Chafee’s office set to hire law firm to seek 38 Studios damages

June 11th, 2012 at 8:13 pm by under Nesi's Notes, On the Main Site

By Ted Nesi

PROVIDENCE, R.I. (WPRI) – The Chafee administration wants to know whether Rhode Island taxpayers have legal avenues to claw back some of the tens of millions of dollars they’re poised to lose after the collapse of 38 Studios.

The governor’s office is close to choosing a law firm to examine whether Rhode Island can seek damages from the professional liability insurance policies of those who worked on the $75 million loan guarantee, a person familiar with the discussions told WPRI.com on Monday evening.

Professional liability insurance, also known as errors and omissions insurance, is purchased by professionals such as lawyers and consultants to protect themselves if they’re accused of negligence. It’s different from the municipal bond insurance the EDC and 38 Studios purchased from Assured Guaranty to protect investors.

Administration officials began discussing possible legal avenues to “recover as much as possible” back on May 1, when 38 Studios defaulted on a $1.1 million payment it owed the R.I. Economic Development Corporation, the person said, adding that the governor also wants to hold people accountable.

It’s not the first time Chafee has made such a suggestion: he said as a candidate in 2010 that then-Gov. Donald Carcieri and the EDC board could be sued for approving the 38 Studios deal if it turned out badly, a remark that drew gasps from an audience of business leaders when he uttered it.

38 Studios filed for bankruptcy on Thursday and the EDC will seek to recover money in court as its only secured creditor. Taxpayers are facing a loss of more than $90 million when all is said and done, Revenue Director Rosemary Booth Gallogly said Friday on WPRI 12′s Newsmakers.

At least six law firms worked on the 38 Studios deal in 2010, including Moses & Afonso of Providence, the EDC’s bond counsel; Adler Pollock & Sheehan of Providence, the EDC’s general counsel; and Taft & McSally of Cranston, the state’s disclosure counsel.

In addition, Pannone Lopes Devereaux & West advised the placement agents on the bond deal; Edwards Angell Palmer & Dodge of Providence was 38 Studios’ counsel; and Bernstein, Shur, Sawyer & Nelson of Portland, Maine, advised Bank of New York Mellon, the bond trustee.

As it discussed whether to approve the 38 Studios deal, the EDC board also received guidance from Strategy Analytics, a Boston-based market research firm, and Mark Lamarre, a managing director then at Wells Fargo Securities who is now with Morgan Keegan & Company.

FirstSouthwest of Lincoln was the EDC’s financial advisor, and Moody’s Investors Service and Standard & Poor’s both vetted the transaction.

Ted Nesi ( tnesi@wpri.com ) covers politics and the economy for WPRI.com and writes the Nesi’s Notes blog. Follow him on Twitter: @tednesi

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15 Responses to “Chafee’s office set to hire law firm to seek 38 Studios damages”

  1. Jim Donahue says:

    I doubt any court would see personal liability here unless there are criminal charges successfully pressed.

  2. Downsized54 says:

    Linc seems very happy Studio 38 failed.

    1. twiggy says:

      I don’t think so.

  3. bee says:

    Curt should be held liable up to 50 million and the person(s) who forged the check, match signatures FBI and hit the homerun Curt couldn’t make.

  4. Albert says:

    Funny when Linc is on course Gina can not be found. Miss Phony !

    1. twiggy says:

      What do you want her to do? The damage was done 2 years ago when everyone back then knew it was a dumb idea.

  5. shedatear says:

    What a bufoon. They filed Bankruptcy. You get what the trustee gives you. I doubt they can be punished for mismanagement unless they find extreme fraud. Waste some more tax dollars Gump. Like with your little tantrum with the Feds.

  6. [...] looks to hire a lawyer for the 38 Studios debacle … this thing is far from over, and the governor might not be the only local politician to [...]

  7. Arnie McConnell says:

    Oh, gee, “business leaders” gasped. Heaven forfend. What kind of leaders are they, anyway? Loss leaders? Beach house leaders? Insider bondholder leaders?

    Congratulations to Governor Chafee on this one. His predecessor thought he could get by on arrogance and hatred of government alone. That kind of bluster isn’t worth over a hundred million dollars of other people’s money. Of course, the governor should claw back every penny.

    Carcieri set the tone for corruption, not only with his arrogance, but also with his unwillingness to set an ethical example. In fact, he was cited four times for ethics violations. Disgraceful.

    The country, in its confusion, is headed for exactly the cynical political scenario that people like Carcieri want, as irony would have it. Our so-called elites had a responsibility to the state and the nation, and it’s pretty clear that all too many of them have sold out.

    Maybe Governor Chafee will be man enough and leader enough to claw back that which has been all too routinely clawed away.

    1. GaryM says:

      Arnie,

      Don’t be fooled, Chafee is no different!! Read my below post.

  8. Downsized54 says:

    Fox and Paiva Weed should be investigated first.Why not investigate why Ianazzi is still on the state payroll Missing Linc??

  9. GaryM says:

    Oh sure Mr Chafee, throw rocks at decisions made on Studio 38.

    But you Mr Chafee, yes you Governor, are about to approve a “Studio 38 II” deal being the placement of the East Bay Energy Consortium under the EDC.

    It is a fact that the same law firms and lobbyists who lined up behind Studio 38 are now lining up behind the EBEC deal. $500K in prior EDC grants to EBEC were in part already spent by Moses and Alfonso for things the grants were not intended to be spent on.

    Further, the EBEC deal will require National Grid to rig electric rates passing those subsidies over to past Studio 38 cronies.

    You lack clean hands Governor, so stop being so pious.

  10. Ted,
    Do you know if the individual members of the Board of Directors of the EDC had errors and omission liability insurance coverage at the time the 38 Studios debacle was struck?

  11. [...] Local reports say that Governor Lincoln Chafee's office has been reviewing law firms to determine the legal means they can take to recover some of the money from the "professional liability insurance policies" in the wake of 38 Studios' bankruptcy. Professional liability insurance only provides funds to people who were hired to help bring the deal to fruition if they are accused of negligence. Chafee himself said during his campaign for the governor's office that previous administrations should face similar lawsuits if the 38 Studios' deal crumbled. [...]

  12. [...] Local reports say that Governor Lincoln Chafee’s office has been reviewing law firms to determine the legal means they can take to recover some of the money from the “professional liability insurance policies” in the wake of 38 Studios’ bankruptcy. Professional liability insurance only provides funds to people who were hired to help bring the deal to fruition if they are accused of negligence. Chafee himself said during his campaign for the governor’s office that previous administrations should face similar lawsuits if the 38 Studios’ deal crumbled. [...]