PROVIDENCE, R.I. (WPRI) – The Chafee administration wants to know whether Rhode Island taxpayers have legal avenues to claw back some of the tens of millions of dollars they’re poised to lose after the collapse of 38 Studios.
The governor’s office is close to choosing a law firm to examine whether Rhode Island can seek damages from the professional liability insurance policies of those who worked on the $75 million loan guarantee, a person familiar with the discussions told WPRI.com on Monday evening.
Professional liability insurance, also known as errors and omissions insurance, is purchased by professionals such as lawyers and consultants to protect themselves if they’re accused of negligence. It’s different from the municipal bond insurance the EDC and 38 Studios purchased from Assured Guaranty to protect investors.
Administration officials began discussing possible legal avenues to “recover as much as possible” back on May 1, when 38 Studios defaulted on a $1.1 million payment it owed the R.I. Economic Development Corporation, the person said, adding that the governor also wants to hold people accountable.
It’s not the first time Chafee has made such a suggestion: he said as a candidate in 2010 that then-Gov. Donald Carcieri and the EDC board could be sued for approving the 38 Studios deal if it turned out badly, a remark that drew gasps from an audience of business leaders when he uttered it.
38 Studios filed for bankruptcy on Thursday and the EDC will seek to recover money in court as its only secured creditor. Taxpayers are facing a loss of more than $90 million when all is said and done, Revenue Director Rosemary Booth Gallogly said Friday on WPRI 12’s Newsmakers.
At least six law firms worked on the 38 Studios deal in 2010, including Moses & Afonso of Providence, the EDC’s bond counsel; Adler Pollock & Sheehan of Providence, the EDC’s general counsel; and Taft & McSally of Cranston, the state’s disclosure counsel.
In addition, Pannone Lopes Devereaux & West advised the placement agents on the bond deal; Edwards Angell Palmer & Dodge of Providence was 38 Studios’ counsel; and Bernstein, Shur, Sawyer & Nelson of Portland, Maine, advised Bank of New York Mellon, the bond trustee.
As it discussed whether to approve the 38 Studios deal, the EDC board also received guidance from Strategy Analytics, a Boston-based market research firm, and Mark Lamarre, a managing director then at Wells Fargo Securities who is now with Morgan Keegan & Company.
FirstSouthwest of Lincoln was the EDC’s financial advisor, and Moody’s Investors Service and Standard & Poor’s both vetted the transaction.