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Riley: I Reject the Findings of 38 Studios Hearings - Part 2

Wednesday, October 28, 2015

 

Hearings are apparently approaching in the Rhode Island General Assembly’s on 38 studios. This “restart” is the result of public pressure and I am reticent to shoot down this lonely attempt to investigate the obvious State House corruption. But I am not at all confident that the 38 Studios corruption and cover up or any of the other abuses will be addressed in this forum. Most Rhode Islanders know that corruption in this State runs deep and like me will not likely be happy regardless of the findings here.

This investigation by House oversight is still being heavily influenced by the same insiders who are very likely to be neck deep in corruption. Attorney General Peter Kilmartin knows and worked with almost all the usual suspects, he should definitely be separated from this investigation and replaced by an independent investigator. The same applies to Speaker Mattiello. No amount of “slow go double talk” can erase from our collective memories his 2 years or so of contortions to do anything except investigate. The worst taxpayer rip off in 100 years and he won’t investigate.  Mattielo does not want it, never did.” Move on” he says.  Why should we trust him? Some very important findings would have already been made Public had not Mattielo dragged his feet and  our “Block of Granite” , as well as  Raimondo and Weed and their usual group of insiders not thwarted the natural course of events.

What should have happened upon default?

It’s really very simple. When 38 Studios defaulted, these insured bonds had their own protection. Go to the insurer.  There is no reason whatsoever that Rhode Island individual taxpayers were held responsible. This “insurance avoidance” was the designed outcome of insiders trying to cover their tracks. The whole story of a “moral obligation” was also trumped up as a reason not to investigate. All the insiders then circled the wagons, in order to protect Major state players and political donors from the sunlight that would have been produced by Assured Guaranty Corp implementing an investigation. Instead the Insiders imposed on us a “moral obligation” to pay. That moral obligation did not exist.  Given that this is the scenario and that we are dealing with scoundrels, the back room manipulations still facing the House Oversight committee are likely to be substantial.  I think I can safely say that “I hereby reject the findings of Karen Macbeth and her committee.”  Karen and several members of that committee are heroes for sure but she’s dealing with corruption at the top levels.

Its now been 3 years since Granite Chafee lied about a forensic investigation and a year after Raimondo’s lie about firing First Southwest securities and investigating 38 Studios. AG Kilmartin flip flops from day to day on whether he is investigating 38 Studios. These leaders have concocting their strategy and  their phony story about bond ratings have managed to avoid any investigation and at the same time protected Moody’s horrendously negligent  AA+ rating. Isn’t that convenient?

What do we want to know?

Setting aside whether Chafees  lawsuit, on behalf of the State  in 2012 ,against the EDC and all the associated  counsel re 38 Studios , was a granite headed move or not. It was clearly also a political survival move and just plain dumb. Lincoln Chafee repeatedly referred to his belief that this lawsuit  was the only way to “get the money back” Really ?  Ok, so I know he’s stupid but these bonds were insured. End of story.  What counsel advised him this was the only way to get the money back? Could it be the same lawyer making millions now 3 years later?

Who bought these privately placed bonds and who managed to sell a $1.2 million dollar chunk the day before 38 Studios shut their doors? http://www.golocalprov.com/news/38-studios-insider-trading-questions-raised-with-sec  ; Both Ken Block and Allan Fung asked that question. Peter Kilmartin once again refused to look into it. Attorney General  Kilmartin, a confidant of felon Gordon Fox, recently told me that Providence Public corruption and pension fraud was  also “not in his jurisdiction”.Mr Kilmartin is too conflicted to be Attorney General and should resign.

Here is another interesting question for an independent investigator using my own words –

“What made you Governor Chafee, Treasurer Gina Raimondo , Speaker Fox and  Paiva Weed think that you  had any authority to personally  Guarantee to  Moody’s the payment of the 38 studios bonds? Did you believe that was legal? Didn’t you in effect just promise an appropriation that would have to be voted on? What was Moody’s reaction and thinking in accepting such a pledge? These bonds were insured after all. Why the hocus –pocus? Is Moody’s complicit in defrauding and manipulating Rhode Island taxpayers?”

