PROVIDENCE, R.I. (WPRI) – Rhode Island leaders announced Tuesday they’ve reached another settlement in the long-running lawsuit over 38 Studios, agreeing to accept nearly $26 million to drop litigation against two major banks involved in the failed deal.
Rhode Island’s economic-development agency borrowed $75 million in 2010 to lure 38 Studios, a game company co-founded by Curt Schilling, to the state; the business went bankrupt in 2012. The Chafee administration soon sued some of the deal’s architects in an effort to recoup part of the almost $90 million taxpayers owed on the loan.
The agreement announced Tuesday is the third and by far the largest settlement reached with some of the original 14 defendants in the lawsuit. It calls for Wells Fargo Securities and Barclays Capital to pay the state exactly $25.625 million, bringing the total value of settlements so far to $42 million before legal fees.
- PDF: Read the full settlement agreement with Wells Fargo and Barclays
- Update: Legal fees in ongoing 38 Studios cases approaching $9 million
Watch: Ted Nesi breaks down why this development is significant to taxpayers. Story continues after video below.
The settlement with Wells and Barclays will yield approximately $21.3 million for taxpayers after legal fees and other costs, Rhode Island Commerce Corporation spokesman Matt Sheaf told WPRI.com. The state still owes $61.8 million in payments to the 38 Studios bondholders, before applying the proceeds from the new settlement, he said.
“We are pleased to have reached an agreement in this case,” Wells Fargo spokesman Kevin Friedlander said in a statement. “We are not admitting liability, nor did we do anything improper. It is simply in our shareholders’ best interest to minimize the risk that accompanies lengthy litigation.”
The terms of the settlement were filed Tuesday in Rhode Island Superior Court by the parties and must still be approved by Judge Michael Silverstein, according to the Commerce Corporation, the new name of the agency that undertook the 38 Studios deal. The agency said the settlement was reached during mediation talks led by retired Superior Court Justice Francis Darigan Jr.
Darigan told reporters he thinks it’s better to settle than go to trial, because a trial doesn’t guarantee money for the state.
“This is not going to be an easy case to try,” he said.
Darigan described the settlement talks as a “grueling negotiation,” saying the state’s lawyers wanted more money and the two banks wanted to pay less. Both sides agreed to the $25.625 million amount on July 26, he said.
“We were able to strike an agreement,” he said. “The agreement wasn’t lauded by everybody as being wonderful, but it was an end to a very, very contentious litigation, the cost of which would have been compounded if the matter had gone to a jury trial before Judge Silverstein, and that was part of it.”
In a statement after the announcement, Gov. Gina Raimondo said: “38 Studios was a bad deal for Rhode Island and I was against it from the start. It’s our job to be as aggressive as we can in recovering as much taxpayer money as possible, and today’s settlement is another huge step toward that goal.”
Raimondo said her administration plans to “keep going” in an effort to obtain more money to pay off the 38 Studios bonds. “Rhode Islanders understandably feel hurt by this deal – and I do too – but I want everyone to know that we are demanding accountability, getting money back, and moving the state forward,” she said.
The Commerce Corporation board, which Raimondo chairs, approved the settlement Aug. 10 in a vote that took place behind closed doors.
The first settlement in the 38 Studios lawsuit was announced back in June 2014, when a law firm that worked on the deal, Moses Afonso Ryan, and one of its partners, Antonio Afonso Jr., agreed to settle for $4.4 million; after legal fees and other costs, taxpayers netted $3.2 million to help pay off the bonds.
The second agreement was announced last August, when four defendants – Adler Pollock & Sheehan, another law firm that worked on the deal; Robert Stolzman, who was the state agency’s legal counsel; and Keith Stokes and J. Michael Saul, top agency officials at the time – settled for a combined $12.5 million. That settlement yielded $9.9 million for taxpayers after fees.
If the new settlement is approved, the three agreements combined will have yielded an estimated $34.4 million for taxpayers after legal fees and other costs, enough to cover almost 40% of the $89.2 million in total payments scheduled to be made to the 38 Studios bondholders through 2020.
The remaining defendants in the lawsuit are set to go on trial Oct. 18, when jury selection will begin before Silverstein. Those defendants are former 38 Studios executives Schilling, Thomas Zaccagnino, Richard Wester, and Jennifer MacLean; First Southwest Co.; and Starr Indemnity and Liability Co.
Darigan said he remains in active settlement talks with the other six defendants and is hopeful they will also reach an agreement, perhaps in the next week or two. He acknowledged, though, that it could be “a stretch” to recoup enough money to cover the entire $89 million in bond payments.
“I’m hoping we can make a significant contribution towards that, but I don’t want to mislead anybody to think that the state is going to recover every nickel, because I don’t know that that’s going to happen,” he said.
Asked on Twitter for his reaction to Wells Fargo and Barclays settling, Schilling simply said: “Good for them.” He also argued that Rhode Island taxpayers “have been blindfolded for years from the actual story” about what happened with 38 Studios.
Separately in March, the U.S. Securities and Exchange Commission filed its own federal case over 38 Studios against the state agency and Wells Fargo, alleging they defrauded investors. Earlier this month U.S. District Judge Jack McConnell allowed the SEC case to proceed.
Attorney General Peter Kilmartin announced last month no criminal charges would be filed over 38 Studios following a four-year grand-jury investigation. He has so far resisted growing public pressure to allow the release of documents and other materials collected during that probe.
Also still pending is 38 Studios’ original bankruptcy case, filed in June 2012 in Delaware, where the company was incorporated.Ted Nesi (firstname.lastname@example.org) covers politics and the economy for WPRI.com. He writes The Saturday Morning Post and hosts Executive Suite. Follow him on Twitter, Facebook and InstagramTim White contributed to this report.