PROVIDENCE, R.I. — A judge has pulled back the curtain that has long shrouded the controversial 38 Studios loan guarantee.
Rhode Island is waiting to see what appears.
State Superior Court Judge Michael Silverstein on Friday ordered the release of all documents in the state's lawsuit over the failure of 38 Studios, the video game company owned by former Boston Red Sox pitcher Curt Schilling.
"We strongly believe in the public's right to know what went on in the 38 Studios deal, and it was the Commerce Corp. that asked the judge this year to lift the confidentiality order," said Gov. Gina Raimondo. "We are pleased the judge granted this motion — it is an important step in moving our state forward."
Court officials say the documents related to the bond financing fiasco might be available by the end of next week. The time-consuming cataloguing work involves thousands of pages, with some briefs submitted before the court system converted to electronic filing.
The Rhode Island Economic Development Corp. — since renamed RI Commerce Corp. -- issued $75 million of bonds for the firm, backed by the state's moral obligation, in 2010. Two years later, however, Schilling closed the company, which had moved from Maynard, Mass., to downtown Providence.
Rhode Island is suing a variety of defendants including investment banks and financial advisors. It has settled with some parties. The state, meanwhile, has been making annual payments toward the debt under the hammer of the bond rating agencies who have likened moral obligation debt to general obligation. After the $2.2 million payment to bondholders by RI Commerce in May, the state owes $74.3 million on the debt including interest, according to state documents.
Fitch Ratings and Standard & Poor's rate Rhode Island GOs AA. Moody's Investors Service rates them Aa2.
Still, fallout from 38 Studios has resonated through the bond markets. In May, Gurtin Fixed Income Management LLC said the sour taste from the fiasco has eroded support for badly needed economic development projects in Rhode Island. Gurtin placed a sell rating on Rhode Island bonds in May 2014 and said it has no exposure to state debt for its clients.
Anthony Figliola, vice president, Empire Government Strategies in Uniondale, N.Y., said the email exchange between the staffs of 38 Studios and the state agency should be interesting.
"This case is Rhode Island's Solyndra," said Figliola.
Last week the U.S. Department of Energy's inspector general said solar-panel manufacturer Solyndra Inc. misled the federal government to obtain a $535 million loan guarantee. The company, a lynchpin of the Obama administration's solar energy initiative, filed for bankruptcy.
According to the inspector general's report, employees felt pressure to process loan guarantee applications, based on "significant interest" in the program from the administration, Congress and Solyndra itself.
"I hope Rhode Island's decision-makers have learned a valuable lesson about supporting a company that has not proven itself and giving away the store at the taxpayers' expense," said Figliola.
State Sen. James Sheehan, D-North Kingstown, wants state officials to drop First Southwest as its financial advisor because First Southwest, also a defendant in the 38 Studios case, petitioned the court to block the $12.5 million settlement between the state and defendants Keith Stokes, J. Michael Saul, Robert Stolzman and his law firm Adler Pollock & Sheehan. State officials hired the latter in 2014.
"We are suing this company for fraud. We are suing them for gross negligence. We are suing them for legal malpractice," said Sheehan, who chairs the Senate oversight committee. "The time has come to end the state's business relationship with First Southwest now."
Raimondo's press secretary, Marie Aberger, said the administration had no comment on the First Southwest matter.
"As you know, the governor was against the 38 Studios deal from the beginning," she said. Raimondo was the state's general treasurer from 2011 to 2014.
First Southwest has been the state's financial advisor since 2001. Its contract ends in May 2016.
Current Treasurer Seth Magaziner will issue a request for proposals for a financial advisor on Dec. 1. According to state documents, the winning firm will advise, among other matters, on GO bonds; certificates of participation and lease programs; Garvee financing; debt refunding; short-term financing including tax-anticipation notes.
Mineola, N.Y., attorney and St. John's University law professor Anthony Sabino said Silverstein ruled correctly.
"The great Supreme Court Justice Louis Brandeis, a Bostonian himself, said that sunshine is the best disinfectant. That's precisely what Judge Silverstein is doing here," said Sabino.
"Whatever the outcome of this litigation with the beloved former Red Sox's entity, the public has a right to know," Sabino said. "The judge is making the right move for the right reasons, and in keeping with the time-honored principles that court proceedings are open affairs."