Gordon Fox ordered 38 Studios deal, lawyers say

Ex-speaker met with Schilling behind Carcieri's back, according to court documents

PROVIDENCE, R.I. (WPRI) – Former House Speaker Gordon Fox ordered the head of the state’s economic-development agency to put together the deal that lured Curt Schilling’s 38 Studios to Rhode Island, state lawyers contend in a court filing newly unearthed by Target 12.

The lawyers say Fox held a private meeting with Schilling and Tom Zaccagnino – a top 38 Studios board member – prior to the oft-cited March 2010 fundraiser where Gov. Don Carcieri and Schilling started discussing the company’s potential move.

That fundraiser is usually identified as the beginning of Rhode Island’s involvement with 38 Studios. But in the court filing discovered by Target 12, the state’s lawyers make this disclosure: “Unbeknownst to Governor Carcieri, then-Speaker of the Rhode Island House of Representatives Gordon Fox had previously met with Defendants Schilling and Zaccagnino.”

The revelations significantly revise the narrative about what transpired leading up to the 38 Studios deal, which left Rhode Island taxpayers on the hook for about $89 million in bond payments when the company went bust in June 2012. Fox’s critics have long alleged he was more closely involved in pushing the deal than he’s ever admitted.

The court document – an amended version of the state’s civil complaint, filed last winter – was crafted by Max Wistow and the state’s other attorneys as part of their long-running lawsuit against many of those who helped put together the $75-million loan guarantee that the R.I. Economic Development Corporation (EDC) gave 38 Studios in 2010. Unlike most of the filings in the case, the document describing Fox’s involvement was not placed under seal.

Lawyers for Wells Fargo & Co., one of the defendants in the suit, argued the disclosures about Fox represent a major development in the 38 Studios saga.

“These allegations synthesize for the first time the contention that Fox and Carcieri were effectively working in tandem to relocate 38 Studios to Rhode Island using the EDC,” they wrote in a court filing. “These allegations substantially elevate the level of Fox’s and Carcieri’s roles in this litigation.”

Thomas Holt and Robert Duffy, two of the lawyers for Wells Fargo, did not respond to a request for comment.

Fox refused to answer questions about 38 Studios during his deposition in the suit, invoking his Fifth Amendment right against self-incrimination, Wells Fargo’s lawyers disclosed in their own filing.

The former speaker is now serving a three-year sentence in federal prison on an unrelated matter. His lawyer, Albin Moser, did not respond to a request for comment.

State lawyers’ reference to a meeting between Fox and 38 Studios officials before Carcieri got involved conflicts with Fox’s statements during a June 2012 taping of WPRI 12’s Newsmakers, where he said he didn’t become aware of 38 Studios until after Carcieri and Schilling began discussing the company’s future at the fundraiser at Schilling’s home on March 6, 2010.

Fox said on Newsmakers he was introduced to Zaccagnino, the 38 Studios board member, by Michael Corso, a tax-credit broker and mutual friend of theirs. Fox said Zaccagnino “called me after a meeting that apparently the governor had with Curt Schilling, and said, ‘What kind of programs – can you introduce us to Keith Stokes?” Stokes was head of the EDC at the time.

Asked whether he’d known anything about the company before that, Fox insisted on Newsmakers that Zaccagnino’s call was “the first time I’d heard about 38 Studios.”

But the court document says Fox’s knowledge of 38 Studios predated the fundraiser where Carcieri and Schilling began discussing the company’s move to Rhode Island, and that Fox never disclosed to Carcieri that he’d met with Schilling and Zaccagnino already.

The document goes on to confirm one aspect of the 38 Studios timeline which is already well-known – that “a few days after meeting Schilling,” Carcieri spoke to Stokes and Robert Stolzman, the EDC’s legal counsel, and “instructed them to employ the EDC to accomplish the relocation of 38 Studios to Rhode Island.”

“At about the same time,” however, the document says Fox met with Stokes, Schilling and Zaccagnino “to discuss using the EDC to finance 38 Studios’ relocation to Rhode Island.” After the meeting, the lawyers say Stokes shared the “instructions” from Carcieri and Fox with Robert Stolzman, the EDC’s legal counsel, and J. Michael Saul, its deputy director.

Fox did acknowledge that second meeting during the 2012 interview on Newsmakers, describing it as his only significant involvement in the early 38 Studios discussions: “They talk, they make plans to meet again – I’m out of the picture.”

The state’s lawyers, however, say that was when Fox joined Carcieri in issuing “instructions to use the EDC to accomplish relocation of 38 Studios to Rhode Island.”

Wells Fargo’s lawyers described that disclosure as significant: “EDC contends for the first time that Speaker Fox was present at a meeting with Schilling and Stokes, and that Speaker Fox instructed Stokes to make the 38 Studios deal happen.”

The EDC had no mechanism in place at the time to back a loan to 38 Studios, but the Carcieri administration had proposed one: a new $50 million Job Creation Guaranty Program that would provide loan guarantees to high-tech companies with soft assets such as intellectual property, as opposed to hard assets such as factories and equipment.

Once 38 Studios expressed interest, the size of the proposed program was upped to $125 million – an increase of $75 million, precisely the amount that Schilling’s company eventually received. Carcieri signed the program into law on June 11, 2010, less than two months before the EDC board approved the $75 million loan guarantee for 38 Studios.

While Stokes said at the time the increase from $50 million to $125 million was directly caused by 38 Studios, Fox has always maintained that the money wasn’t earmarked for Schilling’s company and that he and other lawmakers only created a program for the EDC to use as it saw fit.

“Did I know Curt Schilling was interested in coming to Rhode Island? Absolutely,” Fox said during the 2012 Newsmakers interview. “Did we mandate that he get $75 million? Never! Never, never, never. Did we vet any of his financials? I wouldn’t know if Curt Schilling would have qualified for a dime, for nothing, or for $125 million.”

“I never told [the] EDC board to give $75 million to Curt Schilling,” he said. “I never looked at one of Curt Schilling’s financials. … I never talked to one board member.”

“I know it sounds like, oh, yeah, this was all earmarked to Curt Schilling, but it was not,” he added. “It was to set a program large enough to say that, let’s create room for a company like Curt Schilling’s company – without mandating it.”

During the same interview, though, Fox was unable to say why the program’s proposed size increased by $75 million if it wasn’t to cover the amount of money that 38 Studios needed. “Where the $75 [million] comes from is a blur,” he said.

William Murphy, Fox’s predecessor as House speaker, has separately confirmed that he visited 38 Studios the year before the company struck its deal with Rhode Island but denied that he had any conversations with anyone about relocating the firm to the state.

The 38 Studios lawsuit, which was filed by the Chafee administration in November 2012, has been winding its way through R.I. Superior Court for more than two years and still doesn’t have a trial date set.

The details about Fox’s role contained in the newly unearthed document offer a tantalizing glimpse at the sort of information about the deal that could be contained in the reams of depositions, emails and other materials that have been collected as the case has dragged on.

Superior Court Judge Michael Silverstein, who is handling the case, has yet to issue a decision on a motion by the state’s lawyers to unseal the depositions and other materials in the case that are currently sealed off from public view.

Meanwhile, the original list of 14 defendants in the suit continues to be whittled down after two settlements were reached over the last year, leaving eight defendants who have not agreed to settle. They include Schilling and other 38 Studios executives, as well as Wells Fargo and other firms involved in the bond transaction.

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

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

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