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Russell J. Moore: Licht Admits Negligence on 38 Studios

Monday, February 24, 2014

 

Sometimes, it seems like the rapture will occur before there’s any accountability around here, believes Russell Moore.

Eventually, the truth comes out. Sometimes, it just has to slip through the cracks.

That’s exactly what happened last week when, after almost two years, Richard Licht finally came clean, albeit inadvertently, about the Chafee administration’s negligence surrounding the financial demise of 38 Studios.

Licht—Governor Lincoln Chafee’s Director of Administration, and all-around statehouse top dog—told Channel 12 WPRI’s Tim White last week that “…no one was watching 38 Studios.”

The quote surfaced in a story almost completely unrelated to 38 studios—other than the fact that it pertains to a loan fund granted by the Economic Development Corporation that was, according to an audit by an impartial Virginia based firm, and misspent by the highly touted, but questionable Betaspring.

An inconvenient truth

Given that the loan fund, which like the 38 Studios deal, was meant to invigorate the economy, and is being spent questionably, that led the reporter to ask if there were any similarities between the loans administered by Betaspring and the debacle that was, and still is, 38 studios. That’s when Licht showed the Chafee administration’s true colors.

“We wanted to make sure we were in compliance, we wanted to make sure things were being done right, and that’s the difference. No one was watching 38 Studios,” Licht told WPRI.

Keep this in mind: Governor Chafee was chairman of the EDC board during the whole implosion of 38 studios and during all the months preceding its demise. That means Chafee was responsible for overseeing and monitoring 38 Studios for over 16 months. But given Licht’s statement, that never happened.

Governor Chafee will be the first person to point out how staunchly opposed he was to the 38 studios deal in the first place. That’s not really a big accomplishment. Just about everyone who understood the deal, outside of former Governor Donald Carcieri and his hand-picked automatons on the EDC board thought it was ridiculous.

Call me crazy, but I would think that someone who was as opposed to the 38 studios loan as Chafee was would’ve been extra motivated to keep an eye on the $75 million dollars that Rhode Island supposedly guaranteed to a highly speculative video game company run by a retired baseball player who didn’t know the first thing about video games.

The Chafee/Licht double

Imagine if a person was forced to guarantee money to somebody else for a project they didn’t believe in. It stands to reason that the lender would be watching the borrower with eagle eyes, and sounding the alarm at the first sign of trouble.

Yet that never happened. Instead, the exact opposite approach was taken. Like the spoiled child who didn’t like the way the pickup baseball game was going, Governor Chafee did the equivalent of taking his bat and baseball and went home.

Instead of real leadership, we got a heavy dose of “I told you so”, when the company imploded. Thanks a bunch, Governor!

To make matters even more convoluted, the state hired big shot attorney Max Wistow to sue the banks, 38 Studios executives, financial and legal advisors and former employees of EDC, claiming that the loan guarantee was made under false pretenses and that fraudulent behavior may have occurred to secure this deal. Given Licht’s recent confession, Wistow better think long and hard about adding Licht and Chafee as defendants on the suit as parties that are responsible for this fiasco given their admittedly negligent behavior in monitoring the taxpayer’s money.

Further, (and please file this under “you can’t make this stuff up” or, “only in Rhode Island”), Licht worked for white shoe law firm Adler Pollock and Sheehan, which is now one of firms being sued for malpractice by the State. That means Licht is, in all likelihood, the only person with links to the potential malpractice during the 2010 loan negotiation when working for Adler Pollock and Sheehan, and the negligence of the Chafee administration in 2011 for failing to monitor the loan when Chafee hired him to work for the state. Chafee likes horse racing, so let's call this the Chafee double.

Let's not forget folks, that this is the Governor we elected based on promises to end cronyism and corruption!

Insult to injury

Now, Licht the former insurance industry lobbyist turned state executive, is leading the charge to force Rhode Islanders to pay back the 38 studios bonds—yet the effects of non-payment are unclear, at best. Opinions from experts vary widely on the financial effects of insurance companies not being made whole.

The state was supposed to study the issue this year, but no consultants, other than Wall Street critic Ted Siedle, have come forward to study the issue. Of course, the state won’t hire Siedle because he won’t tell the administration, what they want to hear. And no consultants came forward because they make money off of consulting for, not against Wall Street’s interests.

That alone makes a perfect case for Rhode Islanders to say a polite “no thank you” to the argument that they should have to voluntarily pay for the failure of 38 studios. Remember: the taxpayers do not legally owe this debt—that’s as clear as an azure sky.

