Wells Fargo, Barclays Capital settle for $25.6M in 38 Studios lawsuit

Aug. 24--PROVIDENCE, R.I. -- Major players agreed Tuesday to pay $25.6 million to resolve their part in the contentious dispute over who bears blame for Boston Red Sox great Curt Schilling's failed 38 Studios video-game venture, which left Rhode Island taxpayers on the hook for millions.

Notice was filed Tuesday morning in Superior Court that bond-placement agents Wells Fargo Securities and investment firm Barclays Capital PLC had reached a joint settlement of $25.6 million, in what might amount to the largest, single amount Rhode Islanders collect. The settlement came after retired Superior Court Judge Francis J. Darigan Jr. stepped in last month to help mediate the state's civil lawsuit against 14 defendants.

The proposal -- which needs the approval of Superior Court Judge Michael A. Silverstein -- does not delineate each company's contribution. Both Wells Fargo and Barclays Capital deny any wrongdoing in reaching the settlement.

Darigan said in a news conference Tuesday that the settlement was the result of rigorous negotiations that left no one entirely satisfied, but all parties agreeing it was a "reasonable" resolution.

"Everybody participated to the highest degree," Darigan said. The talks involved high-level personnel from Barclays and Wells Fargo as well as Claire Richards, executive counsel to Governor Raimondo; Senior Counsel Jeremy Licht; Commerce Secretary Stefan Pryor; and Max Wistow, lead lawyer for the state Economic Development Corporation.

Darigan called the settlement "an outstanding achievement."

"This really and truly is a hard-won victory for all the parties, particularly the taxpayers of the state of Rhode Island," he said. Darigan said he did not expect the state to recoup all losses, but a substantial amount.

The state continues to owe $51.5 million to investors, Matt Sheaff, spokesman for the Rhode Island Commerce Corporation, said. If Tuesday's settlement is approved, about $21.3 million would be put toward paying the bonds, dropping the figure owed to $30.2 million, he said. (The remainder of the $25.6 million in settlement money would pay legal fees and other costs.)

The settlement -- which brings the total sum recovered to date to above $42 million -- leaves two groups of defendants remaining in the case: the state's financial adviser First Southwest and a group linked to 38 Studios, Darigan said.

Both dug their heels in Tuesday, saying they were preparing for trial, now set for Oct. 18.

"Today's settlement does not change our position. We are preparing for trial this fall," Patti Doyle, a spokeswoman for First Southwest, said.

"Good for them," Schilling posted on Twitter, responding to the banks' settlement. He has said he's looking forward to telling in court his side of what brought his company down.

Still, Darigan remained hopeful that more settlements would come in the weeks ahead, and that First Southwest would return to bargaining.

"I think it will not be in anyone's interest to go to trial," Darigan said.

Gabriel Boehmer, spokesman for Wells Fargo, praised the resolution. "We are pleased to have reached an agreement in this case. We are not admitting liability, nor did we do anything improper. It is simply in our shareholders' best interest to minimize the risk that accompanies lengthy litigation," he said.

After 38 Studios' collapse, the state Economic Development Corporation, since renamed the Rhode Island Commerce Corporation, filed suit accusing First Southwest, Wells Fargo, Barclays, and the defunct 38 Studios executives of colluding by withholding crucial information when they put together the $75-million bond deal. In the aftermath, state taxpayers were left to pay off more than $112 million in principal, interest and fees on bonds the agency sold to raise money for 38 Studios.

In September 2015, Silverstein approved a $12.5-million settlement with several defendants, including Keith Stokes and J. Michael Saul, who led the EDC before its downfall; Robert I. Stolzman, once the agency's outside counsel; and Stolzman's law firm, Adler Pollock & Sheehan. That settlement amounts to about $9.9 million less legal fees and costs, Sheaff said.

Also to settle was Antonio Afonso and his firm -- Moses Afonso Ryan Ltd. -- who advised the EDC on the failed loan guarantee. They agreed in June to pay $4.37 million from the law firm's insurance policy "to put this matter behind them," according to a court document. After legal fees and costs, the sum amounts to $3.17 million, Sheaff said.

The U.S. Securities and Exchange Commission, meanwhile, in a lawsuit in U.S. District Court, alleges that the EDC, Wells Fargo, and some of their executives defrauded investors in the $75-million bond offering.

Darigan said Tuesday that he did not think the settlement would impact the SEC case.

To date, Wistow, Sheehan & Loveley has received $2.8 million and $893,200 in reimbursements for its work representing the Commerce Corporation. The corporation agreed to pay the firm 16.67 percent of the money recovered.

The Bottom Line

R.I. borrowed $75 million to lure 38 Studios to R.I.

When 38 Studios went bankrupt, state taxpayers were on the hook for $112 million in principal and interest to pay off the bonds.

Today, taxpayers still owe:

$51.5 million

That amount will be reduced by the $25.6 million settlement with Wells Fargo and Barclays, less the fees and payments to lawyers and others.

The $25.6 million settlement follows two others:

$4.37 million with Antonio Alfonso, Moses, Afonso Ryan Ltd.

$12. 5 million -- Keith Stokes, Michael Saul, Robert Stolzman, Adler, Pollock & Sheeh

Source: R.I. Commerce Corporation

The Defendants

The state of Rhode Island sued 14 defendants in a civil lawsuit in 2012 in an attempt to recover taxpayers' money that was lost in the bankruptcy of 38 Studios. Here is their status:

Curt Schilling, former Red Sox pitcher, founder of 38 Studios -- Trial Pending

Jennifer Maclean, former CEO, 38 Studios -- Trial Pending

Richard O. Wester, former chief operating officer, 38 Studios -- Trial Pending

Thomas Zaccagnino, former board member, 38 Studios -- Trial Pending

Keith Stokes, former executive director, R.I. Economic Development Corporation -- Settled

J. Michael Saul, former managing director of financial services for the EDC -- Settled

Robert I. Stolzman, lawyer, Adler, Pollock & Sheehan, former EDC legal counsel -- Settled

Adler, Pollock & Sheehan -- Settled

Antonio Afonso Jr., lawyer, Moses Afonso Ryan, former EDC bond counsel -- Settled

Moses Afonso Ryan Ltd., bond counsel -- Settled

First Southwest Co., financial advisory firm -- Trial Pending

Wells Fargo Securities, investment bank, EDC adviser -- Settled

Barclays Capital, investment bank, underwriter of 38 Studios bond -- Settled

Starr Indemnity and Liability Co., 38 Studio's liability insurer -- Trial Pending

Source: R.I. Commerce Corporation

With reports from Staff Writer Kate Bramson.

[email protected]

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On Twitter: @kmulvane

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