State still working with firms implicated in suit

The fraud and misconduct alleged in Rhode Island’s lawsuit against the architects of the 38 Studios LLC loan guarantee haven’t stopped the state from doing business with some of the firms implicated.
Four months after Gov. Lincoln D. Chafee announced the suit, which names eight individual and six corporate defendants, the state has ended its relationship with all of the individuals, but half of the firms still hold state contracts.
The firms still working with the state are Adler Pollock & Sheehan P.C., the Providence law firm that served as general counsel for the R.I. Economic Development Corporation for 20 years, including during its creation of the 38 Studios package; Moses Afonso Ryan Ltd., the Providence firm that was the EDC’s special bond counsel on the 38 Studios loan; and First Southwest Co., the Dallas investment bank that acted as the state’s financial adviser on the 38 Studios deal.
Faced with a wide range of potential conflicts from the lawsuit, Chafee decided to sever ties with individuals connected with the 38 Studios deal, but not necessarily the firms they are a part of, even if those firms are named defendants.
“The guiding principle was the individuals were the ones whose work the state took issue with and that does not spread to every other attorney or employee in the firm,” said Chafee spokeswoman Christine Hunsinger, who added that the governor was not concerned the lawsuit would affect the firms’ future performance in any way.
In the case of both of the law firms in the suit, state agencies severed ties with the two attorneys who directly advised the EDC on the 38 Studios loans: Robert I. Stolzman of Adler Pollock, who was the EDC’s general counsel and secretary of the EDC board during the 38 Studios deal, and Antonio Afonso of Moses Afonso, who was the EDC bond counsel during the deal.
Hunsinger said the state has not compiled a list of all the state entities Adler Pollock or Moses Afonso work for, or how much the firms earn from state contracts.
Stolzman was providing legal advice for the Interstate 195 Redevelopment District Commission before it replaced him in November after the lawsuit was filed.
Moses Afonso still works for the EDC, handling legal issues for the Small Business Loan Fund, which it manages. In the case of First Southwest, both the firm and individuals involved in the 38 Studios transaction are still working for the state, although only the firm is a named defendant.
First Southwest has been the state’s financial adviser for borrowing since 2002 and has three Rhode Island contracts, all with the treasury, that pay between $175,000 and $250,000 annually depending on how many bonds the state issues in a year, according to Joy Fox, spokeswoman for R.I. General Treasurer Gina M. Raimondo.
First Southwest is also advising the EDC on the upcoming bond sale for the former Interstate 195 lands, although officials could not immediately say which state agency was paying the firm.
The 38 Studios lawsuit accuses company executives and top EDC officials of tricking the agency’s volunteer board of directors into approving a $75 million loan guarantee by withholding information that showed the deal was “destined to fail.”
The lawsuit says the EDC’s advisers, including First Southwest, Alder Pollock and Moses Afonso, were complicit in the conspiracy to withhold that information.
First Southwest’s senior adviser to Rhode Island is Maureen Gurghigian, who also headed up the firm’s work for the EDC on the 38 Studios deal. Gurghigian is not named as a defendant.
At one point, Gurghigian, Stolzman, Afonso and three other named defendants suggested increasing the loan guarantee to $85 million so that 38 Studios would get the amount of cash they said they needed to complete their video game, according to the suit.
First Southwest’s contract expires in June and Fox said the treasury is planning to seek bids from bond advisers this spring – completely independent of the 38 Studios lawsuit – in advance of awarding a new contract.
When those bids come in, Fox said First Southwest’s work on the 38 Studios deal will not exclude the firm from consideration.
Fox said she didn’t know if Gurghigian had been personally involved with the loan guarantee and it would not change Raimondo’s position on employing the firm if she was.
Gurghigian could not be immediately reached for comment. •

No posts to display