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Federal judge agrees to settlement between Stokes and SEC in 38 Studios case


PROVIDENCE, R.I. (WPRI) – A federal judge has signed off on a deal made by two former state economic development leaders with the U.S. Securities and Exchange Commission in the 38 Studios case.

U.S. District Court Judge John “Jack” McConnell approved the final judgment for former R.I. Economic Development Director Keith Stokes and his deputy director J. Michael Saul on Tuesday.

The agreement means Stokes and Saul are prohibited from participating in any future municipal securities offerings. They must also pay a $25,000 fine in two installments: the first payment of $15,000 is due with 90 days, the rest within one year of the judgment.

Stokes and Saul entered into a settlement agreement without admitting or denying the allegations prior to the SEC’s complaint filed earlier this month.

The SEC, which regulates the investment world, filed a complaint in federal court in Providence alleging the former R.I. Economic Development Corporation (EDC) and Wells Fargo defrauded investors when they sold $75 million in bonds in November 2010 to fund 38 Studios, the game company founded by former Red Sox ace Curt Schilling. Wells Fargo was the lead underwriter on the bond transaction.

The SEC said it is seeking “disgorgement of ill-gotten gains and prejudgment interest thereon” from the EDC and Wells Fargo, as well as “injunctions against future violations, and civil penalties.”

38 Studios collapsed into bankruptcy in June 2012 and has been the subject of harsh political recriminations in Rhode Island ever since. State officials filed a civil suit against some of the architects of the deal in November 2012, and that case is scheduled to go to trial this September. first broke the news of the SEC’s 38 Studios investigation back in September 2013.

The SEC has also charged a third individual, Wells Fargo banker Peter Cannava, with aiding and abetting the alleged fraud; he has not agreed to settle. In addition, the SEC alleges Wells Fargo and Cannava failed to disclose a separate “side deal” they had with 38 Studios to receive additional compensation from the company.

Cannava, 36, is a New York City resident and vice-president at Wells Fargo. His Boston-based lawyer, Brian Kelly, has said Cannava would fight the federal fraud allegations “vigorously.”

At the time, Wells Fargo spokesman Kevin Friedlander said in an email: “Wells Fargo disputes the SEC’s allegations in connection with the placement of these municipal bonds. We will respond to the specific allegations in the complaint in court.” Tim White( ) is the Target 12 investigative reporter for WPRI 12 and Fox Providence. Follow him on Twitter: @TimWhiteRITed Nesi contributed to this report.

Copyright 2019 Nexstar Broadcasting, Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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