Target 12 investigation triggers RI probe of 38 Studios lobbying

PROVIDENCE, R.I. (WPRI) – R.I. Secretary of State Ralph Mollis has launched an investigation into potential violations of the state’s lobbying rules involving failed video-game company 38 Studios in response to findings by Target 12.

A Target 12 review of the state’s database shows no one from 38 Studios ever registered to lobby state lawmakers or the executive branch during the years the firm, founded by former Red Sox ace Curt Schilling, was known to be active in Rhode Island: 2010 to 2012.

38 Studios registered no one even though former R.I. Economic Development Corporation (EDC) executive director Keith Stokes publicly acknowledged a $125-million loan-guarantee program was created in part to benefit the company, and even though 38 Studios insiders repeatedly contacted state officials, first to secure taxpayer-backed funding and later to request tax credits.

When Target 12 first asked Mollis why his office – which oversees the registration of lobbyists – never investigated 38 Studios’ failure to register anyone, the secretary of state attributed it to the fact that no one ever filed a complaint with him. He also said he did not have “absolute knowledge” that 38 Studios insiders had lobbied state officials under the law.

Within 24 hours, however, Mollis reached out to say he’d changed his mind, and in a subsequent interview he attributed the “change of heart” to Target 12’s findings.

“Upon further review I think we have obligation and responsibility to look into this, find out if anyone did not file for lobbying,” Mollis said.

He also said he may call for State House hearings about 38 Studios’ lobbying as part of his probe – something he has never done in his seven years as secretary of state.

“We are definitely in new territory,” Mollis said. “As a result of our discussion … I walked away from that meeting feeling that it truly needed further review.”

Mollis swayed by Corso contract

One of the reasons for Mollis’s change of heart was a document obtained by Target 12 and shown to him during the initial interview.

The document is a “consulting services agreement” dated January 2011 between Providence attorney Michael Corso – an associate of former House Speaker Gordon Fox whose name has long been tied to the 38 Studios debacle – and the game company.

The document calls for 38 Studios to pay Corso a consulting fee of $300,000 a year to, among other duties, interact “with government agencies and various public officials.” (Target 12 has redacted Corso’s bank account information from the document.)

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After reading the document, Mollis acknowledged: “That doesn’t get any closer to lobbying than the word lobbyist. Yes, that person should have registered.”

Internal state documents obtained by Target 12 suggest Corso was closely involved with the 38 Studios deal from beginning to end.

In a March 2010 email exchange, for example, top EDC officials asked Corso about “Gordon coming to Maynard” – the Massachusetts community where 38 Studios was headquartered before its move to Providence — as well as the possibility that Schilling could be “available to meet with Senate Pres. Paiva-Weed tomorrow night.”

That was four months before the 38 Studios deal was struck, and more than two months before lawmakers passed the legislation allowing it. Target 12 has repeatedly asked Corso for comment in the years since the collapse of the company; he has never returned a call.

Reps were ‘totally blindsided’

Corso also coordinated a key meeting in early 2010 between Fox, Stokes and 38 Studios board member Thomas Zaccagnino. Fox discussed the meeting during a June 2012 taping of WPRI 12’s Newsmakers.

“The meeting took place at Mike Corso’s office, because he volunteered that,” Fox said during the program. “I don’t know if [Corso was] planning in his mind … ‘I’m going to get work out of this or there is going to be a program created.’ I don’t think any of that was going on.”

Two months prior to that meeting, Schilling met with then-Gov. Don Carcieri during a private fundraiser at the former baseball star’s Massachusetts home. Carcieri has said that meeting was the spark that led him to push the company’s eventual move to the Ocean State and for a loan guarantee program that ultimately gave $75 million in taxpayer-backed funds to 38 Studios.

State Rep. Charlene Lima, D-Cranston, said someone from 38 Studios should “absolutely” have registered to lobby state officials.

“If they did have a lobbyist here at least the rank and file, who were totally blindsided by this $75-million special interest piece of legislation, would have known what they were lobbying for,” Lima told Target 12. “There would have been more transparency for the rank and file.”

Lima, like every other state representative but one, voted to create the loan guarantee program, which was quickly tapped by 38 Studios. She said if the company had registered lobbyists, lawmakers might have known millions of dollars were going to be earmarked for the video game company and it would have given her “pause” before voting for the bill.

“All the rank and file feel the wool was pulled over their eyes,” Lima said. “We were totally astonished at what happened.”

Two years after that vote, with 38 Studios in deepening financial trouble, Fox said he received another call from the company to schedule an April 2012 meeting between him, Gov. Lincoln Chafee, Schilling and Zaccagnino, as well as top aides to the two elected officials.

“They start talking about consents to do tax credits and a consent to do bridge financing,” Fox said on Newsmakers. “They slide two papers – it’s Curt Schilling with Tom Zaccagnino – the four of us, and the governor and I are like, ‘What in the hell?'”

38 Studios soon collapsed into bankruptcy, leaving Rhode Island taxpayers on the hook for roughly $90 million in principal and interest payments to the investors who bought state-backed bonds used to fund the company. A payment of $2.4 million was made May 1.

Lobby investigation

Mollis said his office will begin the lobbying investigation by determining if anyone testified in front of House or Senate committees through a review of testimony lists as well as video clips from Capitol TV. He said he will also solicit information from current and former members of the legislative and executive branches to see if they were lobbied away from the State House.

“Just by a quick review I think it’s pretty obvious that some individuals may be – and I want to stress may – be in for a hearing before something I put forward,” Mollis said.

He listed the names of Schilling, Zaccagnino and Corso as examples of who might be asked to testify.

“Or there may be others who seem to have lobbied and not have filed with this office,” he said.

Mollis acknowledged that he does not have subpoena power and cannot force people to come to the State House and testify during a hearing. But he added he can still find that someone violated the law even if they don’t show up to offer their own defense.

Fines for lobbying violations can reach as high as $2,000, and such findings can be passed along to R.I. Attorney General Peter Kilmartin to potentially pursue criminal charges, Mollis said.

Mollis, a Democrat, was elected secretary of state in 2006 and re-elected in 2010 but is barred by term limits from running again. He is now running for lieutenant governor.

Mollis isn’t the only one examining Corso’s actions relating to 38 Studios. State Rep. Michael Chippendale, R-Foster, last week requested that Corso be called before the House Oversight Committee to testify.

Tim White ( twhite@wpri.com ) is the Target 12 investigative reporter for WPRI 12 and Fox Providence. Follow him on Twitter: @white_tim

Ted Nesi ( tnesi@wpri.com ) covers politics and the economy for WPRI.com and writes the Nesi’s Notes blog. Follow him on Twitter: @tednesi

WPRI.com reporter Dan McGowan contributed to this report.

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