- Associated Press - Friday, September 25, 2015

PROVIDENCE, R.I. (AP) - Documents released in the lawsuit brought over the state’s $75 million deal with Curt Schilling’s video game company, 38 Studios, have shed new light on the deal and revealed questionable behind-the-scenes maneuvering by key players such as former Democratic House Speaker Gordon Fox and former Republican Gov. Don Carcieri.

Here are some more details following this week’s release of tens of thousands of pages in the lawsuit brought by the state’s Economic Development Corporation:

KEY TAKEAWAYS

Many of the once-secret documents support a narrative that’s been emerging since 38 Studios collapsed in 2012: that the deal was orchestrated by Fox and his friends, in particular attorney Michael Corso, who did work for 38 Studios, and former House Finance Chairman Steven Costantino, along with EDC officials, said John Marion, executive director of Common Cause Rhode Island. The lack of cooperation by Corso and Fox, who invoked their Fifth Amendment rights on every question during their respective depositions, leaves a lot of questions unanswered, he said.

“It’s a tsunami of information that’s washing over us, and we’re trying to sort from the flotsam of information what’s significant,” Marion said.



Republican Rep. Patricia Morgan, who represents Coventry, said she was struck by a lack of due diligence on the part of state officials involved in the deal. Morgan, who has repeatedly called for an investigation, said political insiders “created a pot of money, and started dipping their hands into it without thought of how it was good for the state of Rhode Island.”

WHISTLEBLOWERS IGNORED, SIDELINED

In a June 2014 deposition, Sean Esten, a former EDC employee, said he was “frozen out” of the 38 Studios deal in early June 2010 after telling EDC officials he was concerned about the loan. Esten, who was EDC’s financial portfolio manager at the time, told officials the plan was unrealistic and unobtainable. Esten said Michael Saul, EDC’s deputy director at the time, reprimanded him for sending emails about the deal’s potential risks because emails were “discoverable,” meaning they could be used in a lawsuit.

“That’s when I knew that he had concerns regarding the transaction that he was not disclosing,” Esten said.

The state’s director of administration and acting director of revenue at the time, Rosemary Booth Gallogly, told Saul, his boss and others on July 12, 2010, that she had “serious concerns” about the deal after reviewing the proposed term sheet. Two days later, she sent a memo to Carcieri laying out a number of the deal’s risks.

“Although I admit I am not an expert in venture capital or video gaming industries, I do believe I have experience in looking out for the taxpayers’ best interests. Therefore, I would like to share my concerns about this opportunity which should be weighed at Board meeting,” she wrote.

Carcieri never brought her concerns to the EDC board.

“I didn’t think it was necessary to bring it to the board because I was asking for her personal opinion,” Carcieri said in a deposition.

CONFLICTS OF INTEREST

Among the documents released was an email sent during talks between the EDC and 38 Studios by Rob Stolzman, a lawyer who was representing the EDC, to Michael Corso, who was working for 38 Studios. Stolzman suggested a building where they could relocate, which was owned by his in-laws and a trust for which his wife was a beneficiary.

“If I can be helpful with this it would be great to help a company and my in-laws,” he wrote.

In a subsequent email on the same email chain, Stolzman is asked by Corso to remove a provision from the term sheet that would have required 38 Studios’ shareholders to provide the EDC with personal guaranties for 38 Studios’ repayment of the loan. That provision was dropped, according to a deposition by Saul.

Saul himself sought a job with 38 Studios in December 2010, about six weeks after the financing deal for the company was finalized.

UNANSWERED QUESTIONS REMAIN

Even though tens of thousands of documents were released and dozens of people were deposed, there are notable gaps. Schilling was not deposed, and neither was Senate President Teresa Paiva Weed. Paiva Weed said she was never asked to be deposed. Schilling announced in February 2014 that he had cancer. He had received seven weeks of radiation and chemotherapy.

Max Wistow, the lawyer who brought the lawsuit on behalf of the Economic Development Corp., said Schilling was initially too ill to depose.

“By the time he was in a state where he could be deposed, we thought it was unnecessary,” Wistow said, adding that his focus was on building a case, not on answering every question the public has about what happened. “What you have to understand is, we were not in effect a roving commission to explore everything, the insides and outs, what took place here.”

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