PROVIDENCE, R.I. (WPRI) – When state officials announced Aug. 7 they had reached a proposed settlement with some of the plaintiffs in the long-running 38 Studios lawsuit, they trumpeted the amount of money set to be forked over to pay off bondholders in the deal: $12.5 million.
But the actual cash that taxpayers are expected to get out of the settlement for bond payments, while still significant, is a good bit less than that: $9.9 million, or about 79% of the total settlement proceeds.
The reason, Commerce spokeswoman Melissa Czerwein said, is that the other $2.6 million or so of settlement money will be used to cover “attorney’s fees and other litigation expenses.” To take one example, the state agreed to let Max Wistow, its lead attorney in the suit, keep 16.67% of any money he recouped through the suit.
The R.I. Economic Development Corporation (EDC) sold $75 million in bonds in 2010 to lure 38 Studios to Rhode Island. The company’s bankruptcy in 2010 left the state’s taxpayers on the hook for $89.2 million in principal and interest payments on the bonds. In November 2012, in an effort to recoup some of the money, the Chafee administration sued various individuals and firms involved in putting together the deal.
The settlement announced Aug. 7 covered four of the defendants in the suit: Adler Pollock & Sheehan, a law firm that worked on the 38 Studios deal; Robert Stolzman, who was counsel to the EDC at the time; and Keith Stokes and J. Michael Saul, the EDC’s leaders at the time.
It is the second settlement reached by some of the original 14 defendants in the lawsuit. Another law firm, Moses Afonso Ryan, and one of its partners, Antonio Afonso Jr., agreed to settle for $4.4 million in June 2014. After legal fees and other costs, the Afonso settlement yielded $3.2 million to pay off the 38 Studios bonds.
If the estimated yield from the new settlement is correct, the two deals will have provided $13.1 million combined to put toward the $89.2 million in 38 Studios principal and interest payments, leaving taxpayers to cover about $76 million.
Litigation is continuing against the eight remaining defendants in the suit: Schilling and three other 38 Studios executives, as well as Wells Fargo Securities LLC, Barclays Capital Inc., First Southwest Co., and Starr Indemnity and Liability Co. It’s possible the state could get more money from them through settlements or damages won in court.
Former R.I. Supreme Court Chief Justice Frank Williams was recently appointed as a mediator in the 38 Studios suit, which still doesn’t have a trial date set nearly three years after it was first filed. This month’s settlement was announced shortly after Williams became involved.
The Commerce Corp. made its most recent payments to the 38 Studios bondholders, for $2.2 million, on May 1. Rhode Island taxpayers currently still owe a total of $74.3 million on the 38 Studios bonds. The next scheduled payment is a $9.2 million installment due in November.Ted Nesi (email@example.com) covers politics and the economy for WPRI.com. He hosts Executive Suite and writes the Nesi’s Notes blog. Follow him on Twitter: @tednesi