The personal lawyer for former Rhode Island House Speaker Gordon Fox said Thursday that a grand jury investigation may include the financing of failed video-game company 38 Studios.
"We do believe that federal and state authorities are interested in the subject matter of 38 Studios with regard to their investigation. We believe it is a wide-ranging investigation," Albin Moser said before Rhode Island Superior Court Michael Silverstein in Providence. "We know that there are in excess of 100 subpoenas issued for the grand jury proceeding."
Fox resigned as House speaker in March after several law-enforcement agencies raided his Providence home and State House office, though is serving out the remainder of his term. He will not seek re-election.
Moser, during a pretrial hearing in the state lawsuit against 38 Studios, invoked Fox's Fifth Amendment rights against self-incrimination and asked Silverstein to nullify a subpoena issued by Wells Fargo Bank.
Rhode Island is on the hook for principal and interest on $75 million of bonds issued for failed video game studio 38 Studios by the Rhode Island Economic Development Corp.
The bonds, supported by the state's moral obligation, were issued in 2010 to entice former Boston Red Sox pitcher Curt Schilling to move his video game company to downtown Providence from Massachusetts.
The firm was supposed to repay the debt, but 38 Studios soon failed, and filed for Chapter 7 bankruptcy in 2012.
The hot-button issue of whether to pay the bonds has resurfaced at the capitol, where lawmakers are considering a $12.5 million budget request by Gov. Lincoln Chafee. The governor wants Rhode Island to pay roughly $12.5 million annually through 2020.
The bonds are wrapped by Assured Guaranty Municipal Corp.
A report by SJ Advisors of Eden Prairie, Minn., which the state commissioned at a cost of $50,000, warned that
On Monday, Standard & Poor's said missing the payment could result in a
Municipal bond analyst Triet Nguyen, a managing partner at Axios Advisors LLC, accused bond rating agencies of histrionics in a
"The report makes one fundamental assumption that drives all its conclusions: that Rhode Island's rating will end up below investment-grade, basically on a par with Puerto Rico. Does this potential response from the rating agencies even make sense?" Nguyen wrote.
"In the end, while we agree there should be a clear cost to Rhode Island for reneging on its moral obligation pledge, a downgrade by the rating agencies to below-investment grade would be a wild over-reaction, in our view, one that the market may end up ignoring," he wrote. "We believe market participants will see through this and may, in fact, view any potential downgrade of Rhode Island debt as a buying opportunity."
On Thursday night, members of the House Oversight Committee heard pleas to study the matter more thoroughly before deciding whether to pay the bonds.
Gary Sasse, founding director of Bryant University's Hassenfeld Institute for Public Leadership, said that how informed the decision is made is as important as the decision itself.
He cited polls that reflect waning confidence in state leadership. He warned that fallout from rating agencies is inevitable if Rhode Island doesn't pay.
"Whether it's fair or not, the credit-rating agencies, which frankly were created to protect bondholders, set the rules, and they see all types of debt as bona-fide obligations of the state. You can call it moral obligations, you can call it bananas, you can call it anything you want. That is a very basic premise of the bond markets."
Robert Cusack, a portfolio manager at WhaleRock Point Partners LLC in Providence, urged House Speaker Nicholas Mattiello, D-Cranston, to meet with S&P and Moody's Investors Service in New York to ask directly what GO rating Rhode Island would get if it doesn't pay.
"I think he will leave those meetings with a pretty good idea of what our new ratings will be," said Cusack.
Cusack also recommended the state hire an analyst to interview the largest holders of GO debt and other large holders of institutional debt to into gauge the effect of the yield penalty on future financings.
