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House Leader Backtracks on 38 Studio Hearings

Tuesday, January 22, 2013


One day after news broke that House Oversight Committee Chairman Michael Marcello was planning to hold a hearing on the state’s Economic Development Corporation, and the actions that led to its guaranteeing of a $75 million dollar loan to 38 Studios that appears all but lost, Marcello has backtracked from the initial reports and now says the hearings aren’t meant strictly at evaluating 38 Studios but are geared toward the EDC as a whole.

“It is not my intention to go on a witch-hunt for those involved in 38 Studios,” he said. “It’s more my intention to figure out what the state government did wrong or what we did right and build on that and if we have to put in some legislative checks or regulatory checks as a result of those hearings, to repose such things.”

It’s no secret that the controversy surrounding 38 Studios has been a black eye on the EDC since news broke last June that the Curt Schilling-backed video game would be filing for bankruptcy and going out of business, leaving taxpayers to foot the bill for the money the company was given.

In fact, for months the topic dominated headlines and became a key talking point in November election races for candidates throughout the General Assembly.

It’s no surprise then that Marcello’s announcement that the House Oversight Committee had intended to find out what happened, what went wrong and what can be done to prevent the next bad loan from occurring would raise eyebrows.

But Marcello insists that the hearing itself will not be just about the former videogame company. There’s no doubt, however, that the topic will be a key point of debate as committee members discuss the past, present and future of the EDC.

And what impact that has on the state of Rhode Island’s lawsuit against those involved with 38 Studios remains unclear.

“Well, the objective is not necessarily to focus on 38 Studios but to focus on EDC’s operation as a whole,” Marcello said. “And to figure out whether or not they have the appropriate staff or technical knowledge or resources to do the job they’ve been entrusted to do. It’s more on that broader topic and of course 38 Studios is going to have to be a part of that but it’s not going to be the sole focus.”

According to Marcello, who is the chairman of the oversight committee, the plan is to look at 38 Studios as a “symptom of a larger cause” of the problems at the EDC.

Marcello says the focus will be on the operations of the EDC in general with a special look paid to the staffing currently in place and their technical skills.

He admits that there’s no way to have a discussion about the corporation without bringing up 38 Studios as a method of evaluation but cautions that the hearing isn’t meant to focus just on that one specific action or decision by the committee.

“You have to understand there’s already been a federal investigation on it that has turned up nothing,” he said. “And there’s a current civil suit going on which is still pending so I obviously don’t want to do anything that could interfere with that litigation.”

The biggest question surrounding the hearings will be whether or not the committee seeks out testimony from witnesses regarding how and why Schilling’s company was given the loan.

So far, Marcello won’t commit either way as to the possibilities that key individuals like Michael Corso, a top tax credit broker who was at the center of the loan agreement with BankRI, Schilling himself or former Governor Donald Carcieri would be brought in to testify.

If they are, and if they’re sworn in on record, the ramifications could be huge as the state pursues its case.

“To the extent that past members can shed some light on what they feel were the weaknesses or strengths of the EDC were at the time that this was approved and other loan programs were going through it, I think that would be valuable,” he said. “But it all depends on what the documents and our review shows. We were all focused on 38 Studios but there were other loan programs that EDC runs that, according to the press, have defaulted in the past and we want to look at that as well. It’s just not on 38 Studios.”

What effect doing so would have on the state’s case against those involved remains unclear and, according to the state’s attorney Max Wistow, it’s too soon to say how things might play out.

“I heard about it for the first time today and I’m planning on contacting them and trying to get a better understanding of what they plan to do,” Wistow said, withholding further comment until the committee’s plans take further shape.

Governor Lincoln Chafee, a vocal opponent of the loan to 38 Studios before they were approved, has said that he’s not “opposed to the hearings” but concedes that there are some concerns that the State Police have expressed because of the timing of their investigation and the fact that such hearings could potentially create a “double record” of testimony.

“The governor would leave that determination to the legislature, believing that they should consider strongly the concerns that law enforcement have” Chafee spokeswoman Christine Hunsinger said.

Marcello said he doesn’t know who might be called to testify and whether or not anyone will be subpoenaed or given immunity but says the committee plans to tackle the issue of the EDC right after it gets done addressing the problems the state faced on Election Day.

“We’re very early in the process,” he said. “This is going to be a two-year committee and I’m expecting to be the chairman for the next two years. I’m looking at it over a two-year cycle and we’re going to get our feet wet with elections and then work our way up to some of the more complex topics.”

Marcello says he expects that the committee will start with a document review and a look into staff at the EDC and see where the hearings go from there.

“From there, we’ll decide who we may or may not need to call,” he said. “It’s really premature to answer if we’re going to be swearing in people. We’ll start with a document review, we’ll look at some of the public record and from there, we’ll formulate our questions and figure out who we may need to clarify some of the information that’s contained in the documents or in the public record.”

Marcello insists the purpose of the hearings is to stop something like 38 Studios from happening again.

“That’s the ultimate goal,” he said. We want “to make sure that something like this doesn’t happen again so that taxpayers will not be on the hook.”


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