PROVIDENCE, R.I. — It's taken more than a year, but Rhode Island lawmakers are trying to find out what led up to the state's costly gamble on Curt Schilling's now-defunct video game company, sifting through thousands of documents in hopes of learning how to avoid similar debacles.
The House Oversight Committee began its review last week of some 15,000 pages from emails, letters, meeting records and other documents relating to the state Economic Development Corp.'s $75 million loan guarantee awarded to 38 Studios. The committee is now considering whether to ask key figures involved in the deal to testify — with the option of subpoenaing any individuals who say no.
Questions about the state's involvement in 38 Studios continue to reverberate around the Statehouse about the company's decision to file for bankruptcy, making the state responsible for $90 million in outstanding debt. The EDC is now suing Schilling, former EDC Deputy Director Michael Saul, former EDC Executive Director Keith Stokes and others involved in the deal, alleging they withheld information about 38 Studios' finances from the board and gave it false information.
For lawmakers and other individuals still upset about the bad investment, several questions loom: Did top lawmakers support legislation creating the loan guarantee program knowing 38 Studios would be the largest beneficiary? Did officials at the EDC know that 38 Studios would need additional money to succeed? Did the EDC board, former Gov. Donald Carcieri and top lawmakers do their homework on 38 Studios before pushing for the state's investment?
Lawmakers approved the $125 million loan guarantee program in 2010, but rank-and-file lawmakers have said they weren't told that 38 Studios was involved. Yet documents released as part of the oversight process show clearly that efforts to help 38 Studios were behind the proposed loan guarantee program.
In the minutes from an EDC executive session in June 2010, an EDC attorney briefed the board on the loan guarantee program legislation, which was then pending in the General Assembly. The attorney said, "The legislature is aware of the Schilling matter and has done some due diligence in its consideration of this program," according to the minutes.
In a letter to Neil Steinberg, president of the Rhode Island Foundation, Stokes wrote that 38 Studios was a "catalyst for the $125 million Job Creation Guaranty Program. Without the tangible prospect of a company like this coming to Rhode Island, the opportunity to create the program would likely not have materialized."
The documents led state Rep. Karen MacBeth to accuse legislative leaders of misleading her and other lawmakers.
"We're taking votes based on untruths or lies," said MacBeth, D-Cumberland. "These documents absolutely show without a doubt that the key players here did know about it."
House Speaker Gordon Fox has said he knew of efforts to lure 38 Studios to Rhode Island, but the loan guarantee program was a separate discussion. His spokesman Larry Berman said the EDC — not top lawmakers — was behind efforts to pass the loan guarantee legislation to aid 38 Studios.
"The legislature was aware of the Schilling matter — at least some of the members were," Berman said. "We created the program that would provide the funding, but whether 38 Studios qualified for that funding, that was left up to the EDC."
The oversight committee could invite former executives from 38 Studios or former EDC officials to testify at the committee. But committee chairman Michael Marcello, D-Scituate, said it's unlikely those individuals would want to speak in light of the pending litigation.
"If I were their lawyer, I would tell them not to testify," he said.
The committee could vote subpoena witnesses, but the subpoenas would require Fox's approval.
Sen. Dawson Hodgson, R-North Kingstown, said it's vital that the committee attempt to ask questions of the individuals involved. Hodgson called for a special investigative committee to look into the 38 Studios episode, but his proposal failed in the General Assembly.
"I'm glad we're seeing some kind of serious post-mortem of 38 Studios, but no real oversight will be complete without calling in the principal actors," he said.
Schilling, the former EDC officials and former executives at 38 Studios are seeking to dismiss the EDC's lawsuit. Messages were left with several individuals involved in the deal. Stokes declined to comment, citing the lawsuit.
Critics of the oversight process note that it comes more than a year after 38 Studios filed for bankruptcy. They also question whether the committee will look closely at questions about the General Assembly's own role in passing the loan program that benefited 38 Studios.
"I don't think many people in the state buy the idea that they didn't know," said Randall Rose, who as a member of the group Occupy Providence has called on the state to default on the 38 Studios debt. "This may be an effort to run out the clock."
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