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Moore: Projo Kept Public In the Dark on 38 Studios

Monday, October 05, 2015

 

One of the more interesting questions that emerged in the wake of the release of the 38 Studio's documents from the state's civil suit is whether or not the Providence Journal's actions cost Rhode Islanders more than $90 million.

What's interesting about the issue is that it highlights the importance of the Fourth Estate, and how the press, when it's working properly, can do a great service, especially monetarily, for the general public. And the process is perverted, it likewise does great harm. Journalism matters.

Journalism Matters

Unfortunately in this case, the instance fits the latter category. It's a cautionary tale.  

GoLocal reported this week that the 38 studios documents show that back in March of 2010, almost 3 months before the legislature approved the loan guaranty program that paved the way for the 38 studios investment, a Providence Journal reporter named Cynthia Needham was tipped off that the Curt Schilling led 38 Studios was looking for help. Schilling, who was scheduled to meet with officials from the Economic Development Corporation (EDC), was angry. He feared that the meeting could endanger the deal.

There's a good reason why Schilling would want to keep the deal a secret: it was terrible for Rhode Islanders. Rhode Islanders were to take on all the risk of his private venture, but to reap none of the rewards that a regular venture capital firm would. And even no venture capital firms were interested in investing with the company.

Terrible For Rhode Islanders

Keith Stokes, who led the Executive Director of the EDC at that point, and was one of the biggest cheerleaders of the disastrous and illogical deal, urged Schilling to relax. He told Schilling he could convince the reporter to hold off on the story. He was right.

Melissa Czerwein (then Melissa Chambers) a spokeswoman from the EDC then called the Journal reporter, according to a report, and convinced her to hold off on the story. The story ran two days later, after the meeting was held, and was a short story that was buried on the newspaper's page 7. 

38 Studios Amnesia

Like so many involved in the 38 Studios saga, neither woman can remember what happened at the time of the deal. Czerwein can't remember if she called Needham and asked her to spike the story. And Needham can't remember or won't talk about basically anything regarding the situation.

It's another tragic chapter spawned within saga. One can't help but wonder if the public was made aware of the risky venture that was going to be hoisted upon them, in a major way, if the whole deal would have been stifled. Schilling, according to the emails, certainly wanted to keep the public in the dark to the largest extent possible. If Schilling was right, and public scrutiny would actually have torpedoed the deal, than the Journal's decision to sit on the story represents a grave injustice to the people of Rhode Island.

But the end result isn't as important as the fact that newspapers shouldn't be providing cover for the government. The job of the writer isn't to find out information and only print it if it serves the interest of state leaders, or what they think serves the state's best interest.

Advocate For Transparency

The job of a journalist is to advocate and further transparency in the government. By that standard alone, reporters should never allow government officials to effectively censor them, even for a short period of time. Sunlight is the antidote to corruption. And the first amendment matters.

Yes, the Providence Journal made a huge error that I believe cost the good people of Rhode Island more than $90 million. But sadly, they're far from the only perpetrator of such journalistic crimes. 

In December of 2005, the New York Times reported that the National Security Agency conducted domestic spying on telephone calls without receiving a warrant. The New York Times uncovered the information in 2004, but waited a full year, conveniently for the Bush administration, until after the Presidential elections of that same year, to reveal the information. 

Not The Only Offender

That's the most infamous example, but there have been others. Both situations show that reporters and editors need to remember who they serve, the general public who reads their information--not the government officials they cover. 

In the case of the Providence Journal and 38 Studios, it might not have thwarted the deal. But it might have. 

Russell Moore has worked on both sides of the desk in Rhode Island media, both for newspapers and on political campaigns. Send him email at [email protected] Follow him on twitter @russmoore713.

 

Related Slideshow: SLIDES: The Players in the 38 Studios Saga

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Don Carcieri

The two term RI Governor first elected in 2002 and then again in 2006 -- and was at the helm of the state when he first met Curt Schilling at a fundraiser in March 2010. The meeting is part of the focus of questions of how and when the wheels were put in motion to lure Schilling's 38 Studios to RI. 

