Who’s responsible for $75M loan guarantee to 38 Studios?

AFTER WEEKS OF waiting, more than 1,500 files in the 38 Studios case were released Thursday afternoon.
AFTER WEEKS OF waiting, more than 1,500 files in the 38 Studios case were released Thursday afternoon.

PROVIDENCE – No one, it seems, is willing to take responsibility for advancing plans that ultimately led to $75 million in state loan guarantees for failed 38 Studios LLC, according to depositions included in thousands of Superior Court documents unsealed Thursday.
Keith W. Stokes, the former director of the R.I. Economic Development Corp., says he first heard of the plans from then-House Finance Chairman Steven Costantino in March 2010.
Costantino, however, denies personal involvement in pushing for expansion of a proposed loan program to accommodate the needs of the video game company. In fact, he says it was someone from the EDC – he’s not sure who – that told him there was interest in expanding the proposed state loan program by $75 million, the same amount ultimately approved for 38 Studios, which went bankrupt in 2012.
And former Gov. Donald L. Carcieri, who as governor served as ex-officio chair of the EDC board that ultimately approved the loan guarantee, also insists he wasn’t involved in the behind-the-scenes deal-making, though he appears to have known about the details before the board did.
Stokes, in a February 2015 deposition, said Costantino told him during a March 2010 meeting he wanted to raise the $50 million loan program to $125 million.
“With all my years and experience, to have the House Finance chair willing to expand a new program, a significant program, $50 million is significant capital in its own right, but willing to expand that to $125 million program, in all my years at the EDC, I never – we’ve never had that kind of authority,” Stokes said. “We’ve never had a program of that magnitude. So, I was pleased from the standpoint that the legislative leadership had this level of interest,” Stokes said.
Stokes also said that if the “House Finance chair wants to provide additional capital authority to the EDC, the same EDC that he was looking to dismantle a year before, that’s good, that’s a positive, and that’s his role. If the House Finance chair is making this statement to me, it was powerful. It wasn’t a rank-and-file legislative member, it’s the House Finance chair. So I walked away thinking, clearly, there’s an interest here.”
But Costantino in his July 2014 deposition said he didn’t recall telling Stokes he wanted to increase the proposed $50 million program to $125 million for 38 Studios.
Costantino said that there was “demand in the community” to increase the program to $125 million. But where that demand came from, is unclear.
“So, I do remember – and, again, I’m not sure with whom, but basically asking the question, well, ‘What’s the demand out there in the business community that wants the program that could use the program, the Loan Guarantee Program?’ So what number would EDC need to fulfill its obligation to the entire need in the community? And that’s what I remember as the figure being $125 million,” Costantino said.
Costantino said he was aware 38 Studios was looking for $75 million, but he said he could not remember who told him.
Carcieri has said little publicly about his role in the state’s negotiations with 38 Studios since the company went bankrupt.
In his July 31, 2014 deposition, Carcieri denies knowing about financial specifics or discussions that happened between Stokes and 38 Studios owner and former Boston Red Sox pitcher Curt Schilling. He does admit to meeting Schilling on March 6, 2010 at a fundraiser held at the pitcher’s home, and that he suggested he get in contact with Stokes, but doesn’t acknowledge knowing much more.
“There was no independent process that I went through outside of the board to come to my conclusions or review of that transaction,” Carcieri said in his deposition. “All of my review of that transaction and all the review of the documents and the participating was in the context of the board meetings I chaired.”
An April 1, 2010 email from EDC counsel Robert I. Stolzman to Andrew Hodgkin, Carcieri’s then-chief of staff, however, contained a memo from Stokes to the governor that began, “Governor, as you know, we have been meeting with Curt Schilling and his company, 38 Studios, regarding their potential relocation to and expansion in Rhode Island.”
The memo to the governor, dated April 1, 2010, contained the details of the EDC’s plan to provide the $75 million loan guarantee to the company. The EDC board ultimately approved the deal in July 2010.
Former Gov. Lincoln D. Chafee, in his August 2014 deposition, said he tried to educate himself as much as possible about the potential relationship between the EDC and 38 Studios before taking office. Chafee said he expressed opposition to the loan, and that he initially had “an adverse reaction to such a large investment with one company, and the more I learned, the more that solidified that initial reaction.”
Chafee through the EDC later initiated a lawsuit suing Schilling and others in an attempt to pay 38 Studios bond investors.
Earlier this month, a Superior Court judge approved a settlement reached between EDC successor R.I. Commerce Corporation and some defendants in the lawsuit.
Adler, Pollack & Sheehan P.C., Robert Stoltzman, J. Michael Saul and Stokes were ordered to pay a combined $12.5 million for putting together the deal with Schilling’s failed video game company.
The Commerce Corp. demanded the $12.5 million last December after considering the extent of the defendants’ insurance coverage.
The first settlement in the case, approved by the Providence court in June 2014, resulted in a $3.2 million payment to bondholders, according to a R.I. Commerce Corp. spokeswoman. In that settlement, the state ended its lawsuit against its bond counsel and his firm.
The two settlements do not affect an ongoing lawsuit against Schilling, who was the company’s chairman and founder, as well as several officers in the failed venture and companies that helped to secure the loans.

Web Editor Lori Stabile contributed to this report.

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