R.I. Agency In Flux After Schilling Company Falters

Rhode Island's economic development agency was in disarray Friday as the state reeled from the financial troubles at former Red Sox pitcher Curt Schilling's video game company and questions mounted over whether the state exercised proper oversight of a $75 million loan guarantee.

Gov. Lincoln Chafee said he was seeking the resignation of Economic Development Corp. board members who approved the state's backing of the loan in 2010, but the fate of some of them wasn't clear.

Chafee already accepted the resignation of EDC Executive Director Keith Stokes, a vigorous backer of the guarantee, and board Vice Chairwoman Helena Foulkes, who wasn't on the board in 2010 but with whom he said he has had "differences of opinion."

Chafee spokeswoman Christine Hunsinger said Friday that she couldn't say for sure who was serving on the board. EDC spokeswoman Judy Chong said the same.

Schilling's 38 Studios laid off its entire staff Thursday after missing its last payroll and being more than two weeks late on a $1.1 million payment to the EDC. The company was lured to Rhode Island from Massachusetts in 2010 after the EDC board agreed to the loan guarantee, which officials said would bring hundreds of jobs and millions of dollars in tax revenue.

EDC board member George Nee said Chafee asked him to step down and Nee refused.

"He felt it would be better to have a new start," Nee said of Chafee's request. "I disagreed with him. We had a pleasant conversation."

Chafee's office said Thursday that board member Stephen Lane had resigned but he hasn't submitted a resignation letter.

Two other board members whose terms have expired - Timothy Babineau and Daniel Sullivan - have asked not to be reappointed, Chafee said.

EDC board members are appointed by the governor, who acts as board chairman, and are subject to confirmation by the state Senate.

Treasurer Gina Raimondo has questioned whether state oversight of the deal was sufficient. Sullivan said he hadn't received any updates on it until recently, when the company's troubles became public.

The EDC and 38 Studios signed a monitoring agreement in November 2010 under which IBM would provide 38 Studios with an initial assessment of "Project Copernicus" - the development of the company's second game - and quarterly "milestone verification" reports, according to a copy of the agreement.

The initial assessment was to include a review of project plans, financials and financial management as well as an analysis of risks and recommendations on how to mitigate them. Subsequent reports would essentially be progress checks, which IBM suggested would include a review of the project's financial status and a list of results "relevant to Rhode Island's interests."

The agreement said 38 Studios would provide to the EDC copies of all materials prepared by IBM and invite EDC to attend all discussions between 38 Studios and IBM.

But in August, the EDC and 38 Studios signed a "modification and waiver" to the agreement saying that, instead of being provided with IBM's actual reports, the economic agency would agree to briefings from IBM on the findings. This came at the request of 38 Studios. The modification cited confidential and proprietary information contained in the findings - which, if publicly disclosed, could cause "irreparable and significant harm" to 38 Studios and the "commercial prospects" of Copernicus, the document says.

Still, the agreement also noted that the EDC would be "entitled" to see IBM's assessments if it requested.

Chong, the EDC spokeswoman, said "various staff" there received verbal briefings on IBM's initial assessment and two quarterly reports. She didn't say who received those briefings, whether additional ones were held or whether the EDC ever requested information from the company that it didn't receive.

Stokes didn't return a message left for comment.

Asked Thursday if he was satisfied with the oversight since he became governor, Chafee said he was told by experts: "You did everything right. You put your money in, you supported the game, you're better off not meddling."

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