The state Commerce Corporation announced Tuesday it has reached a $25.6 million settlement with two of the defendants in the state’s lawsuit over 38 Studios, Wells Fargo Securities and Barclays Capital.
The settlement requires court approval. If approved, legal fees and costs would subtract $4.3 million from the settlement, the Commerce Corporation said. With other factors, the agreement would reduce the amount owed by taxpayers due to the failure of 38 Studios from $61.8 million to about $30.2 million.
During an availability with reporters to discuss the settlement, the retired Superior Court judge who oversaw the talks, Francis J. Darigan Jr., called the agreement a good one for taxpayers and better than the uncertainty of a complex trial.
“This is the resolution of a very, very complex litigation in which there were very, very strong plaintiff concerns for bringing the case, and equally strong defensive positions held by the defendants in the case,” Darigan told reporters. “This is not going to be an easy case to try, and the outcome of it was certainly uncertain, either from the defense point of view or the plaintiff’s point of view. So this is an outstanding achievement.”
Darigan said he’s hopeful settlements can be reached with the remaining defendants in the case, former state fiscal adviser First Southwest and a series of individuals who worked for 38 Studios, including the company’s owner, former Red Sox star Curt Schilling.
The retired Superior Court judge said it would be a stretch to think additional settlements would wipe out the balance owed by Rhode Island taxpayers over 38 Studios.
In a statement, Wells Fargo said, “We are pleased to have reached an agreement in this case. We are not admitting liability, nor did we do anything improper. It is simply in our shareholders’ best interest to minimize the risk that accompanies lengthy litigation.”
In touting the settlement, Darigan invoked how one of his grandmothers used to say a bird in hand is worth two in the bush.
“A trial, no matter how strong you think your position may be, the outcome of these trials is very, very circumspect — you just don’t know what’s going to happen,” he said.
Darigan said the settlement amounts to “real money …. we’re talking millions of dollars that are guaranteed payment after really hard, hard-nosed and thoughtful introspective attempts by willing parties. I think it would be not in anybody’s best interest to go to trial; the state could come back with nothing or they could come back with a far higher number, but all of that is speculation.”
If the settlement is approved, the amount obtained by the state through settlements will grow to “more than $42 million in the ongoing 38 Studios litigation, nearly half of the roughly $88 million state moral obligation on 38 Studios bonds for both past and future appropriations,” the Commerce Corporation said in a statement.
Darigan began taking part in court-ordered mediation in July with defendants and the state’s counsel in the 38 Studios litigation, Max Wistow, Stephen Sheehan, and Benjamin Ledsham.
The trial in the state lawsuit over 38 Studios, initiated by former Governor Lincoln Chafee, is slated to begin after jury selection in October.
In a statement, Governor Gina Raimondo said, “38 Studios was a bad deal for Rhode Island and I was against it from the start. It’s our job to be as aggressive as we can in recovering as much taxpayer money as possible, and today’s settlement is another huge step toward that goal. This settlement and the two previous total over $42 million, and we are committed to keep going. Rhode Islanders understandably feel hurt by this deal – and I do too – but I want everyone to know that we are demanding accountability, getting money back, and moving the state forward.”
If the settlement is approved, the remaining defendants in the lawsuit include First Southwest Company, Starr Indemnity and Liability Company, Curt Schilling, Thomas Zaccagnino, Richard Wester, and Jennifer MacLean. “That litigation will go forward in order to further reduce the taxpayers’ potential exposure on the remaining moral obligation,” the Commerce Corporation said.
Schilling, the former Red Sox star who owned 38 Studios, is expected to testify early in the trial over the company’s meltdown. He has suggested Rhode Island brought the money-losing experience on itself, by pursuing his company and extending a $75 million state-backed loan guarantee.
38 Studios went bankrupt in 2012, leaving Rhode Islanders on the hook for approximately $112 million. That amount was reduced by more than $24 million, in most part due to proceeds from a reserve account.
Following earlier settlements related to 38 Studios, state taxpayers now owe $61.8 million, the Commerce Corporation said. That’s down from the initial moral obligation starting point of $88.3 million.
The state’s lawsuit over 38 Studios alleges fraud and negligence.
Previous settlements in the case include $4.37 million from Antonio Afonso, Jr. and Moses Afonso Ryan Ltd. in June 2014, and another with Adler, Pollock & Sheehan P.C., Robert I. Stoltzman, J. Michael Saul, and Keith W. Stokes for $12.5 million in August 2015.
This post has been updated.