The Carcieri administration announced the proposed $75 million 38 Studios deal in June 2010 -- and in November 2010, just prior to the election, the EDC (which Carcieri as Governor chaired) announced the issuance of $75 million in taxable revenue -- i.e. moral obligation -- bonds.  Carcieri is not listed at a defendant in the state's suit, based on immunity, but was deposed in 2014, which could be part of the upcoming document release. 

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Bill Murphy

Questions pertaining to the role of the former RI Speaker of the House -- and when he first introduced key players in the 38 Studios deal in 2010 - remain at the center of attention. 

The former Speaker continues to wield unparalleled influence as a lobbyist and behind-the-scenes king maker.  While he last served as the state's most powerful elected official until 2010, Murphy's ability to exert control at the State House was evidenced by backing now-Speaker Mattiello when the battle to replace Gordon Fox took place.  Murphy's lobbying clients range from the corrections officers to payday lending to Twin River.

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Gordon Fox

The former Speaker of the House, who is currently serving a prison term for using campaign funds for personal expenses and accepting a bribe, is inextricably tied to, and at the center of, the 38 Studios deal -- stemming in part from his close personal ties to former Speaker Bill Murphy and tax credit lawyer Michael Corso. 

More of his role in the ill-fated deal is expected to emerge as documents are released in the coming weeks, as to what he knew when, and his role in driving the deal through -- and who else know.  Fox, like Carcieri, has immunity in the state lawsuit. 

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Michael Corso

The relationship between Former Speaker Gordon Fox and Michael Corso goes back to the early days of both their professional and political careers in the late 1990's after each graduated from New England law schools. Corso joined developer Buff Chace's Cornish Associates - and Fox and Corso both claim to be the author of Rhode Island's Historic Tax Credit Legislation -- which proved to be the ultimate down fall of 38 Studios. 

In March of 2010, Tom Zaccagnino and Schilling met with then-Speaker Fox and former EDC director Keith Stokes in Corso’s downtown law office. Despite the meeting taking place after the legislative deadline, just a few weeks later the loan guarantee legislation was submitted by Fox's leadership team and in May the bill was pushed through the legislature. 38 Studios would receive $75 million in loan guarantees. Following the 38 Studios fallout, Corso's Sakonnet Capital Partners, Reel Capital LLC, and Tax Incentive Partners have all removed his name from the sites. Their offices are all located in the same building as Fox's husband's former salon location - 155 Chestnut Street.

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Peter Kilmartin

The Attorney General, who was in the House of Representatives at the time of the 38 Studios deal, acknowledges that the current state police investigation is "ongoing and active" -- three years after the company went bankrupt, and five years since the original deal.

While his office maintains the neutrality of his position, others question is role in the process.  "AG Peter Kilmartin, being both the person who forced the legislation through as Majority Whip then AND the top law enforcement official of Rhode Island today, needs to step aside," said former RI GOP chair Mark Smiley. "Bring in a special prosecutor, no other investigation will ever be trusted as being thorough enough."

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Nicholas Mattielllo

Mattiello ascended to the role of Speaker following the resignation of former Speaker Gordon Fox -- who had been in power at the time of the 38 Studios deal. 

He has said that he believes the investigatory power lies in the "state police and the courts" -- not the General Assembly. 

"I have had to be patient throughout this process because I have said all along that the best approach is for the Superior Court to unseal the documents and for the State Police to continue its investigation. I have tremendous faith in our State Police as the appropriate agency to pursue criminal activity," said Mattiello. "The General Assembly is legislative in nature. While my focus since becoming Speaker last year has been on passing good budgets that encourage a strong economy, the combined efforts of the State Police and the courts will allow us to uncover the facts to learn from the past and never repeat the mistakes that were made."

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Gina Raimondo

While the bulk of the 38 Studios developments took place prior to Raimondo taking office, she was still ordered deposed back in 2014, which could surface in the upcoming release of court documents.

Meanwhile, Raimondo -- and the state -- continue to use First Southwest, a defendant in the state's law suit.

"The architect of Governor Gina Raimondo’s truck toll infrastructure plan is the same firm that the State of Rhode Island is presently in litigation against for its role in the state’s loss of over $100 million in the 38 Studios collapse."

