38 Studios: RI Financial Advisor's Lawyer Gave Thousands in Political Donations to Elected Officials
Kate Nagle, GoLocal Contributor
38 Studios: RI Financial Advisor's Lawyer Gave Thousands in Political Donations to Elected Officials
First Southwest counsel Gerald Petros with Hinckley, Allen, and Snyder has given over $15,000 to Rhode Island candidates, including $4,500 since 2010 to General Treasurer and Democratic gubernatorial candidate Gina Raimondo.
Petros' listed contributions are nearly all to Democrats, including $3,000 to former General Treasurer and gubernatorial candidate Frank Caprio, $2,450 to Providence Mayor Angel Taveras, and contributions of less than $1,000 to Governor Lincoln Chafee, and former Speakers of the House Bill Murphy and Gordon Fox.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTCaprio, who is once again running for General Treasurer, has come out in opposition to the state's continued contract with First Southwest.
On his Facebook page, Caprio writes, "There are just too many obvious problems with having a firm the State is suing for fraud, negligence and malpractice advising the State on how to conduct its financial business. I call on the State to cancel this lucrative contract immediately."
Candidates on Contributions
Moore pointed to allegations in the suit, which included that "First Southwest failed to tell the Rhode Island Economic Development Corporation—now called The Commerce Corporation—that the loan guarantee money wouldn’t have provided 38 Studios with enough capital to produce its game that was supposedly going to bring it a huge return on investment", and that "First Southwest gave false information about the company’s financial projections to bond rating agencies."
Republican gubernatorial candidates Ken Block and Allan Fung both weighed in on the issue of the state's continued contract with the firm it is suing.
"When first I heard about the contract with First Southwest, I could not understand why Governor Chafee and Treasurer Raimondo would hire a company to provide financial advice to the state when that exact same company is being sued by the state for its role in a terrible financial decision - 38 Studios," said Block.
Block continued, "Now we are learning that the lawyer speaking for First Southwest and thanking the state for the business has recently donated to Governor Chafee and Treasurer Raimondo, the Democrats responsible for the contract. This is another example of insider politics at its worst – and just the kind of status quo politics that I believe is killing our state. Rhode Islanders are fed up with politicians who violate the public's faith and trust and jeopardize the fiscal health of the state."
Cranston Mayor Allan Fung has called into question the state's decision to rehire First Southwest.
"It is unacceptable for the Governor and General Treasurer to accuse First Southwest of fraud and intentional misrepresentations in its handling of the 38 Studios deal and then rehire them to continue advising the state in future financial transactions," said Fung
"Government and its agents must be held to the highest standards of professionalism. We should not be entrusting our hard earned taxpayer dollars to these same individuals. This would not have happened under a Fung Administration," said Fung.
Records show that Raimondo has received over $70,000 from Hinckley, Allen, and Snyder employees. The campaigns for Raimondo, Taveras, and Clay Pell did not respond to request for comment.
First Southwest in State's Suit
The suit suggests the defendants knew or should have known that Schilling’s video game company was undercapitalized and would likely run out of money by 2012. The company received a $75 million loan guarantee from the state, but filed for bankruptcy in June 2012 after defaulting on the loan. The company had less than $22 million in assets and owed just over $150 million to over 1,000 mostly-unsecured creditors, according to court records. The state is the largest secured creditor at $115.9 million.
In June 2012, Governor Lincoln Chafee hired lawyer Max Wistow to investigate the 38 Studios deal. The 17-count suit includes RICO, fraud and negligence and also accuses 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.
Who Wants to Pay and Who Wants to Default on the 38 Studios' Bonds
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.”
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."
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."
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.”
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."
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.
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.”
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.”
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."
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."
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."
