Marcello says The Truth on 38 Studios is Out There; MacBeth to Push for Subpoena Power

Sep 11, 2013

House staffers testify before the Oversight Committee about documents obtained from the EDC.
Credit Ian Donnis / RIPR

State Representative Karen MacBeth (D-Cumberland) wants the House Oversight Committee to use its subpoena power to extract documents and compel appearances by key figures in Rhode Island's losing investment in failed video game maker 38 Studios.

The approval of House Speaker Gordon Fox is required for a committee to issue subpoenas, and it seems unlikely Fox would offer his blessing. Nonetheless, MacBeth says she will press ahead with a proposal for the committee to issue subpoenas. “I will be presenting it as soon as I have it drafted with a request that it be put on the agenda for a vote,” she says. "I can't speak for the speaker."

In calling for subpoenas during an Oversight meeting Wednesday, MacBeth pointed to redactions in documents obtained from the state Economic Development Corporation. She says she'd also like to hear from key figures in the 38 Studios deal, possibly including former governor Don Carcieri.

Oversight Chairman Michael Marcello (D-Scituate) responded that the committee has gotten "thousands of documents, pages of documents, already without issuing a subpoena. I believe that she [MacBeth] is misinformed in that she thinks somehow a subpoena is magically going to turn up documents that we didn't get. I think that if we were to issue a subpoena we're going to get the exact same documents that have already been produced."

Marcello is a member of Fox's leadership team; MacBeth has emerged as a vocal critic during House debates.  

Marcello maintained: "A subpoena is a tool. In this case I think it would be a wasted tool."

Meeting in the Senate hearing room at the Statehouse, House staffers presented details on documents related to the EDC's Jobs Creation Guaranty Program. A few of the noteworthy takeaways:

-- The EDC didn't adopt rules and regulations for the Job Creation Guaranty (JCG) program until July 25, 2011, the better part of a year after 38 Studios received its $75 million loan guaranty through the program.

-- More early signs of trouble. As part of an audit report on June 24, 2011, PriceWaterhouseCoopers wrote, in part, "These circumstances raise substantial doubt about the company's ability to continue as a going concern."

-- Despite that, the EDC discussed the deal with 38 Studios only four times between November 2010 and an emergency meeting between company officials, Fox and Governor Lincoln Chafee in May 2012. The company later laid off its workforce and went bankrupt, leaving Rhode Island taxpayers on the hook for close to $100 million.

Marcello offered this reaction to the latest in a string of indications about questionable or absent oversight of Rhode Island's investment in 38 Studios: "I find it hard to believe that there wasn’t more of a proactive approach to keep the board member informed as to what was going on. Again, four meetings over a three-year period, I think. To me, it’s just unacceptable on a program that had so much riding on it for the benefit of the state and the taxpayers."

Earlier, Fox's spokesman, Larry Berman, told RIPR that to the best of his knowledge Fox hasn't been contacted by the US Securities and Exchange Commission about its investigation into the loan guaranty for 38 Studios. The story was first reported Tuesday by Ted Nesi and Tim White of WPRI-TV, Channel 12.

Marcello, too, says he wasn't aware of the SEC probe before learning of it from the media. But he points to that inquiry as one of four ongoing efforts that will shed light on 38 Studios. Marcello identified the others as the Oversight Committee, the state's lawsuit over 38 Studios; and the federal bankruptcy trustee.

Marcello appears sensitive to gripes from some Rhode Islanders that a legislative panel won't really take a hard look at a scandal enabled, at least in some part, by the General Assembly. "For anyone to imply the truth isn't going to come out," he said, "they're absolutely wrong."