Four years later, Rhode Island is still looking for answers on the 38 Studios bond financing debacle.
Friday's joint announcement that neither the state police nor state attorney general's office would file criminal charges frustrated many in the state who want to know what happened with former Boston Red Sox pitcher Curt Schilling's failed video-game company.
Attorney General Peter Kilmartin admitted as such during a news conference – called on short notice late in the day at state police headquarters in Scituate, 16 miles from capital city Providence.
"To those who are cynics and choose not to believe what is being said today, no explanation will be sufficient," Kilmartin said alongside state police Col. Steven O'Donnell.
The probe included 146 interviews – some more than once and five whom the Federal Bureau of Investigation had questioned – in addition to legislative hearings at the State House.
38 Studios, a video-game company owned by former Boston Red Sox pitcher Curt Schilling, went bankrupt in 2012 and shut its office in downtown Providence.
The legislature two years earlier approved a $75 million loan package that the Rhode Island Economic Development Commission had offered, backed by the state's moral obligation, to lure Schilling to Providence from Maynard, Mass. The state remains on the hook for the debt.
Proving illegality in investigations such as these can be difficult, according to Anthony Figliola, vice president of Empire Government Strategies in Uniondale, N.Y.
"After all, you are investigating the political process," said Figliola. "Sadly, in the end it was the taxpayers were on the hook for the poor decisions made by a few within Rhode Island's government."
Not every investigation results in a prosecution, said Anthony Sabino, a Mineola, N.Y., white-college legal expert.
"It's obvious that the authorities exhausted every possibility here, but clearly they felt there was not enough to give them a fair chance to prove guilt -- if any -- beyond a reasonable doubt," said Sabino, a St. John's University law professor. "They should be praised for not wasting the taxpayers' money, which, after all, is at the heart of this entire controversy."
A civil suit filed by the agency, renamed RI Commerce Corp., to claw back lost funds is scheduled to begin in the fall.
In addition, the U.S. Securities and Exchange Commission in March charged the agency, underwriter Wells Fargo and three individuals with defrauding investors by not revealing the complete financial status of the company or the extent of the compensation arrangement with the underwriter.
The SEC accused Peter Cannava, who the commission said was Wells Fargo's lead banker on the deal; and former RIEDC executives Keith Stokes and James Michael Saul.
Stokes and Saul agreed to settle the charges for $25,000 each without admitting wrongdoing and were barred from participating in future muni offerings. The other cases continue.
"Let it be clear, this investigation is independent and wholly separate from the civil litigation pending, and takes no position on the civil case," said a
Kilmartin told reporters Friday that officials could reopen the case if further evidence warrants it. He said his office is not releasing any related documents.
Terms of the 38 Studios deal called for the video game firm to receive $49.5 million in incremental payouts from November 2010 through November 2011. Roughly $12.7 million went into a reserve account held by the RIEDC toward possible future loan default payments; about $10.6 million went into an interest-bearing account held by RIEDC and the remaining $2.2 million paid for closing fees and municipal bond insurance.
38 Studios defaulted on a $1.1 million interest payment in May 2012. Unable to meet payroll, it closed its doors and filed under Chapter 7 the following month.
The firm's demise led to heated debate about whether Rhode Island should pay the debt. That prompted bond rating agencies to say moral obligation is tantamount to general obligation and threaten to downgrade Rhode Island GOs.
Rhode Island still owes on the debt. Moody's Investors Service rates the state Aa2. Fitch Ratings and S&P Global Ratings assign AA ratings.
"A bad deal does not always equate to an indictment," O'Donnell told reporters.
House Minority Leader Brian Newberry, R-North Smithfield, said Kilmartin should have recused himself, given that he approved the original loan package as a state lawmaker. Newberry added that "at a bare minimum," the results of the state police investigation should be made public.
"Privacy considerations are obviously paramount. But this is not a normal investigation," said Newberry. "There will never be public trust until the air is clear on this."
Schilling responded with a series of vitriolic messages on Twitter berating Rhode Island officials.
Critics over the years accused Rhode Island, struggling with low employment and eager to build out a technology presence, of hastily offering sweeteners to Schilling – who was looking to cash in on his celebrity, having helped lead the Red Sox to two World Series championships, including their first World Series championships in 86 years in 2004.
"The debacle of 38 Studios and the decision that there was not enough evidence to prosecute anyone in this case still leaves the state with a major need for new commerce to stave the tide of systemic unemployment and economic depression," said Figliola.
