PROVIDENCE, R.I. (WPRI) – The announcement Wednesday that the state of Rhode Island’s former financial adviser has agreed to a $16-million settlement over 38 Studios likely brings to an end years of litigation over the failed deal.

So where does this leave Rhode Island taxpayers when it comes to paying off the tens of millions of dollars in debt left behind by Curt Schilling’s video game company? Here’s a quick explainer to get you up to speed.

Remind me again how all this got started?

In case you’ve been living under a rock – or just moved to Rhode Island – here’s a thumbnail sketch of the notorious tale.

In 2010, state leaders decided to have taxpayers guarantee a $75 million loan to lure former Red Sox pitcher Curt Schilling’s video-game company, 38 Studios, from Massachusetts to Providence. Within two years, the company was bankrupt, everyone was pointing fingers – and taxpayers owed almost $90 million in principal and interest payments to the bondholders who provided the loan.

So where did this lawsuit come from?

Shortly after 38 Studios collapsed, then-Gov. Lincoln Chafee hired Max Wistow – a prominent local attorney who worked on the Station nightclub fire case – to see whether there was enough evidence of bad behavior by those involved in the deal to sue for damages. Wistow sued 14 of the deal’s architects in November 2012, and the case has been slowly making its way through the courts ever since.

Who did the state sue?

  • Curt Schilling, 38 Studios’ founder
  • Thomas Zaccagnino, a 38 Studios board member
  • Richard Wester, 38 Studios’ chief financial officer
  • Jennifer MacLean, 38 Studios’ CEO
  • Keith Stokes, who was the R.I. Economic Development Corporation (EDC) executive director when the deal was struck
  • J. Michael Saul, who was the EDC’s deputy director
  • Antonio Afonso Jr., a lawyer for the state as the deal was being put together
  • Robert Stolzman, another lawyer for the state
  • Wells Fargo Securities, a bank that sold the bonds and also worked for 38 Studios
  • Barclays Capital, another bank that sold the bonds
  • First Southwest Co., the state’s financial adviser
  • Starr Indemnity and Liability Co., the insurer for 38 Studios’ management
  • Adler Pollock & Sheehan, a law firm used by the state
  • Moses Afonso Ryan, another law firm used by the state

What happened next?

For a while, mostly a lot of legal wrangling. Then in mid-2014, the first of the defendants agreed to settle: Afonso and his law firm reached a deal to pay $4.4 million and get out of the suit. Other settlements followed over the next two-and-a-half years, until finally the only defendant left was First Southwest (now known as Hilltop Securities), which announced it would settle Wednesday.

As long as R.I. Superior Court Judge Michael Silverstein approves the First Southwest settlement – which he is expected to do quickly – the litigation will come to an end without ever going to trial.

So how much money did these settlements generate for the state?

For taxpayers on the hook to pay off the 38 Studios debt, this is the $89,000,000 question. (Well, technically it should be the $88,300,000 question – don’t ask.) Matt Sheaff, a spokesman for the R.I. Commerce Corporation, agreed to put together a handy chart showing how much each settlement generated.

The grand total: $61 million.

One important caveat, however – in exchange for taking the case, Wistow’s law firm was entitled to a share of the proceeds from any settlements, so you have to subtract legal fees from the grand total to get the net amount taxpayers will actually keep to go toward the $88.3 million debt.

The grand total after legal fees: $49.66 million.

(So if you do the math, the legal fees will come to about $11.3 million.)

OK, so how much does that mean Rhode Island taxpayers will actually wind up paying to cover the 38 Studios debt?

The short answer: $38.64 million. And they’ve already paid a big chunk of it.

Since 38 Studios collapsed, Rhode Island lawmakers have put $26.16 million worth of taxpayer money into the annual state budget to cover 38 Studios bond payments. The final payment is due in 2020, so between now and then they will need to appropriate another $12.5 million. That will be the last payment.

(Of course, this doesn’t count any indirect costs of the 38 Studios deal, let alone the massive damage it did to public trust in Rhode Island political leaders.)

So the lawsuits turned out to be a pretty good investment?

Certainly, Chafee’s decision to pursue litigation against the architects of the deal will now look like a smart move to many – the settlement proceeds are covering more than half the cost of paying off the bonds. Chafee faced significant skepticism – and criticism – for the decision, but he surely feels vindicated today.

That said, the defendants in the case would argue that the General Assembly put its thumb on the scales in favor of settling when lawmakers passed a 2014 law specifically aimed at the 38 Studios litigants. One provision of the law would have left First Southwest – since it was the final defendant – on the hook for paying the state’s entire damages if it lost the case, even if some of the causes of those damages were traced to others.

Is the 38 Studios saga over now?


First, as mentioned above, lawmakers will still have to come up with $12.5 million in a future state budget to finish paying the 38 Studios debt (assuming this settlement is approved by the judge). Only then will the taxpayer liability from the deal be gone.

Then there are other legal matters.

As you may recall, last summer the four-year criminal investigation into 38 Studios ended with no charges. Attorney General Peter Kilmartin has come under heavy pressure to support releasing all the material from the investigation, including from the grand-jury proceedings, but he has resisted, citing the principle of grand-jury secrecy.

Now, however, Gov. Gina Raimondo has pledged to petition a judge for release of those documents as soon as the First Southwest settlement is approved; Kilmartin has signaled he will fight that effort.

So that will be another process to watch – and if the documents do get released, it’s possible they will contain some interesting new revelations about how the deal came together, just as the documents from Chafee’s civil lawsuit did when they were unsealed in the fall of 2015. Officials said 146 people were interviewed as part of the criminal investigation, and 34 were called to testify before the grand jury.

On top of that, there are two other unresolved cases involving 38 Studios.

First there is the civil fraud lawsuit filed last year by the U.S. Securities & Exchange Commission. This time, the state is a defendant – the SEC argues the state and some of the deal’s architects misled investors when they marketed the 38 Studios bonds. Court documents show that suit is near a settlement, too, and Raimondo said Wednesday she does not expect the outcome to cost the state money.

Finally, there is 38 Studios’ original corporate bankruptcy filing in Delaware, where the company was formally incorporated. A court-appointed receiver has been charged with selling off the company’s assets to help pay off its debtors, though at last check it had yielded little money.

Ted Nesi ( covers politics and the economy for He writes Nesi’s Notes on Saturdays and hosts Executive Suite. Follow him on Twitter, Facebook and Instagram