Guest MINDSETTER™ Santos: Reckoning 38 Studios, Conspiracy to Conceal, Careful What You Wish for

Thursday, November 05, 2015


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In recent months public faith and trust in Rhode Island governance have eroded to the point where Smith Hill and Capitol Hill would be competing for dead last, not unfamiliar territory for folks in Rhode Island.  Central to this mistrust is the corruption in the genesis and collapse of 38 studios leaving a $75 Million taxpayer door prize, $110 Million after tax title and interest.  If there were a single moment of post-election optimism, it vaporized shortly after inauguration. Governor Gina Raimondo, and House Speaker Nick Mattiello confirmed their political promise and commitment to publicly vett 38 Studios wasn’t worth a single Buffalo Nickel.  The public reaction from their one-eighty reversal has been Bear Ugly. Rhodeworks 2.0 and the PawSox relocation respectively Raimondo’s and Mattiello’s legacy public spending projects have taken a relentless public beating.  Leadership on the Hill can’t propose a public spending proposal without taking fire from an angry electorate who’ve been characterized as petulant children paralyzing an economy already circling the bowl and unwilling move forward and let the corruption of 38 studios go. The efforts good government groups and thousands of Rhode Islanders to pressure leadership and the rank and file to call for an independent investigation stop short of of asking ….  Who and What is Smith Hill Leadership protecting?  

Occams Razor

This loosely stated scientific argument claims the simplest explanation or conclusion is usually the correct one.  Leadership’s refusal to publicly vett the corruption of 38 Studios opens the consideration to an alternate and unthinkable conclusion that an independent investigation will expose a level of public corruption far deeper that we already know and that number of prominent lawmakers and public officials implicated would make PlunderDome look like a Downhome block party solidifying Rhode Island’s reputation as the “Brown Bag” state.      

Arguably the basis for this conclusion is circumstantial but leadership’s reticence and lack of transparency in all things 38 Studios makes for a compelling argument to reckon “Leadership’s need to protect the Political Hierarchy and the reputation of the state  (such that it is) supersedes the public’s right to know the truth.” ** Not every conspiracy is criminal that is a distinction drawn by profit. It is fair to reckon though to wrangle vote on the chamber floor to hike RIEDC’s capital bankroll to $125 Million to covertly earmark $75 Million for a single private entity insure passage with zero amendments was beyond then Speaker Gordon Fox skill set to orchestrate solo. Additional ground support would be needed to insure passage with little or no ruckus on the house floor. Two or more lawmakers engaged in this deception would constitute a conspiracy. ** From the Smith Hill Chamber floor you’d be hard pressed to swing a dead cat and not strike one of  75 Lawmakers including Speaker Mattiello  who’ve publicly stated they were deceived and duped into voting to raise RIEDC’s ceiling to $125 Million under the guise of a jobs program.   

Notwithstanding a bit of dramatic license, despite numerous petitions, emails, and angry calls from constituents not one lawmaker has stepped forward to challenge leadership or rank and file members to engage an independent investigation.  Begging the question, if there was no wrongdoing on the part of any lawmaker including the House Speaker, why would they not come forward on the record offer their deposition? ** The major focus of this scandal has been the Genesis of 38 Studios, however the Collapse falls to former Governor Linc Chafee’s watch.  Prior to Chafee’s election to warm the seat of Governor he vehemently opposed the shotgun marriage of 38 Studios to the State. His post-election claim he was 38 Studios “biggest cheerleader” however doesn’t reckon with his actions.  Chafee served as chair and head honcho of RIEDC for 17 months prior to the collapse. It was his charge and that of RIEDC to monitor 38 Studios financial health. The mandated accounting oversight by IBM never happened and several independent accounting reviews raising Red Flags that their flagship product would never make it to market were dismissed. The argument has been made that the $500K insurance premium paid to Assured Guaranty ltd should have squared the bond holders taking taxpayers off the hook for $75 Million however that was contingent on compliance with the accounting mandates outlined in the legislation.  

Before writing that check a stable of Assured Guaranty lawyers and forensic accountants would be camped in the lobby of RIEDC and 38 Studios sifting thru every receipt and document.  A case for malfeasance would no doubt be made voiding payment to the bond holders leaving taxpayers with the $75 Million tab.  The annual $12.5 Million bond a line item that must be approved in the budget every year repayment has been a critical element in containment.  A default would trigger an investigation by Assured Guaranty into the failure of 38 Studios and in turn open the floodgates to a cradle to grave investigation. ** Leadership in the General Assembly is not beyond eating their own.  During the June 2013 Budget hearings the East Bay Gang of 8 leveraged their approval of the $12.5 Million bond repayment to kill the embattled toll plan of the Sakonnet Bridge. 

Their victory however was short lived.

The Sakonnet Toll Double Cross

Before the ink was dry on the approved budget, then House Speaker Gordon Fox (now spending quality time in Club Fed on unrelated charges) allowed a trailer bill on the floor to re-establish 10 cent placeholder toll on the Sakonnet River bridge.  House leadership managed to keep their prize and  the secrets of 38 Studios would be contained for another year. ** Though Governor Raimondo played no part in this scandal, a public corruption scandal of this magnitude exposed on the Raimondo watch nonetheless will seriously impact Governor Raimondo’s RhodeMap to Washington.      

Since the 38 Studios civil litigation document dump just south of 40K pages, efforts by Raimondo and Mattiello to stall public vetting has been erratic and reactionary.  

The sheer volume of information alone demands an independent investigation, yet leadership continues to resist.  Cracks are appearing in Speaker Mattiello’s public disposition giving way to a shorter fuse and the occasion to self-contradict in the same breath.  The Speaker has changed positions on 38 Studios oversight as many times as former Governor Linc Chafee has changed political parties. The mission statement of the resurrected House Oversight Committee looks to be narrow in scope and will not pursue criminality.  A great sigh of relief could be heard on Smith Hill following oversight chairperson’s Karen MacBeth’s opening and closing statements. Governor Raimondo declared cost for an independent investigation would be too expensive making for an interesting argument considering her RhodeWorks 2.0 infrastructure proposal borrows $500 Million with a 30 year $1.1 billion taxpayer payback.  Passage of RhodeWorks 2.0 no doubt puts the polish on Raimondo’s Washington resume’ while creating a 10 year Stimulus package for Labor.        

It’s fair to say more than a few members on the Hill will dismiss this post as unfounded conspiracy theory.  There’s a fine line between conspiracy theory, and reality and that begins with a public reckoning of this scandal.  There’s yet to be a Spartan to emerge from the General Assembly rank and file to challenge leadership, that task has fallen to the electorate hell bent on knowing the truth.  That said while the good government folks and electorate continue to pound on the doors of Smith Hill demanding truth and accountability, be careful what you wish for, the swamp may be deeper than you think.

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Tony Santos is  Editor, Writer, and MuckRaker for, a Politically Incorrect, Cast Iron Conservative Blog Outpost


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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