Scott MacKay Commentary: How RI Pols Provoked Cynicism Over 38 Studios

Jun 9, 2017

Why does the 38 Studios disaster still haunt Rhode Island’s political reputation? RIPR political analyst Scott MacKay has been thinking about the video game company since state police released more documents from the investigation.  


New Year’s Day 1991 dawned cold and sunny at the Statehouse. The snow-coated South Lawn was littered with champagne bottles and spent noisemakers, remnants of the previous night’s revelry.

A new governor, Democrat Bruce Sundlun was about to be inaugurated. But before the pomp and ceremony, nervous Sundlun aides huddled inside the marble Capitol. The insurer for a chain of Rhode Island credit unions had collapsed the day before, leaving  many of these financial institutions broke.

Before the sun set on inauguration day, Sundlun closed the credit unions.  More than 210,000 Rhode Islanders had no access to their money. Checks written on Rhode Island accounts weren’t being honored across the country.  Paychecks were held up. Real estate closings on homes and commercial properties were delayed, savings accounts frozen.

Rhode Island became a national laughingstock. The credit union crisis, as it became to be called, provoked mass demonstrations at the Statehouse and at political fund-raisers.  The raw outburst of anger was unprecedented in the Ocean State’s modern political history.

Sundlun and Smith Hill lawmakers worked on a plan to make depositors whole, reopen the credit unions that were solvent and liquidate others. At the same time, the governor and General Assembly leaders worked to get to the bottom of how it happened.

Sundlun quickly called for an independent investigation.  It was chaired by then-Brown University President Vartan Gregorian. Shortly after, a commission led by then-House Judiciary Chairman Jeffrey Teitz of Newport convened. The commission brought in two seasoned prosecutors from outside Rhode Island.  Commission hearings were televised and the panel drew wide media coverage.

These probes found that insider dealing in the Assembly, reckless loans by bankers and criminal activity had all contributed to the credit union downfall. There were criminal prosecutions. Wrongdoers went to prison, most notably fugitive banker Joseph Mollicone.  And the Assembly enacted new conflict of interest provisions and beefed-up the state Ethics Commission.

``I think the Teitz Commission helped people understand what happened, and that’s what has been lacking on 38 Studios,’’ says H. Philip West, former executive director of Common Cause of Rhode Island and a lobbyist at that time for good government causes.

Forward the reel to 2010, when  insider dealing and wee hours deals at the Statehouse gave Rhode Island the folly known as 38 Studios. This $75 million taxpayer-backed deal for retired Red Sox pitcher Curt Schilling was rammed through the Statehouse at the end of the session by then Gov. Don Carcieri, a Republican, and Democratic House Speaker Gordon Fox. There was scant public vetting of the finances.

38 Studios went bankrupt less than two years later. Taxpayers were left on the hook. There was much finger pointing and blame-laying. But the Smith Hill crowd never did much of anything to get at how this happened and who was accountable.

When  the video-game company went belly-up,  Lincoln Chafee was governor. He made one smart move – to hire lawyer Max Wistow to sue the financial institutions and lawyers who pronounced the deal a good one. These lawsuits have recovered more than $50 million.

When asked why he didn’t push for an independent probe, Chafee, a staunch opponent of the deal,  said he concluded that 38 Studios represented a ``stupid investment’’ but that it wasn’t the result of criminal behavior. Chafee may well be right. Yet, he isn’t a lawyer or law enforcement official, so its foolish to just take his word. He should have established a commission so Rhode Islanders wouldn’t have to just accept his opinion.

Then came a new governor, Democrat Gina Raimondo. During her 2014 campaign she pledged an independent probe of 38 Studios, but upon taking office, fumbled and never did much of anything. Late in the game she filed suit to make grand jury materials public, but even that move has been slapped down by a state Superior Court judge.

Attorney General Peter Kilmartin, was a state representative and part of the Democratic leadership circle at the Assembly when 38 Studios enabling legislation was approved. He never did what he should have: stepped away from this matter by appointing an independent prosecutor to examine the issue.

Neither the House nor the Senate leadership ever put together an independent probe. Fox, who was intimately involved in the 38 Studios negotiations, is now serving a federal prison term for public corruption unrelated to the video game scam. The new speaker, Nick Mattiello, and two Senate presidents, Teresa Paiva Weed and Dominick Ruggerio, all took a pass on an outside inquiry.

Now, seven years after this deal went down, Rhode Islanders witness the daily farce that 38 Studios has become, a box of evidence mysteriously showing up at state police headquarters and the attorney general and the governor ensnared in a legal fight over the grand jury records.

Is it any wonder we can’t “just get over” 38 Studios?

Scott MacKay’s commentary can be heard every Monday on Morning Edition at 6:45 and 8:45 and at 5:44 on All Things Considered. You can also follow his political reporting and analysis at our `On Politics’ blog at RIPR.org