PROVIDENCE â€“ Curt Schillingâ€™s 38 Studios is back in default with the state, Gov. Lincoln Chafee announced at a late Friday afternoon press conference.
Laying off its employees without giving the state 30 days notice is an apparent violation of the companyâ€™s loan and trust agreement with the state, Chafee and other state officials said, although the company could once again get back in good graces if it makes certain disclosures to the state in the next 30 days.
Being in default means, among other things, that 38 Studios is not eligible for the stateâ€™s Television and Motion Picture Tax Credit Program and if they emerge from default, they would have to go to the back of the line.
It is questionable how much any of that matters now, however, as the company has laid off all of its employees and many of them are already latching on with new employers. But on Friday, Chafee refused to concede that the company is defunct, and the governor said he and others are still looking and hoping to find new investors to pump cash into the operation.
Chafee acknowledged, however, that â€śWeâ€™re not optimistic,â€ť about the companyâ€™s prospects, later amending that to, â€śIâ€™m very pessimistic.â€ť
The failure to inform the state of the layoffs does not absolve the stateâ€™s responsibility â€“ â€śmoral obligation,â€ť in financial terms -- to back the companyâ€™s debt. â€śWeâ€™re still on the hook,â€ť he said resignedly.
The governor said he is â€śabsolutelyâ€ť going to commission a forensic audit of the companyâ€™s books to determine how the deal went sour.
â€śThe taxpayers have tens of millions of dollars invested in this company,â€ť Chafee said, â€śitâ€™s been difficult getting answers from them and we want to know everything possible about what happened to every penny of those taxpayer dollars.â€ť
Asked how the company records are being secured so an audit can be completed, Chafee was vague. But he said, â€śwe have the confidence we are in good shape right now and as we proceed we will make sure all records are secured.â€ť He said it is information not from 38 Studios but unnamed â€śothersâ€ť that gives him that confidence.
He would not respond directly to a question about whether the State Police have been asked to secure the records. After the governorâ€™s briefing, spokeswoman Christine Hunsinger told reporters there is not a State Police â€śinvestigationâ€ť ongoing.
Chafee could not answer questions about how much of his own money Curt Schilling, the former Boston Red Sox pitcher and 38 Studios founder, had put into the company and whether he had used money from the loans backed by the state to recoup his own investment.
â€śWeâ€™re still trying to ascertain exactly how much of his own money has been invested. We hear a lot of things and what we hear is different from what we can so far document. Thatâ€™s why this audit is so important.â€ť
â€śWe need to get in there quickly,â€ť the governor said. Revenue Director Rosemary Booth Gallogly said work has started to get the audit underway. â€śThere are emergency procurement procedures in place at the EDC that would allow us to do that. As the governor said, timely action is critical so we have been working on bringing in a national firm.â€ť
Asked if he has any reason to suspect something criminal went on at 38 Studios, Chafee answered â€śnot yet. I hope that doesnâ€™t occur, I really do.â€ť
The governor said he has had separate meetings to brief legislative leaders and general officers of developments concerning the company. He said General Treasurer Gina Raimondo did not attend the session for the general officers. Raimondo, who is thought to be a possible candidate for governor in 2014, has sniped at Chafee this week for what she called his lack of proper oversight of the 38 Studios deal as chairman of the RI Economic Development Corp.
Asked if there have been any more resignations from the EDC board of directors, the governor said, â€śnone to report today.â€ť
On Thursday it was reported that Helena Foulkes, a CVS Caremark executive who Chafee picked to be vice chairperson of the board had resigned and that two other members whose terms had expired, Timothy Babineau, CEO of Rhode Island and Miriam hospitals had asked not to be reappointed. Chafee said he would not reappoint George Nee, president of the RI AFL-CIO, whose term also expired. Keith Stokes, the EDC director, resigned last week when stories about the problems at 38 Studios broke. Hunsinger said telephone conversations have been occurring between the governor and board member Stephen Lane, but there has been no resolution of his situation.
Asked if Schillingâ€™s celebrity status as a World Series hero â€śovershadowedâ€ť the riskiness of the venture at the time it was approved, Chafee allowed, â€śI suppose it factored in. I wasnâ€™t there for it. I wasnâ€™t looking at a baseball player, I was looking at a businessman, with no record in this industry.â€ť
Charles Fogarty, director of the Department of Labor and Training said he is barred by state law from releasing specific figures about how many 38 Studios employees are seeking unemployment insurance. â€śThe individuals in question, most of them are very highly skilled, they have already been contacted by a number of employers, our office has been contacted by folks looking for people with that kind of skill. I donâ€™t expect they will be unemployed for all that length of time.â€ť