GOP Leaders Blast Stokes’ Firm Receiving Rhode Island Grant Funds

Tuesday, March 15, 2016


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Keith Stokes

Rhode Island Republicans are criticizing General Assembly-approved state grants in light of former Economic Development Corporation (EDC) Director Keith Stoke’s firm receiving money through the Newport Chamber of Commerce — Stokes' employer prior to his ill-fated term with the EDC.

Stokes recently settled with the United States Security and Exchange Commission (SEC) over fraud charges in the issuing of the failed 38 studios bonds.

On Monday, the Providence Journal reported that $225,000 of state grants had been awarded to the Newport Chamber in recent years, who also spent nearly half that amount with the politically connected lobbying firm, The Mayforth Group, where Stokes has been employed following being ousted from from the EDC in 2012

“Keith Stokes was taken out of the EDC. There is so much abuse of the taxpayer in the 38 Studios case and this is just another example.  Is it wrong?  Absolutely,” said Representative Patricia Morgan, who serves as Deputy Minority Leader. “Legislative grants and department grants deserve to be cleaned up -- but this in particular, it should never have happened. Was it to make sure Keith would have money so that he wouldn't testify?  You have to ask questions here.”

GOP Hammers Grants, Leadership Responds

Brandon Bell, Chairman of the Rhode Island Republican Party, said Monday that he believes the current structure of the awarding of the General Assembly grants gives “too much power” - to too few people. 

“Chambers aside, one thing I have to say is that this goes back to the idea that the award process for grants needs better oversight,” said Bell. “It needs to be transparent, and less concentrated. “

“Once upon a time that existed, that people could speak out, now it's just inherently flawed,” said Bell. “It favors political insiders, and favors the favorites with very little discussion at all, and gives too much power to the Senate President and House Speaker.  It’s embarrassing, and It's part of what gives a negative image to Rhode Island politics.”

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Rhode Island State House - grants under fire.

House Minority Leader Brian Newberry questioned the state spending grant money on the Chamber — and the grant system as a whole, given the pressing issues facing the state.

“It's a prime example of our grant systems in general. Sure, it could fall under the umbrella of 'community service grants,' but I’m not sure why our state government is giving money away to private entities,” said Newberry. 

’It’s not the way government's supposed to work,” said Newberry.  “You want to find money to fix roads and bridges? The state grants are the prime place to start for the money.”

In the meantime, leadership at the General Assembly said they would be looking into the situation. 

Senate President Teresa Paiva-Weed, who represents Newport, said Monday that the Senate would be holding hearings on the “objectives” of the community service grants.

"As part of the budget review process, the Senate Finance Committee will be conducting hearings on community service objectives contained within the budget," said Greg Pare, spokesperson for Paiva Weed.

Speaker of the House Nicholas Mattiello issued a similar statement — adding that he would be watching the Chamber grant in particular. 

“As part of the budget process, the House Finance Committee, though its subcommittees, will hold hearings and scrutinize all community service grants.  This particular grant has gotten my attention and I will personally look at it after the hearing is completed," said Mattiello. 

Main Photo: Flickr/BlackInk


Related Slideshow: Seven 38 Studios Facts You Would Not Believe

Here are the seven facts that you would not (want to) beleive about the 38 Studios deal.

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Meetings Started a Year Before When We Were Told

The first story was that Governor Carcieri went to a fundraiser for a WWII Veteran’s event at Curt Schilling’s home and that served as the spark to a meeting between Keith Stokes and the 38 Studios officials to try and lure the company from Massachusetts to Rhode Island.

Then, it was disclosed that meeting Speaker Fox had had meetings earlier in the spring through his relationship with his close friend Mike Corso.

In the documents released Thursday, Bill Murphy attested to how he sat in on a meeting with Corso, Fox and Curt Schilling while he was still Speaker.

But now, emails starting in July of 2009 between Corso and 38 Studios’ Tom Zaccagnino show the wheels were put in motion even earlier than we thought.

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If Not for RI, 38 Studios Would Have Closed Within 1 Month

If RIEDC had turned down the deal in July 2010, documents released showed that 38 Studios would likely have missed making payroll the next month.