In any event, the issue should be studied by somebody—anybody. Sorry Director Licht, but merely telling us “Wall Street always wins”, like you did last year, isn’t going to cut it. We need sound analysis, not vapid sound bites.

Beta Sink?

Meanwhile, according to wpri.com, the consultant retained by the state to study whether or not the Commerce Corporation (formerly the EDC) and Betaspring are spending the federal grants as they should be spending them answers with an emphatic ‘hell no’.

In fact, the report makes it seem a lot like Betaspring is a nothing but a job factory for the politically connected. Betaspring, which is supposed to be an economic accelerator, seems to be nothing but federal money gobbler-upper. The organization has spent a whopping 71 percent of the federal money it’s been given on operating expenses—(think salaries, benefits, plush offices, expense accounts).

What’s even worse, if worse can be imagined, is that the organization is using the money to invest in out of state companies, one of which was from Israel!

Given the mismanagement that occurred at 38 Studios, you would think that the state administration would’ve learned its lesson. Instead of listening to its Virginia based auditor, Licht is arguing that it’s the independent auditor that doesn’t know what it’s talking about—not Betaspring or the Commerce Corporation.

0.0 Accountability

Given the audits revelation of the irregularities at Betaspring and Licht’s admission that the administration did nothing to monitor the loan guarantee at 38 studios, the time is well past due for the state legislative oversight committees to call Governor Chafee and Licht before them to get some real answers and to account for these controversies. Sometimes, it seems like the rapture will occur before there’s any accountability around here.

 

A native Rhode Islander, Russell J. Moore is a graduate of Providence College and St. Raphael Academy. He worked as a news reporter for 7 years (2004-2010), 5 of which with The Warwick Beacon, focusing on government. He continues to keep a close eye on the inner workings of Rhode Islands state and local governments.

 

Related Slideshow: From the EDC to Commerce Corporation

The Rhode Island Economic Development Corporation, which was created in 1995, is slated to be replaced with the Rhode Island Commerce Corporation as of January 2014.

Below is an overview of the formation of the EDC, the fallout of 38 Studios, and the recommendation -- and approval -- of the Rhode Island Commerce Corporation to take its place.  

Prev Next

EDC Formation

The Rhode Island Economic Development Corporation (RIEDC) was created in 1995 with a "mission to strengthen the Rhode Island economy through policies, programs, and projects, which enhance and enrich the business environment for public and private sectors in order to create prosperity for all Rhode Islanders."

Annual Budget: $19,400,000

Total Personnel: 81

Prev Next

EDC Responsibilities

According to the Secretary of State, RIEDC "works with new and existing business to improve their competitiveness, train their workers, clear away barriers and provide the resources they need to grow and prosper.  [RIEDC works to] research, introduce and promote legislation and programs to make Rhode Island a more hospitable state for starting and expanding a business."

Prev Next

38 Studios -- Beginning

RIEDC issues $75 million in taxable revenue bonds to finance Curt Schilling's 38 Studios, LLC. in November 2010. Governor Chafee takes office in January 2011 and appoints Keith Stokes to Director.

Prev Next

38 Studios -- Fallout

RIEDC holds an emergency closed door meeting May 2012 in light of failing 38 Studios , Executive Director Keith Stokes is fired.  

Prev Next

RIPEC Recommendation

The Rhode Island Public Expenditure Council issues a report in September 2012 calling for "systemic and internal restructuring" -- and for the formation of the Commerce Corporation to take the place of the current EDC.  

Prev Next

Valois Takes Helm

Chafee nominates former EDC Director Marcel Valois to replace interim Director William Parsons in April 2013.  Valois served at the post once before, from 1995 to 1997.

Prev Next

GA Approves Overhaul

The General Assembly approves four pieces of legislation to "move Rhode Island's economy forward and reform the state's economic development structures" during the 2013 session. 

Governor Lincoln Chafee allows three of the four bills to become law without his signature, signs a fourth bill

 
 

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Comments:

As Don Carcieri said ""I commend the RIEDC Board for its EXTENSIVE DUE DILIGENCE and for taking this significant step to bring jobs to Rhode Island," Don Carcieri THE MAN WITH THE VETO PEN said the night the agency approved the loan to Carcieri's fellow conservative Republican Curt Schilling.
EXTENSIVE DUE DILIGENCE ! ...LOL
Rhode Island's director of revenue said she "was not in favor" of the 38 Studios deal and and expressed those concerns DIRECTLY to then-Gov. Don Carcieri.
Gov. Carcieri still won't face taxpayers despite the stunning implosion of the $75 million loan guarantee he got them to give Curt Schilling's video game company,
Sammy in Arizona

Comment #1 by Sammy Arizona on 2014 02 24

I don't know what Chafee should have done about running 38 Studios while he was Governor, is it being suggested state government should be telling high-tech companies how to run their business? I thought the mantra was government should get out of the way.

