Frank Caprio wants to go after the bond rating agencies if he recaptures the Rhode Island treasurer's seat.

"The options are open. If it means legal action, so be it," Caprio said in a lengthy interview.

Caprio may have some company as controversy simmers in the Ocean State over the 38 Studios bond fiasco.

House Speaker Nicholas Mattiello's recent declaration following a visit to the rating agencies in New York that Rhode Island should pay the debt figures to end any suspense over whether the state will allocate the $12.5 million Gov. Lincoln Chafee recommended in the budget.

Mattiello, speaking after a Democratic caucus, cited overwhelming support of the House rank-and-file. Still, angst is festering amid some circles in Rhode Island against what they consider over-posturing by rating agencies.

As state treasurer and gubernatorial candidate in 2010, when the Rhode Island Economic Development Corp. — now Rhode Island Commerce Corp. — issued a $75 million loan guarantee backed by the state's moral obligation to 38 Studios, former Boston Red Sox pitcher Curt Schilling's video-game company, Caprio asked the three major bond-rating agencies to withhold ratings until after the elections.

Caprio opposes repaying the bonds.

Moody's Investors Service and Standard & Poor's issued investment-grade ratings anyway, in late September 2010.

38 Studios and three affiliates filed for Chapter 7 bankruptcy in 2012, leaving Rhode Island taxpayers on the hook for the $75 million, plus interest.

For the second straight year, the specter of multiple-notch downgrades hovers, thanks to an S&P warning on May 12. Last year, lawmakers approved an initial $2.5 million payment after heated debate that lasted beyond midnight.

A state-sponsored report that SJ Advisors of Eden Prairie, Minn., released last month said nonpayment could drop Rhode Island's rating to junk level.

The controversy shed a national spotlight on Rhode Island amid debate in the capital markets about enterprise risk and the questionable practice of underwriting businesses in high-risk sectors, plus discussion about whether a moral obligation bond is tantamount to a general obligation one.

"The sequence of events is troubling to me. And it connects to the last few weeks, where rating agencies have said they would put us on negative watch," said Caprio.

Caprio said the rating agencies are off point.

"The moral obligation is up for debate when we have other, bigger financial issues in the state," he said. "We have a state lawsuit pending that would reverse $4 billion in savings from unfunded pension liability. We face a projected dropoff in revenue from the state lottery with the prospect of full-blown casinos in Massachusetts, and Rhode Island still has the highest unemployment rate in the country.

"If any of these were up for negative watch, then you could have a fair debate."

Caprio also criticized Rhode Island officials for rehiring FirstSouthwest as financial advisor when the state is suing FirstSouthwest and other partners over their roles in the 38 Studios financing.

Triet Nguyen, a managing partner at Axios Advisors LLC, thinks the rating agencies are overestimating their effect on the market.

"If all 'moral obligations' are always treated as 'full faith and credit general obligations,' then what's the point of making that distinction at all?," Nguyen said in a commentary on the web site MuniNet Guide. "Recent credit debacles, including the ongoing Detroit case, have taught us to stop relying on customary -- but legally untested -- interpretations of certain GO pledges. The time has come to ask bond attorneys to clearly define the exact nature and enforceability of any type of GO pledge, moral or otherwise."

Caprio added: "My experience as treasurer is that the market sets the price of the state bonds."

Caprio is running for the treasurer's office he held from 2007 to 2011. He finished third in the 2010 gubernatorial election, which Chafee won as an independent. Chafee, now a Democrat, will not seek re-election. Caprio this year is seeking to return to the treasurer's office. Incumbent Gina Raimondo, also a Democrat, is running for governor.

The agencies have declined comment on any meetings with Rhode Island officials, saying they are private.

State auditors have begun a forensic audit of 38 Studios.

Last September, state officials confirmed that the Securities and Exchange Commission will investigate the bond deal.

Meanwhile, the personal attorney for former House Speaker Gordon Fox, whose home and state house office were raided in March, said a grand jury investigation may include the 38 Studios financing.

House members Michael Chippendale, R-Foster, and Karen MacBeth, D-Cumberland, both of whom serve on the House Committee on Oversight - MacBeth is chairwoman - said they received threatening letters over their desire to investigate possible criminal activity related to the original financing.

Caprio, speaking shortly after attending a jobs breakfast at the Providence Marriott downtown, said 38 Studios is resonating among everyday citizens.

"I was personally surprised at the level of detail the average person is attending to regarding this issue," he said. "There were many lower-income people at this event. It was not a Chamber of Commerce-type meeting where people read every line of the op-eds."

Chafee, Mattiello and Raimondo all say Rhode Island should pay the debt.

"It is a gross embarrassment that all the state's general officers appear to confuse New York institutions and are treating this as an extension of the Westminster Kennel Club dog show in which they demonstrate how well they can heel for Wall Street masters," said Brian Bishop, the chief legal researcher for the libertarian think tank Stephen Hopkins Center for Civil Rights.

Bishop and others point across the state line, where Connecticut in 2011 settled with Moody's, Standard & Poor's and Fitch one year after suing the big three charging unfairly low ratings and deception. Connecticut received a $900,000 credit to offset the expense of future ratings. The agencies, between the filing of the lawsuit and the settlement, overhauled how they rate municipal bonds.

In addition, Connecticut Treasurer Denise Nappier added Kroll Bond Rating Agency in 2012 shortly after Kroll entered municipal finance. As treasurer of capital city Hartford in the early 1990s, Nappier was one of the first public-sector debt issuers to employ Fitch, when it was looking to crack the muni market.

In California, Treasurer Bill Lockyer throughout his two terms, the second of which ends this year, has repeatedly called for overhauling the rating agency system.

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