RI, law firm strike $4.4M agreement on 38 Studios

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Associated Press

Posted on June 27, 2014 at 6:04 PM

Updated Friday, Jun 27 at 6:06 PM

PROVIDENCE, R.I. (AP) — A law firm sued by Rhode Island's economic development agency over the failed $75 million deal with former Boston Red Sox pitcher Curt Schilling's video game company has agreed to settle for $4.4 million, the sides said in a court filing Friday.

If approved by a judge, it would be the first settlement in the high-profile lawsuit over 38 Studios.

The deal has cast a shadow over Rhode Island politics ever since the company went bankrupt two years ago, leaving taxpayers on the hook for as much as $100 million. The lawsuit was filed in 2012 against Schilling and others as an attempt to recover some of that money.

"The proposed settlement is a step in the right direction, and I hope this is the beginning of a positive resolution to the 38 Studios saga," Gov. Lincoln Chafee said in a written statement.

The settlement agreement between the agency formerly known as the Economic Development Corp. and lawyer Antonio Afonso and his firm Moses Afonso Ryan was filed with Superior Court Judge Michael Silverstein. Court spokesman Craig Berke said the judge will have a hearing on it July 7.

The law firm said in the filing that it continues to deny any liability but wants to put the matter behind it, as well as avoid the risk of a larger judgment at trial. The state agency's lawyer said the agency is worried there could be little left in the firm's insurance policy if the case goes to trial.

38 Studios moved to Rhode Island from Massachusetts in 2010 with the promise of a $75 million state loan guarantee. But it was never able to raise the money it needed to survive and declared bankruptcy in 2012, leaving taxpayers on the hook to repay bonds that had been issued to fund the venture.

The lawsuit alleges defendants including two former agency employees, investment banks and others misled the state into approving the loan guarantee. Moses Afonso worked on the bond sale and was accused of breach of fiduciary duty, fraud, malpractice, negligence and other wrongdoing.

A number of high profile people have been deposed or subpoenaed in the case, including former Gov. Don Carcieri, who pushed for the deal, and former House Speaker Gordon Fox, who supported it and stepped down in March after the FBI and IRS raided the Statehouse and his home for still-unexplained reasons.

The lawsuit does not ask for a specific dollar amount but for the defendants to repay the bonds. The suit seeks triple damages.

38 Studios dominated debate at the General Assembly in the session that ended this month, with some lawmakers arguing that the state should not repay bondholders, but instead default on the moral obligation bonds. Chafee and others argued that not repaying the bonds could jeopardize the lawsuit. Ultimately, lawmakers approved $12.3 million for the next payment.

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