I agree with Sammy not to forget who was really responsible, but it wasn't just Carcieri and his appointments to the EDC, the General Assembly let this happen too. And the legislature, with support of the Chafee administration, has started to pay back the bondholders (who are they? I didn't get a chance to buy these 7.5% bonds, did you?) even though they don't have to. As usual, our troubles are bipartisan.

And I still don't understand why we bought "insurance" on these bonds.

Comment #2 by barry schiller on 2014 02 24

"Remember: the taxpayers do not legally owe this debt—that’s as clear as an azure sky."

Right, so why is Chafee trying to pass the cost on to us?

And to get rid of another, bigger, unnecessary expense, turn the new Obamacare state health insurance exchange over to the federal government -- let them own it. The maintenance costs are going to be staggering.

Comment #3 by Art West on 2014 02 24

Good article...very enlightening.Gangster government lives on!

Comment #4 by LENNY BRUCE on 2014 02 24

You couldn't write this stuff as fiction -- no one would believe it. You can't suspend disbelief enough to swallow all the corruption, lies, and distortions. Yet, retired state employees and teachers are having their pensions robbed of any long-term value on the grounds that the state can't afford to pay it. Yet every day, there are new stories featuring new funding for some group or other, some of that funding in the form of paying off 38 Studio bond holders, others as hundreds of millions of dollars of new bond money. Now, after a half million dollars in legal fees coming from the state pension fund and more than a year of "negotiating," we are being offered a sham settlement that plays us for fools. The so-called vote is so rigged in advance (anyone who doesn't vote is counted as a vote supporting the settlement) and takes away the legal rights of anyone in that class of individuals to mount their own legal suit, that it can only be described as a "railroad" job. Where is the outrage Rhode Island -- to it all? When do we say enough is enough of it all? What is the level of disgust we are supposed to swallow? What happened to our sense of fair play?

Comment #5 by Fruma Efreom on 2014 02 24

Fruma Efreom -

Spot on. Agree. Completely. Thank you for stating the truth.

Comment #6 by paul zecchino on 2014 02 25

Is there anyone, anyone, out there that does not believe that this coming clean was done for any other reason then to take away any and all obstacles to Mr. Licht becoming a judge and his then obtaining something in and around a $165,000.00 Pension for life....because of his honesty? (Sic)

Comment #7 by TOM LETOURNEAU on 2014 02 25

there is no reason to pay these bonds back, NONE ...Wall Street is laughing at the thought we might.... Not paying will have negligible effect on our credit rating ....general obligation bonds and revenue bonds will be untouched... i think the billions of dollars in Municipal pension obligations and state pension obligations is much, much more meaningful to bond ratings...If Gordon Fox and Paiva Weed have illegally made personal promises to Wall Street buddies then let Weed and Fox pony up....

Comment #8 by michael riley on 2014 02 25

Tom, Michael,

Both of you have hit the mark. Thank you.

Comment #9 by Art West on 2014 02 25

To back up Mike Riley, a friend that trades bonds on wall street laughed (literally) at the idea that we would pay back the bonds.

Comment #10 by Redd Ratt on 2014 02 25

Lets reward trust fund boy Licht with a job and a pension for a job well done--- for HIS cronies.

Comment #11 by G Godot on 2014 02 25

The OTHER shoe is, of course, what it's going to cost trust fund boy Gump to buy the judgeship for his buddy Licht. The assent of the Speaker of the House does NOT come cheap. Watch, listen, and learn. Don't expect three monkeys Gregg of the Belo to clue you in, though.

Comment #12 by G Godot on 2014 02 25

I'll bet this entire matter gets "settled" with another screwing of the taxpayers before Foxy has to appear for a deposition and do his "I can't recall" thing 'till the cows come home. Not good press for the lad.

Comment #13 by G Godot on 2014 03 03

Maybe what it's going to cost Foxy to be let off the hook is a judgship for Licht. One hand watches the other.

Comment #14 by G Godot on 2014 03 03




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