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Russell J. Moore: Licht Admits Negligence on 38 Studios

Monday, February 24, 2014


Sometimes, it seems like the rapture will occur before there’s any accountability around here, believes Russell Moore.

Eventually, the truth comes out. Sometimes, it just has to slip through the cracks.

That’s exactly what happened last week when, after almost two years, Richard Licht finally came clean, albeit inadvertently, about the Chafee administration’s negligence surrounding the financial demise of 38 Studios.

Licht—Governor Lincoln Chafee’s Director of Administration, and all-around statehouse top dog—told Channel 12 WPRI’s Tim White last week that “…no one was watching 38 Studios.”

The quote surfaced in a story almost completely unrelated to 38 studios—other than the fact that it pertains to a loan fund granted by the Economic Development Corporation that was, according to an audit by an impartial Virginia based firm, and misspent by the highly touted, but questionable Betaspring.

An inconvenient truth

Given that the loan fund, which like the 38 Studios deal, was meant to invigorate the economy, and is being spent questionably, that led the reporter to ask if there were any similarities between the loans administered by Betaspring and the debacle that was, and still is, 38 studios. That’s when Licht showed the Chafee administration’s true colors.

“We wanted to make sure we were in compliance, we wanted to make sure things were being done right, and that’s the difference. No one was watching 38 Studios,” Licht told WPRI.

Keep this in mind: Governor Chafee was chairman of the EDC board during the whole implosion of 38 studios and during all the months preceding its demise. That means Chafee was responsible for overseeing and monitoring 38 Studios for over 16 months. But given Licht’s statement, that never happened.

Governor Chafee will be the first person to point out how staunchly opposed he was to the 38 studios deal in the first place. That’s not really a big accomplishment. Just about everyone who understood the deal, outside of former Governor Donald Carcieri and his hand-picked automatons on the EDC board thought it was ridiculous.

Call me crazy, but I would think that someone who was as opposed to the 38 studios loan as Chafee was would’ve been extra motivated to keep an eye on the $75 million dollars that Rhode Island supposedly guaranteed to a highly speculative video game company run by a retired baseball player who didn’t know the first thing about video games.

The Chafee/Licht double

Imagine if a person was forced to guarantee money to somebody else for a project they didn’t believe in. It stands to reason that the lender would be watching the borrower with eagle eyes, and sounding the alarm at the first sign of trouble.

Yet that never happened. Instead, the exact opposite approach was taken. Like the spoiled child who didn’t like the way the pickup baseball game was going, Governor Chafee did the equivalent of taking his bat and baseball and went home.

Instead of real leadership, we got a heavy dose of “I told you so”, when the company imploded. Thanks a bunch, Governor!

To make matters even more convoluted, the state hired big shot attorney Max Wistow to sue the banks, 38 Studios executives, financial and legal advisors and former employees of EDC, claiming that the loan guarantee was made under false pretenses and that fraudulent behavior may have occurred to secure this deal. Given Licht’s recent confession, Wistow better think long and hard about adding Licht and Chafee as defendants on the suit as parties that are responsible for this fiasco given their admittedly negligent behavior in monitoring the taxpayer’s money.

Further, (and please file this under “you can’t make this stuff up” or, “only in Rhode Island”), Licht worked for white shoe law firm Adler Pollock and Sheehan, which is now one of firms being sued for malpractice by the State. That means Licht is, in all likelihood, the only person with links to the potential malpractice during the 2010 loan negotiation when working for Adler Pollock and Sheehan, and the negligence of the Chafee administration in 2011 for failing to monitor the loan when Chafee hired him to work for the state. Chafee likes horse racing, so let's call this the Chafee double.

Let's not forget folks, that this is the Governor we elected based on promises to end cronyism and corruption!

Insult to injury

Now, Licht the former insurance industry lobbyist turned state executive, is leading the charge to force Rhode Islanders to pay back the 38 studios bonds—yet the effects of non-payment are unclear, at best. Opinions from experts vary widely on the financial effects of insurance companies not being made whole.

The state was supposed to study the issue this year, but no consultants, other than Wall Street critic Ted Siedle, have come forward to study the issue. Of course, the state won’t hire Siedle because he won’t tell the administration, what they want to hear. And no consultants came forward because they make money off of consulting for, not against Wall Street’s interests.

