(Updated 10:10 a.m. and 12:39 p.m.)
PROVIDENCE – The R.I. Commerce Corp. said Tuesday that it has agreed to a $25.6 million settlement with two more defendants in the ongoing 38 Studios LLC civil lawsuit.
The proposed settlement is between Commerce RI, formerly known as the R.I. Economic Development Corp., or EDC, and defendants Wells Fargo Securities LLC and Barclays Capital Inc.
The lawsuit stems from accusations that the state was misled by the principals, underwriters and economic development officials when it issued $75 million in taxpayer-backed bonds to fund the failed video game company 38 Studios in 2010. Two years later, the company – headed by former Boston Red Sox pitcher Curt Schilling – filed for bankruptcy, leaving taxpayers on the hook to pay back the bonds.
Speaking with reporters on Tuesday morning, the retired state judge who led the mediation said the negotiated settlement was a victory for taxpayers, as well as the entities who reached agreement.
Retired Superior Court Judge Francis J. Darigan Jr. said the settlement came after two days of meetings among the parties, held in late July. Darigan said he was asked to step in by Judge Michael A. Silverstein, after two previous attempts at mediation had failed. Silverstein is expected to hold a hearing soon on whether to approve the settlement petition.
“By the end of the first day we had made significant progress,” Darigan said, of the mediation process. “By the end of the second day, we had reached consensus as to what a reasonable figure should be.”
When the mediation sessions began, all of the parties had sent representatives, he said. Ultimately, two of the four parties with legal standing reached an agreement. Darigan identified the two remaining parties as the 38 Studios group that includes the four named defendants, including Schilling and First Southwest Co.
The settlement figure is an aggregate amount to be paid by Wells Fargo Securities and Barclays Capital. Silverstein said he was restricted from disclosing who would pay what.
The settlement amount represented give and take on all sides, he said, and the disposition of what would have been a difficult case to bring before a jury. “The outcome is certainly uncertain, either from the defense point of view or the plaintiff’s,” he said.
In the end, the figure didn’t entirely satisfy any of the parties, which is what Darigan said was the hallmark of a good mediation, “where nobody walks out of here smiling. They walked out of here in agreement that this was a reasonable, good, fair disposition of this very contentious and difficult case.”
As for the remaining defendants, he said he was engaged in active negotiations with representatives of the named defendants associated with 38 Studios. He said he had every hope that it would be brought to a conclusion soon. Darigan said he had not had contact with First Southwest since the second day of the mediation, but hoped to reestablish it.
The greater than $42 million now recovered through proposed settlement of the state’s case against the 38 Studios parties represents about half of the state’s exposure in its financing of the failed company, he said.
The state was exposed to $88 million total, he said. The recovered amount excludes legal fees.
Although by some estimates, the total cost of the failed investment cost Rhode Island taxpayers nearly $100 million.
Remaining defendants yet to settle besides Schilling and First Southwest include Starr Indemnity and Liability Co., Thomas Zaccagnino, Richard Wester and Jennifer MacLean.
Gov. Gina M. Raimondo in a statement called 38 Studios a bad deal for Rhode Island, but lauded the progress that’s been made in the ongoing lawsuit.
“It’s our job to be as aggressive as we can in recovering as much taxpayer money as possible, and today’s settlement is another huge step toward that goal,” Raimondo said. “Rhode Islanders understandably feel hurt by this deal – and I do too – but I want everyone to know that we are demanding accountability, getting money back and moving the state forward.”
The state has reached settlements with other defendants, including Antonio Afonso Jr. and Moses Afonso Ryan Ltd. for $4.4 million in 2014, and Adler, Pollock & Sheehan P.C., Robert I. Stoltzman, J. Michael Saul and Keith W. Stokes for $12.5 million last year.
Late last month, Col. Steven G. O’Donnell, state police superintendent, and Attorney General Peter F. Kilmartin said there would be no criminal charges filed as a result of an investigation into the failed video game venture.
Separately, the Securities and Exchange Commission earlier this year filed charges against the EDC and Wells Fargo Securities alleging fraud. The SEC also charged former EDC executives Stokes and Saul for “aiding and abetting fraud,” but both individuals agreed to settle the charges.