox Providence. Follow him on Twitter: @TimWhiteRI

Ted Nesi contributed to this report

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