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

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

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?

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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? https://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.