The irony wasn’t lost on me.
Yesterday, the same day that the Rhode Island House of Representatives announced a new, convoluted financing scheme to pay for a new Pawtucket Red Sox stadium, Bond Buyer reported that the 38 Studios fiasco rages on–in the court system.
According to Bond Buyer, the legal battle between the Securities & Exchange Commission (SEC) and Peter Cannava and Wells Fargo rages on.
The SEC charged Cannava and Wells Fargo with defrauding investors by failing to disclose key aspects of the ill-fated deal that left taxpayers holding a percentage of the loss in 2016.
38 Studios Battle Continues
The state passed a loan guarantee program in 2010 that would guarantee the borrowing of the entities or people who bought the 38 Studios bond debt.
The Rhode Island Economic Development Corporation (now called the Commerce Corporation) decided to give $75 million to the now defunct 38 Studios. The company, run by former Red Sox pitcher Curt Schilling, received $50 million in bond proceeds. Another $25 million was set aside to pay for the borrowing costs.
But the company needed far more than $50 million to produce their first big game. They also money to relocate to Rhode Island. The SEC argues that the Economic Development Corporation as well as Cannova and Wells Fargo misled investors by failing to point out that the borrowing wouldn’t be enough.
The Rhode Island Economic Development Corporation settled with the SEC. But Wells Fargo and Cannova are fighting the charges.
The lawyers for Wells Fargo and Cannova argued this week that the SEC failed to allow the defendants the interview witnesses that the SEC will use to prosecute the two parties.
It’s unclear how the case will proceed. The case will likely continue well into next year, according to Bond Buyer. Cannova, for his part, argues that if he isn’t successful in defending himself against the SEC, it will ruin his career in the finance industry.
Meanwhile, the financing scheme passed by the House of Representatives, today will be just as complicated as the 38 Studios financing scheme.
But Rhode Island House Speaker Nicholas Mattiello assures the public that the deal is different that 38 studios, because there is no risk to the taxpayer.
“This legislation takes away the risk to the taxpayers that was in the original proposal,” said Mattiello, in a press release.
“This new proposal will segregate revenues generated in a new Tax Increment Financing District to ensure that revenues from the project will be directly tied to the debt payments, and the project will stand or fall on its own.”
Risk or No Risk?
Governor Gina Raimondo, however, has told media outlets that if everything fails, the state taxpayers will, in all likelihood, be forced to step in and make the borrowers whole.
Whether or not the Pawtucket Red Sox stadium ends up costing taxpayers millions or ruins the careers of others remains to be seen.
But it could.