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Moore: Speaker Mattiello Should Resign Over 38 Studios

Monday, September 28, 2015

 

Last week, US House Speaker John Boehner announced that he was stepping down in October. Given the recent 38 Studios developments, the time has come for Rhode Island House Speaker Nicholas Mattiello (D-Cranston) to follow suit.

You won't hear this from the average Rhode Island boot-licking, kowtowing, power worshiping hanger-on who is afraid of the state's most powerful politician. But someone has to keep it real. Let's face it: House Speaker Nicholas Mattiello has abdicated his responsibility to protect Rhode Island taxpayers—not once, but twice.

It's only natural that he should now abdicate his office. The new revelations show us that the 38 Studios scandal was much more nefarious than we were led to believe, and Mattiello, due to his position, was in the thick of it. He no longer has the moral authority to lead the House of representatives.

Incompetence or Culpability

We need to remember that Mattiello was House Majority Leader when this travesty passed the state legislature. That's the body's second highest ranking member! It’s been revealed this week, that former House Finance Chairman Steven Costantino orchestrated a massive act of deception when he kept the rank-and-file members of the House in the dark with respect to what the loan guarantee would be used for. Costantino knew all along that the money was going to Curt Schilling’s ill-fated video game company but kept it a secret.

But here’s the thing: Mattiello was actually in a higher leadership role than Costantino during the time the former House Finance Chairman was going around fooling all the other members—at the behest of Gordon Fox, the House Speaker (number 1 man).

That can only mean one of two things. Either Mattiello knew what was going on and is just as culpable as Costantino and Fox. Or, he didn’t. And if he didn’t, that just shows us how easily Mattiello can be played for a fool and easily duped on vital issues like a $125 million loan guaranty. That's not the guy I want leading the House of Representatives. And I believe the majority of Rhode Islanders would agree.

I’m not sure if incompetence or culpability is worse. Probably incompetence, but in any event, the situation reveals that Mattiello is not qualified to lead the House of Representatives.

Protecting Wall Street, Fox, and Costantino

In a move that's just as incompetent as the vote to create this ridiculous investment scheme that benefited Fox’s cronies, Mattiello has insisted on paying back these ill-fated bonds, which were sold under the auspices of fraud. And Mattiello hasn’t even waited until the necessary investigations were performed and completed so that Rhode Islanders know why and what they’re paying for.

The total cost of the bailout will cost RI taxpayer's somewhere around $100 million when the interest payments are factored.

Now that some facts have to emerge, thanks to the unsealing of depositions from the civil case, it's become evident that this deal was passed thanks to fraudulent statements, subterfuge, and downright fraudulent behavior. It would be nice if we knew all the facts before Rhode Island’s beleaguered taxpayers were forced to pony up the cash.

Built on Lies, Distortions, Possible Fraud

Mattiello's old associates like Fox have been shown to have lied about the timeline of the deal--telling the public that they believed they were creating a loan guarantee program, when in reality, they were all too well aware of the plan to bolster Curt Schilling's company. That plan was always doomed to fail. A document prepared by 38 Studios executives showed that the company was going to have expenses of $92 million over the three-year period that the $75 million investment was made.

As I wrote last week, the only reason companies go begging for government venture capital investments is because they can't find financing on the open, private market. And the reason they can't find financing is because they're not a good investment. This case was no different.

Had these details been made public, the outcry would have stopped the deal dead in its tracks. That's why 38 Studio's Board member Tom Zaccagnino advised that deception be used to make sure the deal became a reality, as GoLocal reported last week.

"I really don’t think we should highlight the fact we might be under-capitalized…won’t go over well with staff or board," Zaccagnino wrote to CEO Jen MacLean, CFO Rick Webster, and Fox's crony Michael Corso.

A Real Investigation

Speaker Mattiello has added some serious insult to injury by cowering before the ratings agencies. He claims that he's concerned about the state's credit rating. But that's never been too much of a concern for legislative leaders in the past. Rhode Island has one of the highest debt per capita ratios in the country, and it we were really concerned with credit, they would have made sure that that's not the case.

(Not to mention that the 38 studio's debt is not an actual debt of the Rhode Island taxpayers.)

Here's the real reason Mattiello and his lieutenants want to bail out the 38 studios bondholders: they're worried about an actual investigation. If the insurance company was left holding the bag (the bonds were insured), then insurance companies would conduct an investigation that would have revealed even more information than the state's civil suit.

An Instrument to Enrich Themselves (At Our Expense)

Another thing that's crystal clear from the release of the previously sealed 38 studio's deposition documents stemming from the state's lawsuit against the company, it's that it highlights how so many of Rhode Island's elected officials view the state government.  

They see state government as a mechanism to make themselves and their friends rich at the expense of the people who aren't connected to the government. All the talk about helping the masses is downright laughable. And they're not afraid to lie or try and cover things up either.

The situation is enough to make you cry harder and more often than John Boehner.

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: 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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1.

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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2.

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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3.

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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4.

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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5.

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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6.

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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7.

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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