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NEW: Block Calls for Halt on 38 Studios Bond Payments

Monday, May 12, 2014


Ken Block

Republican candidate for Governor Ken Block has called for legislative leaders to reject repaying the 38 Studios bonds.

Block's Statement

“The latest version of the debate is once again boiling down to who deserves to be protected—38 Studios bondholders or the taxpayers of Rhode Island,” said Block.

"Wall Street insiders want to protect bondholders and force states like Rhode Island to stand behind ‘moral obligation bonds’ under any circumstances. The ongoing legal challenges and scandals continuing to swirl around the 38 Studios deal necessitate a halt in paying off those bonds.

“38 Studios was a bad deal and a bad investment from the very beginning and now Rhode Island taxpayers are being asked to take the hit for bondholders who should have known better. Taxpayers are essentially being asked to assume all the risk, even though bondholders should have known the state might never stand behind the bonds given the controversial nature of what happened in 2010. And three of the four gubernatorial candidates in 2010 were against this deal from the beginning.

"As long as there are serious legal questions still to be decided, we need to stop the repayment process. Just last week, we heard new revelations about lobbying irregularities around 38 Studios and the State Police have launched an investigation into that.

“The 38 Studios legislation came under fire immediately after it was passed as part of a late night, end-of-session deal which left many Representatives and Senators saying they were unsure what they were voting for. That alone should have been a strong signal to bondholders and the financial markets that the state would not make good on the bonds. Add to that the questionable nature of the entire 38 Studios enterprise, a company in a hit-or-miss industry run by someone with no business experience, and you have a highly risky investment.

“The threats coming from Wall Street insiders of dire consequences for the state if they fail to make good on the 38 Studios bond is an attempt to shift the risk of that investment onto the state’s taxpayers instead of where it belongs—with the people who bought the bonds. The state has the opportunity to send a strong message that these particular bonds are not the same as other bonds issued by the state due to the irregularities of the deal.

“The next Governor will have an opportunity to set a new tone of effective leadership and address whatever concerns the financial markets may have about the 38 Studios situation. My message will be that Rhode Island will stand behind its debts while fighting for the interest of our taxpayers above all else.”


Related Slideshow: INVESTIGATION: Fox, Corso and 38 Studios

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The Early Years

Early 2000s

Fox was emerging as a powerful leader in the House via his role on the Finance Committee and later as Finance Committee Chair. Corso served on the management team at developer's Buff Chace's Cornish Associates.

The two worked together to write and pass the Historic Tax Credit Legislation.

Bio attached from the early 2000's - Cornish Assoicates Website.

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Insiders Had Hands All Over Schilling’s 38 Studios Deal

The owner of the construction company that was awarded a contract to work on the interior of 38 Studios’ downtown headquarters has close ties to House leadership and other prominent local politicians, GoLocalProv has learned.

Steven Nappa, who owns Nappa Construction Management, has contributed over $16,000 over the last decade to top politicians including House Speaker Gordon Fox, Congressman and former Providence Mayor David Cicilline, Providence Mayor Angel Taveras, former House Speaker William Murphy and former House Finance chairman Steven Costantino. In June 2011, Nappa also contributed $1,000 to the Fund for Democratic Priorities, a political action committee maintained by House leadership.

Nappa is also connected with Michael Corso, a Providence lawyer who has made a fortune helping to sell state tax credits and was involved in the earliest meetings between Schilling and Rhode Island officials. The two hosted a private fundraiser at the Peerless Lofts for then-Majority Leader Fox in 2007. Nappa also helped build the movie screen located in the open space next to Tazza, the downtown café owned by Corso.

Corso himself has contributed $11,625 to Fox, Cicilline, Taveras, Murphy and other local politicians in recent years.

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Movie Tax Credits

Corso and Movie Tax Credits

The Providence lawyer who pledged more than $14 million in Rhode Island motion picture tax credits that had not actually been issued as collateral in order to obtain an $8.5 million loan for Curt Schilling’s 38 Studios is now playing a behind-the-scenes role in a Michael Corrente movie that is slated to receive $625,000 in state tax credits, GoLocalProv has learned.

