38 Studios: SEC Charges RI Commerce Corp, Wells Fargo with Fraud - RI Reacts
Tuesday, March 08, 2016
On Monday, the United States Securities and Exchange Commission charged the Rhode Island Economic Development Corporation (now the Rhode Island Commerce Corporation) and its bond underwriter Wells Fargo Securities with defrauding investors in the 38 Studios bond offering.
The SEC also charged Wells Fargo’s lead banker on the deal, Peter Cannava, and two then-RIEDC executives Keith Stokes and J. Michael Saul with aiding and abetting the fraud. Stokes and Saul agreed to settle the charges without admitting or denying the allegations and must each pay a $25,000 penalty, and are prohibited from any future municipal securities offerings. The SEC’s litigation continues against Cannava, Wells Fargo, and RIEDC.
Governor Gina Raimondo's office declined to comment on Monday, and referred comment to the Commerce Corporation.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLAST“The Commerce Corporation is still reviewing today’s filing, which concerns events that occurred under a previous administration. The Commerce Corporation, in its own lawsuit, has alleged that Wells Fargo, Keith Stokes, and Michael Saul failed to disclose material information about the 38 Studios deal to the former Economic Development Corporation’s board of directors and to investors," said Kayla Rosen, spokesperson for Commerce.
"Today’s filing makes consistent allegations. In addition the SEC issued an order against First Southwest Company today for its conduct in acting as the financial adviser to the former Economic Development Corporation in connection with the 38 Studios transaction. That order concludes that First Southwest committed willful violations of fair dealing requirements of certain federal securities rules. That is also consistent with the allegations in the Commerce Corporation’s lawsuit against First Southwest Company. The Corporation will continue to work toward its goals of recouping money for Rhode Island and holding the defendants in the Commerce Corporation’s lawsuit accountable," said Rosen.
Speaker of the House Nicholas Mattiello commented on the SEC's finding.
“I would note that the SEC complaint has nothing to do with the General Assembly’s passage of legislation. The focus is clearly on the flawed implementation and execution of the 38 Studios’ bond offering. It is very troubling that the SEC alleges that Wells Fargo was working on both sides of the transactions and did not disclose this information to bond holders. It is also disturbing that the EDC failed to protect the best interests of the state’s taxpayers in this transaction," said Mattiello.
Default Back in Question?
The question of whether to pay, or not to pay, the debt on the 38 Studios bonds was a heated debate leading up to the 2014 Rhode Island gubernatorial race, when then-Governor Lincoln Chafee blasted those opposed to paying back the $75 million bonds on the failed video game company.
SLIDES: See Who Supported -- and Who Opposed -- Defaulting on the 38 Studios Bonds in 2014
"Rhode Island should stop paying these bonds ASAP," said Ken Block on Monday, who lost in the 2014 Republican gubernatorial primary to Cranston Mayor Allan Fung -- and both opposed paying back the bonds at the time. "Now we know the bond offering was done fraudulently. The pushback against non-payment was nothing wrong was done - but now we know otherwise."
"The whole point of my pushing to not pay the bonds was because the deal was crooked from its inception," said Block. "We now have the first proof of that."
GoLocal MINDSETTER Michael Riley -- and former SEC lawyer and Forbes columnist Edward Siedle -- pointed to the involvment of the SEC as indication of action to come.
"This is a slam dunk case and as an advocate of clean government, I have been wondering why the SEC hasn't been looking at this," said Riley. "While they are here they should look at Providence, the last 3 Mayors and [the city's] lies about pension assets. Hopefully the era of political leaders and insiders rigging deals and misleading taxpayers and investors will come to a screeching halt."
Siedle offered the following.
"To me, this is just demonstration that absent federal intervention, nothing in Rhode Island gets cleaned up," said Siedle, who has called for the SEC to investigate the state's pension investments. "This creates an interesting atmosphere. We are now in the situation where other matters have been referred to the SEC. That SEC is looking into Rhode Island."
Pat Ford, who is the chair of the Rhode Island Libertarian Party, weighed in in Monday's development as well.
"The Rhode Island Economic Development Corporation has been a generational failure since its inception," said Ford. "Displaying none of the core competencies necessary to engage in what has been a veiled attempt at functioning as a venture capital firm, the EDC a.k.a the 'Commerce Corporation' has successfully socialized failure while trying to privatize success for legions of politically connected businesses."
Related Slideshow: Who Wants to Pay and Who Wants to Default on the 38 Studios’ Bonds
GoLocalProv showcases which Rhode Island politicians and organizations want to pay or default on the 38 Studios' Bonds.
Related Articles
- 38 Studios Players: Where Are They Now?
- Reform Groups Demand RI General Assembly Members Take Position on 38 Studios
- Where Are the 38 Studios Players Now?
- Moore: Projo Kept Public In the Dark on 38 Studios
- Moore: Speaker Mattiello Should Resign Over 38 Studios
- People Who Should Be Subpoenaed for the 38 Studios Investigation
- Guest MINDSETTER™ Santos: Reckoning 38 Studios, Conspiracy to Conceal, Careful What You Wish for
- NEW: SEC Charges RI Commerce Corp, Wells Fargo with Fraud in 38 Studios
- Governor Donald Carcieri’s 38 Studios Deposition and Exhibits
- Does Carcieri’s 38 Studios Legacy Hurt Fung?
- State Report: Gemma’s Investigation, Governor Carcieri & a 38 Studios Lawsuit
- LISTEN: Chippendale Blasts Criminal Investigation of Corso and 38 Studios
- 38 Studios Documents Unveil Carcieri, Fox and Other Leaders Lied About Deal
- Does Carcieri’s 38 Studios Legacy Hurt Fung?
- Carcieri Accepts Responsibility for Approving Failed 38 Studios Deal
- TIMELINE: Fox and Corso
- Where Has Kilmartin Been on 38 Studios, Corso, and Doyle?
- Chippendale Blasts Criminal Investigation of Corso and 38 Studios
- Insider Michael Corso’s 38 Studios Deposition and Exhibits
- NEW: Rep. MacBeth Calls on Kilmartin to Investigate Corso
- Grade the Governor – How Did Carcieri Do?
- Corrente’s Connections to 38 Studios Lawyer Corso
- Did Hasbro’s Verrecchia Have a Conflict When He Voted to Fund $75M to 38 Studios
- INVESTIGATION: Fox, Corso and 38 Studios
- ProJo Held Key 38 Studios Story At Request of EDC
- Chippendale Requests Corso, Esten for Hearing on 38 Studios
- Reform Groups Make 2nd Demand for Independent Investigation into 38 Studios
- Riley: I Reject the Findings of 38 Studios Hearings - Part 2
- 38 Studios Investigation: 16 to Watch in 2016 in RI
- What Costantino Remembers and Forgot - 38 Studios’ Big Subpoena
- LISTEN: Fox, Corso and 38 Studios
- Bishop: 38 Stabilizations - Neverending Prov Tax Giveways are 38 Studios Redux
- NEW: Schilling Blasts Critics Over 38 Studios Subpoena, and More
- Mattiello Signs Subpoenas for Corso, Costantino for 38 Studios Hearings