In a July 7 email from Rick Wester to Tom Zaccagnino, he wrote, “The latest would be the August 15th payroll at this point. I’m having doubts we can get through the 30th."

The RIEDC board approved the $75 million in bonds on July 26.

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The Original 38 Studios Deal Was Small and Inexpensive

An internal email at 38 Studios dated February 18, 2010 outlines a Rhode Island staffing plan starting at 10 employees in 2010 and increasing to 40 in the future.

However, RIEDC mandated a high staffing level and thus a high burn rate. 

For 38 Studios to receive its last payment the RIEDC agreement required staffing to elevate to 450 headcount.

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38 Studios Knew RI Money Was Not Enough to Fund the Company

An email exchange between top 38 Studio leadership and Mike Corso, confidant to Speaker Gordon Fox, in preparation to meeting with the RIEDC Board led by Governor Don Carcieri showed that 38 Studios wanted to keep certain financial realities under wraps. 

Tom Zaccagnino wrote to CEO Jen MacLEan, CFO Rick Webster, and Corso, “I really don’t think we should highlight the fact we might be undercapitalized…won’t go over well with staff or board."

Two and a half weeks earlier EDC Board gave preliminary approval and on July 26, the RIEDC Board gives final approval to the $75 million.

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Style Over Substance

In October of 2010, RIEDC was preparing a public relations strategy because “the Gubernatorial candidates have politicized the 38 Studios deal.”

The Strategy document outlined the key messages, and the need to  “accelerate development of an in-depth Providence Journal story, including offer of access to Board members. The Providence Journal team will be Andy Smith, Paul Grimaldi and Business Editor John Kostrzewa — we will push for Neil Dowling’s inclusion.”

At the same time as EDC was rolling out its PR strategy to sell to the public value of the 38 Studios deal, 38 Studios internal documents showed that the company was tittering on financial collapse.  In fact, a demand for payment from Speaker Fox’s confidant for a $500,000 payment could not be met because it would cripple payroll.

An October 27 internal memo from CEO Jen MacLean to Schilling, Zaccagnino, CFO Rick Wester, and COO Bill Thomas said, “After running payroll, we have less than $500K in our Maynard accounts. We simply can’t pay Mike before the bonds close, no matter how much he might wish otherwise.”

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The Deal Was Done Before Anyone Could Imagine

How deep were top EDC staff in on the deal to fund 38 Studios?

In an April 12 (2010) memo from RIEDC’s Michael Saul to Mike Corso and RIEDC’s attorney Rob Stolzman, he proposes “Determine whether any local institutions (RISD endowment, RI Foundation, Hasbro, Brown endowment, State Pension fund, etc) would commit to purchase a share of bond issue.”  This is just one of ten “to do’s.”

EDC’s top staff were strategizing on how to sell the bonds, months before the bill ever hit the House floor for consideration. 

This April 12 strategy session was supposedly just a little over a month after Governor Don Carcieri and Curt Schilling met and two months before the loan guarantee program is signed into law.  

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Did Rhode Island Pay for Improvements at Corso's Bar

In one email in May 2011, Mike Corso alerted top 38 Studio officials of over $600,000 in change orders to the build out of the Empire Street 38 Studios’ offices.

The change orders Corso pushed for increased the cost of contractor Nappa Constructions’ project cost from $10.9 million to $11.6 million. As GoLocal reported in 2014:

A former subcontractor for 38 Studios is alleging that his firm was ordered to work on former Speaker of the House Gordon Fox's business colleague Michael Corso's bar as part of their contract - and has produced what he says is documentation to prove it.

Project manager Michael Rossi with SyNet, Inc. has revealed a budget for work which he says shows at $25,000 line item for work to be done at Corso's Tazza Cafe in 2011 -- under a job order for the failed 38 Studios.

Warwick-based SyNet bills itself as "the premier design-build low voltage contractor of structured cabling, access control, surveillance and audio visual systems in the Northeast."

"I'm changing everything on job -- these were all no bids. Nappa construction picked Rossi Electric. I realize the job can't be done the way it's designed," said Rossi. "The money was getting kicked back in the form of goods and services to Corso and Fox. I said I'm not doing this. I knew I was getting set up for jail with this. I went out on sick leave, I was done."


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