The Rhode Island government will continue to work with First Southwest as the state's financial adviser, even though the state is suing the financial firm for its alleged role in the 38 Studios bankruptcy, reports the Providence Journal.
Governor Lincoln Chafee (photo above) and Gina Raimondo, the state's general treasurer, approved a new two-year contract with First Southwest in March. First Southwest, an investment bank with offices around the U.S., including in Lincoln, Rhode Island, has served as the state's financial adviser since 2001.
First Southwest was one of the entities involved in putting together the plan for the Rhode Island Economic Development Corporation (EDC) — rebranded as the Rhode Island Commerce Corporation, or Commerce RI, at the start of 2014 — to give 38 Studios a state-backed loan of $75 million in 2010. Gov. Chafee's administration sued 38 Studios and a host of associated individuals and companies, including First Southwest, in November 2012 as a result of the bankruptcy proceedings that left state taxpayers on the hook for more than $89 million.
The government's complaint alleges that First Southwest and other advisers misled the EDC as to the risks involved with giving such a loan to 38 Studios, and says the EDC would never have issued the loan if it hadn't been for the "knowingly" false statements those companies made.
However, the Providence Journal reports that the Chafee administration decided to re-up its contract with First Southwest over picking a different financial adviser; the only other option was the Providence-based PFM Group. A spokesperson for Raimondo told the Providence Journal that while the state's treasury was aware of the ongoing litigation against First Southwest, the treasury "was not involved in bringing the lawsuits ... [or] issuing the 38 Studio bonds."
You can follow the history of 38 Studios' failure in our StoryStream.