Michael Corso, a top tax credit broker whose loan agreement with BankRI is among several 38 Studios-related matters currently being investigated by state and federal authorities, is one of seven producers for “Backmask,” a horror film currently being shot in Exeter, according to IMDB. Corso’s business partner, Anthony Gudas, is listed as the executive producer and former State Rep. John Loughlin has a small role in the film.


On Monday, the Rhode Island Film and TV Office confirmed the film has received an “Initial Certification Letter” for the tax credits. Corso did not respond to a request for comment.

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Tazza Fundraiser

Questions Surround Speaker Fox’s Relationship with 38 Studios Insider

Several weeks after initial inquiries from GoLocalProv, House Speaker Gordon Fox still isn’t answering questions about a 2007 fundraiser held for him by the lawyer who would play a pivotal role in bringing Curt Schilling’s 38 Studios to Rhode Island three years later.

In March 2007, Michael Corso, Steven Nappa and Robert Britto of Nappa Building Corp. and former State Representative Ray Rickman were listed as the hosts of a private fundraiser held in the Peerless Lofts for the then-Majority Leader. The event, which helped Fox rake in approximately $10,000, was catered by Tazza, the downtown café owned by Corso.

But while Fox’s campaign finance reports from the time include details about several other fundraising events held during the first quarter of 2007, there is no information listed about expenses incurred for the Corso-hosted event, which may constitute a campaign finance violation.

“Speaker Fox has been extremely busy entering the final two weeks of the session, but he will soon be checking the campaign records from five years ago,” Fox spokesman Larry Berman told GoLocalProv on June 4. “If corrections are necessary to the report, he will make them.”

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Fox and Corso

38 Studios Insiders Have Been Connected Since May 2009

The lawyer at the center of the deal that brought Curt Schilling’s 38 Studios to Rhode Island had a business relationship with a top executive at the video game company a year before a piece of legislation that expanded the EDC’s Job Creation Guaranty Program was pushed rapidly through the General Assembly.

On May 29, 2009, Michael Corso, a top tax credit broker whose relationship with House Speaker Gordon Fox helped steer 38 Studios to the Ocean State, struck a deal to purchase credits handed out for the multi-million dollar Stone House hotel project in Little Compton from the Round Pond Management Corporation, whose President was Tom Zaccagnino.


By June of that year, Zaccagnino, who was also the co-managing director at the Wellesley Advisors Corporation in Maynard, MA, had become Vice Chairman and Lead Director of 38 Studios. A month later, Haymarket Capital, an LLC with the same address as the Wellesley Advisors Corporation, was involved with the seven-figure bridge loan a group of Rhode Island investors provided to 38 Studios.

In March of 2010, Zaccagnino and Schilling met with Speaker Fox and former EDC director Keith Stokes in Corso’s downtown law office. By May, the General Assembly had expanded the EDC’s loan guarantee fund from $50 million to $125 million, the exact amount the EDC awarded to 38 Studios later that summer.

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Crony's Bar

38 Studios Contractor Ordered to Install Equipment in Fox’s Crony’s Bar

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."
Representative Mike Chippendale, Senior Deputy Minority Leader and Secretary of House Oversight who is leading the investigation into 38 Studios along with Rep. Karen MacBeth, told GoLocal, "[Rossi] has hit a number of things on the head, things he wouldn't have been able to have known otherwise. He was able to validate some things, and the State Police has said they have determined the [budget] document has credibility."
"We're moving in the right direction," said Chipendale, who along with Macbeth have both been the target of mail threats in the past month. "We've kicked the hornets' nest."
Rossi said when he was working at SyNet, he was aware the 38 Studios work could be a possibility. "When my boss called me to say we got the project, that I was going to oversee the [network infrastructure] work, I thought, "Wow...38 Studios. This is big."
"As soon as I started working, they told me to order cable right away," continued Rossi. "I didn't have a permit. Arguments went back and forth. I walk out, I say I don't have a budget, I'm not doing it. I get berated by my boss to get back on the job. Next day, I get the budget, I'm back on the site -- and there are walls up already, with no permits pulled."
A portion of the SyNet 38 Studios budget document with a line item for work on Corso's Tazza bar and restaurant.
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Rhode Island Cartoonist Takes Aim on Fox and Corso

In the midst of Gordon Fox's 2012 re-election effort, he distanced himself from his longtime friend, Mike Corso.