That alone makes a perfect case for Rhode Islanders to say a polite “no thank you” to the argument that they should have to voluntarily pay for the failure of 38 studios. Remember: the taxpayers do not legally owe this debt—that’s as clear as an azure sky.

In any event, the issue should be studied by somebody—anybody. Sorry Director Licht, but merely telling us “Wall Street always wins”, like you did last year, isn’t going to cut it. We need sound analysis, not vapid sound bites.

Beta Sink?

Meanwhile, according to wpri.com, the consultant retained by the state to study whether or not the Commerce Corporation (formerly the EDC) and Betaspring are spending the federal grants as they should be spending them answers with an emphatic ‘hell no’.

In fact, the report makes it seem a lot like Betaspring is a nothing but a job factory for the politically connected. Betaspring, which is supposed to be an economic accelerator, seems to be nothing but federal money gobbler-upper. The organization has spent a whopping 71 percent of the federal money it’s been given on operating expenses—(think salaries, benefits, plush offices, expense accounts).

What’s even worse, if worse can be imagined, is that the organization is using the money to invest in out of state companies, one of which was from Israel!

Given the mismanagement that occurred at 38 Studios, you would think that the state administration would’ve learned its lesson. Instead of listening to its Virginia based auditor, Licht is arguing that it’s the independent auditor that doesn’t know what it’s talking about—not Betaspring or the Commerce Corporation.

0.0 Accountability

Given the audits revelation of the irregularities at Betaspring and Licht’s admission that the administration did nothing to monitor the loan guarantee at 38 studios, the time is well past due for the state legislative oversight committees to call Governor Chafee and Licht before them to get some real answers and to account for these controversies. Sometimes, it seems like the rapture will occur before there’s any accountability around here.


A native Rhode Islander, Russell J. Moore is a graduate of Providence College and St. Raphael Academy. He worked as a news reporter for 7 years (2004-2010), 5 of which with The Warwick Beacon, focusing on government. He continues to keep a close eye on the inner workings of Rhode Islands state and local governments.


Related Slideshow: From the EDC to Commerce Corporation

The Rhode Island Economic Development Corporation, which was created in 1995, is slated to be replaced with the Rhode Island Commerce Corporation as of January 2014.

Below is an overview of the formation of the EDC, the fallout of 38 Studios, and the recommendation -- and approval -- of the Rhode Island Commerce Corporation to take its place.  

Prev Next

EDC Formation

The Rhode Island Economic Development Corporation (RIEDC) was created in 1995 with a "mission to strengthen the Rhode Island economy through policies, programs, and projects, which enhance and enrich the business environment for public and private sectors in order to create prosperity for all Rhode Islanders."

Annual Budget: $19,400,000

Total Personnel: 81

Prev Next

EDC Responsibilities

According to the Secretary of State, RIEDC "works with new and existing business to improve their competitiveness, train their workers, clear away barriers and provide the resources they need to grow and prosper.  [RIEDC works to] research, introduce and promote legislation and programs to make Rhode Island a more hospitable state for starting and expanding a business."

Prev Next

38 Studios -- Beginning

RIEDC issues $75 million in taxable revenue bonds to finance Curt Schilling's 38 Studios, LLC. in November 2010. Governor Chafee takes office in January 2011 and appoints Keith Stokes to Director.

Prev Next

38 Studios -- Fallout

RIEDC holds an emergency closed door meeting May 2012 in light of failing 38 Studios , Executive Director Keith Stokes is fired.  

Prev Next

RIPEC Recommendation

The Rhode Island Public Expenditure Council issues a report in September 2012 calling for "systemic and internal restructuring" -- and for the formation of the Commerce Corporation to take the place of the current EDC.  

Prev Next

Valois Takes Helm

Chafee nominates former EDC Director Marcel Valois to replace interim Director William Parsons in April 2013.  Valois served at the post once before, from 1995 to 1997.

Prev Next

GA Approves Overhaul

The General Assembly approves four pieces of legislation to "move Rhode Island's economy forward and reform the state's economic development structures" during the 2013 session. 

Governor Lincoln Chafee allows three of the four bills to become law without his signature, signs a fourth bill


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