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Lincoln Chafee

The Governor of RI from 2011 through 2015 was originally opposed to the $75 million 38 Studios deal back in 2010, blasted critics for trying to default on the loans in RI, and ultimately was blamed by Sony for 38 Studios failure. 

Chafee was also blamed by other parties in the state's lawsuit -- and was deposed by the court, which should be released by the court along with tens of thousands of documents in the coming days. 

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Max Wistow

In June 2012, Governor Lincoln Chafee hired lawyer Max Wistow to investigate the 38 Studios deal - and the 17-count suit included RICO, fraud and negligence and also accused Wells Fargo of earning nearly $500,000 in hidden commissions from 38 Studios at the same time that Wells Fargo owed fiduciary duties to the EDC Board to disclose all negative material information concerning 38 Studios’ business plan and financial projections, including the shortfall. 

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Michael Silverstein

The Superior Court Judge, who appointed retired Supreme Court Judge Frank Williams mediator of the state's 38 Studios lawsuit back in May, made the move on Friday August 28 to declare that documents were to be unsealed in the case, no later than ten days after his determination.  

The Rhode Island world -- and beyond - awaits the content of then tens of pages of files to see how lawyers on both sides couched the collapse and demise of the former gaming company, leaving Rhode Island taxpayers to pay off the moral obligation bonds. 

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Keith Stokes

The former EDC Executive Director who oversaw the maturation of the 38 Studios deal in 2010 and was named in the state's lawsuit, reached a settlement with the state along with J. Michael Saul and Adler Pollack and Sheehan on August 9, 2015.  

In December 2014, the Commerce Corporation, after considering the extent of the defendants’ insurance coverage, had made a demand of the four defendants above that they settle for $12.5 million, which was ultimately the agreed upon result.  

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J. Michael Saul

The former EDC Deputy Director was one of the recent parties that settled with the state in August for $12.5 million.

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Adler, Pollock & Sheehan

The law firm of Adler, Pollack, and Sheehan was among the group along with Stokes and Saul who settled in August 2015.  In 2013, the four had responded to the suit, placing the blame of the collapse of 38 Studios on then-Governor Lincoln Chafee for actions -- and inactions. 

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Moses Afonso Ryan

One of the RI law firms sued by Rhode Island's economic development agency over the failed $75 million 38 Studios deal, Moses and Afonso was the first defendant to agree to settle in June 2014 -- for $4.4 million.

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First Southwest

The state, in its pending lawsuit against its financial advisor, alleged the folllowing:

In a sweeping set of allegations made by the state against First Southwest, the 38 Studios lawsuit blistered the firm for failing to protect the state’s interest and for knowingly making false statements.

In the suit, the State of Rhode Island asserted, "First Southwest knew or should have known that the April 1 Projections did not include those guaranty fees and, therefore, overstated 38 Studios’ projected cash flows by those amounts.”

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Wells Fargo

One of the remaining defendants in the state's lawuit.

In 2012, GoLocal's Dan McGowan reported that, "Wells Fargo refuses to comment on accusations that it “secretly” received nearly $500,000 from Curt Schilling’s failed video game company at the same time that it was supposed to sell $75 million in bonds to investors on behalf of the Rhode Island Economic Development Corporation (EDC)."

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Barclays

One of the remaining defendants in the state's lawuit.

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Star Indemnity

One of the remaining defendants in the state's lawuit.

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Thomas Zaccagnino

One of the remaining defendants in the state's lawuit, he was 38 Studios former lead director.

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Jennifer MacLean

One of the remaining defendants in the state's lawuit, she was former SVP of Business Development for 38 Studios. 

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Richard Wester

One of the remaining defendants in the state's lawuit, he was the former 38 Studios CFO. 

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Curt Schilling

The former Red Sox pitcher who created the ill-fated video game company 38 Studios, is one of the remaining defendants in the state's lawsuit -- and had been an ongoing advocate for the release of more information to the public  

When the states' lawyers wanted to unseal only specific pages of the suit back in May, Schilling said, "I am hoping and anticipating that if/when anything is made public, that everything is made public, so the public - and the press - can finally know what happened and why."

With the release of documents expected shortly, more information will soon be coming to light -- tens of thousands pages of it. 

 
 

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