The arrogance is overwhelming! Where do any of these insiders get off saying that you and I owe money to a defaulted company that was fully insured? Once again, you can see that the whole idea of avoiding a claim was to avoid investigation. Moody’s has a reason to lie also. Check out Moody’s rating on the initial “private placement” and the yield to the market place. Something was very very wrong.  The bond was issued at a huge yield of 7.75% and fully insured when general rates were 4%. Moody’s rated the offering AA+ .which is materially more than just “investment grade”.  The company immediately went bankrupt, yet Chafee paid the first tranche anyway and did not notify the Insurer of his intent to invoke the insurance clause. It’s not clear how many times and when that Chafee, Raimondo, Fox et al. inappropriately held these meetings to secretly guarantee to Moody’s that you and I would pay. Besides being illegal and sleazy it was arrogant. These leaders were so sure of their political clout, that they promised to ratings agencies tax Rhode Island payers would pay no matter what. Was that legal? Was that appropriate?  Doesn’t this all smell very bad?  These are some of the very pressing and important issues that won’t be discussed in oversight hearings “part 2."

Easy solution for taxpayers

 Here is our game plan. We just need to convince Mattielo and all those members who claim they were duped to immediately halt the appropriations that pay off the 38 Studios bonds. This will trigger the Assured Guaranty to protect itself and they will investigate the entire affair. They won’t use the insiders and friends or a house oversight committee, they will use Private Investigators, a swarm of lawyers and depositions and subpoenas. They will get to the bottom of this because the Insurance company doesn’t don’t want to pay for any of the $70 million or so that remains due to bondholders.  Accomplishing this  we can then  all tell Raimondo, Fox , Mattielo and Weed what they can do with their personal guarantees to Moody’s and the next time they want $75 million from citizens. The people should vote on it.

Michael G. Riley is vice chair at Rhode Island Center for Freedom and Prosperity, and is managing member and founder of Coastal Management Group, LLC. Riley has 35 years of experience in the financial industry, having managed divisions of PaineWebber, LETCO, and TD Securities (TD Bank). He has been quoted in Barron’s, Wall Street Transcript, NY Post, and various other print media and also appeared on NBC News, Yahoo TV, and CNBC.  

 

Related Slideshow: Who Wants to Pay and Who Wants to Default on the 38 Studios’ Bonds

GoLocalProv showcases which Rhode Island politicians and organizations want to pay or default on the 38 Studios' Bonds.

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CON

Allan Fung

Republican candidate for Governor

“I am repeating my opposition to the 38 Studios loan guaranty and to the use of taxpayer dollars to repay those moral obligation bonds.”

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CON

Ken Block

Republican candidate for Governor

“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...As long as there are serious legal questions still to be decided, we need to stop the repayment process."

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PRO

RIPEC

John Simmons, executive director of the Rhode Island Public Expenditure Council

“We’re not going to punish anybody but ourselves if we don’t pay."

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PRO

Greater Providence Chamber of Commerce

Laurie White, President of Chamber of Commerce

“I think it’s important that action occur quickly. Our view is that economic development in Rhode Island has to be the main event. … We need a very dramatic, aggressive effort to change the path that we’re on.”

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PRO

Gina Raimondo

Democratic candidate for Governor

“Despite my frustration with everything surrounding this transaction, I believe it is in the best long-term interest of the state and all taxpayers to repay these bonds."

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PRO

Clay Pell

Democratic candidate for Governor

“Clay does not believe Rhode Island should default on its moral obligation bonds when they come due. 38 Studios was a terrible mistake — and another example of why we need to change the culture of politics in Rhode Island"-Devin Driscol.

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PRO

Angel Taveras

Democratic candidate for Governor

“While I share the frustration of many Rhode Islanders, I believe that not paying back 38 Studios bondholders would have a detrimental impact on the state’s bond rating that would far outweigh any short-term benefit we might gain. We cannot afford to default on our obligations.”

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PRO

Lincoln Chafee

Governor of Rhode Island

“The candidates who can’t understand these two obvious truths are unfit to be Governor. The consequences of default would place Rhode Island as one of the lowest state bond ratings in the nation, and the industry would reduce Rhode Island to ‘junk bond’ status. We have been told in no uncertain terms that the reaction to not paying our debt obligations will be severe and have an adverse impact on Rhode Island. In addition, failure to honor our obligations could have harmful effects on the pending lawsuit.”

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CON

Mike Stenhouse, CEO of RI Center for Freedom and Prosperity

"It's not just about not paying off bondholders.  Bondholders are adults, they knew the risk.  It's not just a question of the credit agencies.  It's a question of what would payment crowd out, what reforms could we achieve with that money, such as sales tax reform, which would enable us to create jobs."

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CON

Mike Riley

2012 Republican candidate for the 2nd Congressional District of Rhode Island.

"If we had a real Governor, he would stand up for the Taxpayers and the State of Rhode Island and stand up against threats by rating agencies."

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PRO

Professor Ed Mazze

Professor of business at University of Rhode Island

"Even though this is a moral obligation in terms of the way the financial deal is set up I still feel the state has an obligation to the bondholders, to make good on their payments."

 
 

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