Rhode Island's iconic catoonist took aim at Fox's claim and artfully tied Corso and Fox together.


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Totally agree. Why did the state buy very costly insurance to cover the bond, if there was no intention to use the insurance to cover a default or bankruptcy? Is it possible the insurance company is well connected to RI leaders and the company prefers not to pay the claim?

Comment #1 by Katy Sloop on 2014 05 12

Thank you Ken for being right and forthright about this, and for raising questions about the legal challenges. Katy also asks a good question. Other questions: who got to buy these bonds with interest up to 7.5% or so? (I wasn't offerred the opportunity, I can barely get much more than 1%) When did Fox, Carcieri, Stokes et al level with the public as to what happened? When has Wall St paid taxpayers out of "moral obligation" when they did not have to?
Until all questions are properly answered taxpayers should not repay a dime.

Comment #2 by barry schiller on 2014 05 12

If they knew they were going to pay the bonds....The pension fund should have bought all the bonds!

Comment #3 by Stephen DeNinno on 2014 05 12

@barry schiller. If you are the environmental Barry Schiller, you could have a bigger impact on Rhode Island's economy if you pushed for an immediate moratorium on all DEM regulations with all future endeavors showing economic costs associated with environmental regs. How about no more clean this and clean that without showing associated costs and outcomes.

Comment #4 by Roy D on 2014 05 12

attn. Conservatives ! ! from www.votesamrt.com ...LOL
Ken Block on the issues....LOL
Do you support requiring parental consent before an abortion is performed on a minor? ....NO
Do you support abstinence-only sexual education programs?..NO
Do you support capital punishment for certain crimes?...NO
Should a minor who sends sexually-explicit or nude photos by cell phone face criminal charges?....NO
Do you support expanding the definition of a hate crime to include gender identity? ...YES
Do you support the enforcement of federal immigration laws by state and local police?...NO
Do you support state funding for the development of alternative energy? ...YES
Do you support enacting environmental regulations aimed at reducing the effects of climate change? YES
Do you support restrictions on the purchase and possession of guns?...YES
Do you support allowing individuals to carry concealed guns? NO
Do you support requiring a license for gun possession? YES
Do you support a universally-accessible, publicly-administered health insurance option? YES
Should marriage only be between one man and one woman? ..NO

Comment #5 by Sammy Arizona on 2014 05 13

Ken Block must be Spammy in Arizona's worst nightmare.

Comment #6 by Max Diesel on 2014 05 13

Spammy is an intelligent persons nightmare--a reminder that they too may fall to the ravages of dementia.

Comment #7 by Jimmy LaRouche on 2014 05 13

Barry ,Katy and Ken Block are all correct these bonds are ,as we say in the markets , a "one off" situation and their default will be very unlikely to have a long term effect on Rhode Islands GO ratings or cost of debt issuance....within weeks of default any downgrade discount attributed to GO bonds will disappear in the market place and make Moody's and S&P look dumb. the entire market knows Illinois is junk yet S&P doesnt have the guts to call it like it is. But they look at a very weak Governor in a very small state to send a "message" to the markets. A stronger leader would threaten them right back.
The following items are far more relevant to our credit ratings

1) Underfunded and under-accounted for Pension liabilities at both the State and Municipal level
2) the already extraordinary property tax burden on citizens 3)Unfunded municipal OPEB liabilities totaling over $2 billion ( that's over 25 times the amount of EDC/38 studios debt)
4)the exorbitant level of spending including the over $200 million in non essential spending highlighted by the Center for Freedom and Prosperity

Comment #8 by michael riley on 2014 05 13

M Riley. I agree. RI is already essentially junk bond status, whether the state defaults on these bonds or not. Future bond issuers will already factor in these high risks:

Rampant corruption due to one-party rule
No will to reform failing pension funds
Exodus of large employers
Dwindling population of educated workers
Welfare state policies that drive higher tax rates

Add a 38 Studios bond default to the list, and it really won't make a difference. At least not paying those bonds will give taxpayers some relief and might restore some faith in the system.

Comment #9 by Katy Sloop on 2014 05 13

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