Board OK'd 38 Studios settlement without knowing who'd pay
PROVIDENCE, R.I. (AP) — Rhode Island's economic development agency says officials who approved a partial $12.5 million settlement last year in the agency's lawsuit over its $75 million deal with ex-Red Sox pitcher Curt Schilling's 38 Studios did so without knowing where exactly the money would come from.
Former Executive Director Keith Stokes and former Deputy Executive Director Michael Saul, along with lawyer Rob Stolzman and his firm, Adler Pollock & Sheehan, agreed jointly last year to pay $12.5 million to settle their parts in the lawsuit.
Members of the board at the Commerce Corp. were never told how much of the settlement would be paid by the agency's two former top officials or how much its own insurance policy would pay, Commerce spokeswoman Kayla Rosen told The Associated Press. She said that was a condition of the offer and that the board, led by Democratic Gov. Gina Raimondo, approved the settlement knowing that information would never be public.
Open-government advocates criticized the decision to approve the settlement without knowing those details, which hadn't previously been reported, and at least one legal expert said it surprised him.
"It's one thing for the government agency to say, 'Yes, we have that information, but we're not releasing it to you because we're in the middle of an ongoing mediation,'" said John Chung, a professor at Roger Williams University School of Law. "It's a different thing to say we don't know at all, and that's the thing that surprises me."
The lawsuit has so far reaped $17 million in settlements but is pending against several parties. On Monday, the U.S. Securities and Exchange Commission sued the Commerce Corp., Stokes, Saul and others, accusing them of defrauding bond investors. Stokes and Saul settled for $25,000 each and didn't admit wrongdoing. The agency hasn't commented on the specific allegations in the lawsuit.
The agency's board approved a resolution July 27 backing the settlement. In a document originally filed under seal that objected to the settlement, one of the other parties being sued, Wells Fargo, said it appeared none of the four would pay out of pocket and called on the court to order details about who would pay be released. The court did not do so and approved the agreement in September.
John Marion, of the government watchdog Common Cause, called it curious for the board to vote on a settlement without knowing more, particularly in the 38 Studios case. The agency has been criticized for failing to do proper diligence before it handed a $75 million loan guarantee to Schilling's video game company, which ran out of money less than two years later.
Marion said there's a lot the public can learn from the details, including how effective the lawsuit and insurance policy are, and the relative culpability of the defendants.
"Were there three $1 settlements and one multimillion-dollar settlement? These are the unanswered questions when you only know the topline number," Marion said.
Officials at the Commerce Corp. said they considered many factors over a period of several months as they negotiated the deal, including that defendants may offer more if there is confidentiality or that they may be unwilling to settle if the amount is disclosed.
Raimondo said Wednesday that the confidentiality was part of an overall negotiation that included many terms. She called the amount of money "the most important term."
When she was asked by the AP if she voted in favor of the deal, her Commerce secretary, Stefan Pryor, stepped in.
"You are not required to vote," he told her, adding that all questions about the matter needed to be handled carefully because of the ongoing litigation.
Then, asked if the public should know how much the former officials had to pay or how much the agency's own insurance company had to pay, Raimondo said the settlement was complex and had recovered $12.5 million for taxpayers.
"This was a good thing for the people of Rhode Island," she said.
The deal was hammered out in 2010, during the administration of Republican Gov. Don Carcieri.
Steven Brown of the Rhode Island chapter of the American Civil Liberties Union called the decision bizarre and said the public should be greatly concerned that a state agency says it doesn't know who's paying what.
"If that doesn't raise eyebrows," he said, "I don't know what should."