State Reaches Settlement With Last Defendant In Lawsuit Over 38 Studios

Feb 1, 2017

The lawsuit initiated by former Governor Lincoln Chafee has clawed back most of the state's moral obligation from 38 Studios.

The state has reached a $16 million settlement with Hilltop Securities (formerly First Southwest), the last defendant in Rhode Island's lawsuit over 38 Studios.

If the deal wins court approval, there will not be a trial stemming from the state's lawsuit over the 2012 failure of the video game company -- and no testimony from key figures in what proved to be an expensive mistake for the state and its citizens.

In a statement, Governor Gina Raimondo said she is prepared to push for the release of materials from a grand jury probe of 38 Studios: "I am pleased with the proposed settlement of $16 million from First Southwest. But we cannot rest on monetary recovery alone. If the Court approves this settlement, the civil case will end and I will immediately petition the Court for the release of all materials associated with the grand jury investigation of 38 Studios. Rhode Islanders deserve to have access to all of the information that is known. Complete transparency is the best way to ensure that such a disastrous deal never happens again."

But it remains unclear when any documents may be released. The House GOP caucus and House Oversight Chairwoman Patricia Serpa (D-West Warwick) also called for the documents to be made public.

In a statement, Amy Kempe, spokeswoman for Attorney General Peter Kilmartin, responded to those calls with this: "The position of the Office of the Attorney General remains the same:  we consider this investigation open, and all of the rules of the Grand Jury, as well as the protocols and procedures regarding any criminal investigation, remain in effect.  We are not going to comment on the Governor’s intention to petition the Court to release grand jury materials other than to say, we look forward to reviewing her written request to the Court, and will respond accordingly."

Meanwhile, asked if there are circumstances that would lead Governor Raimondo to support an independent probe of 38 Studios -- a concept she backed as a candidate in 2014 -- her spokesman, David Ortiz, offered this response: "At this point, with the transparency promised by the release of the grand jury materials following the civil trial and criminal investigation, we don’t think it would be worthwhile to launch another investigation that could cost taxpayers millions of dollars."

The latest settlement would bring to $61 million the amount recovered by the state from a string of defendants. That includes slightly more than $11 million in legal fees and other costs. The taxpayer obligation for 38 Studios stands at roughly $12.5 million.

Former Governor Lincoln Chafee initiated the lawsuit.

Under the administration of Chafee's predecessor, Donald Carcieri, 38 Studios was lured to Rhode Island in 2010 with a $75 million state-backed loan guarantee. The collapse of the company two years later became viewed as the signal failure of state government in recent history, and it left a chilling effect on state efforts to spark economic development that has abated only in recent years.

Over time, a series of defendants, including former Red Sox pitcher Curt Schilling and other 38 Studios executives, settled with the state, rather than go to trial.

The latest settlement was announced by the state's economic development agency, Commerce RI, which said the recovered money would equal almost 70 percent of approximately $88 million in state moral obligations for the 38 Studios bonds.

Patti Doyle, a spokeswoman for Hilltop Securities, said in a statement, "We have reached a settlement with the Rhode Island Commerce Corporation that once approved by the court will resolve the 38 Studios matter. This resolution contains no admission of liability or wrongdoing and it allows our firm to put this matter behind us and move forward on the important work we undertake for municipal clients across the country."

Commerce RI offered this description of earlier settlements: "The Corporation previously settled claims against Curt Schilling, Thomas Zaccagnino, Richard Wester, Jennifer MacLean, and their insurer, Starr Indemnity and Liability Company for $2.5 million in September 2016; Wells Fargo Securities, LLC and Barclays Capital Inc. for $25.625 million in August 2016; Antonio Afonso, Jr. and Moses Afonso Ryan Ltd. for $4.4 million in June 2014; and Adler, Pollock & Sheehan P.C., Robert I. Stolzman, J. Michael Saul, and Keith W. Stokes for $12.5 million in August 2015."

This story has been updated.