38 Studios consultant is wrong

Last Wednesday, lawmakers were told that an insurance policy issued by Assured Guaranty Municipal Corp. would only result in that company pursuing the state for compensation if it is activated to pay off the 38 Studios bondholders. The “consultant” did not show up at the hearing but delivered this ill-conceived opinion from afar into the ears of legislators such as Michael J. Marcello (D-Scituate), who is normally a careful legislator. This advising firm is talking through its hat and apparently read neither the 332-page offering document nor the insurance policy. The advice is wrong on its face, but a potential lurking scandal right below the surface might allow the tracing of EDC assets from other sources to pay off a recoup effort by the insurance company. Here’s why:
The 38 Studios caper was an agreement between that entity and the Rhode Island Economic Development Corporation (EDC). Under RI law, the EDC is a quasi-public agency that is a distinct entity from the state and can be sued in its own corporate name. That makes the EDC the only entity on the hook, and, if legislation is passed in the General Assembly, it will soon be eliminated. Query what assets it has or will have to pass onto the next entity. If the lawyers and past board members did not protect unrelated EDC assets—say cash from leases or payback loans from other borrowers—then these usually politically-connected attorneys should be sued for malpractice. Similarly, if the House speaker’s legislation or that of the Senate president is not carefully crafted, any existing assets of the EDC could be used to pay off a suit. Transparency is necessary in order to see whether there are problems with past work done by the EDC and its advisors. Please note this is for any work done on other deals that did not bulletproof the repayment of the loans and leases from attachment issued in a subsequent and unrelated court action. If there were mistakes made by these well-paid and politically connected lawyers, it’s time to seek payment from their malpractice insurance carriers instead of a cover-up for incompetency. While there is a three year statute of limitations when it comes to malpractice actions, many exceptions exist—like discovering the malpractice at a later date.
In no event is Rhode Island on the hook. On page one in bold print of the offering it states that it is not a debt, liability or obligation of the state or any political subdivision thereof and no full faith or credit is pledged to pay it off in the event of the default. This language was written by Assured Guaranty and under legal doctrine will be strictly construed against the languages author. Quite simply, the insurance company is on notice that they cannot sue the state.
Asserting that the state will pay anyway is patently false. It is not a state debt. The bond offering was never placed before the voters in a referendum. There is nothing that makes the state of Rhode Island liable.
The real evaluation should be looking back at the other deals made by the EDC and whether the repayment of loans unrelated to these deals are in play because of negligence which is far-reaching beyond what the public knows now. If so, go after the malefactors who didn’t protect the EDC.


Related posts