UPDATE 1-NY Lottery Division gets federal subpoenas-counsel

Wed Feb 10, 2010 4:51pm EST

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By Joan Gralla

NEW YORK Feb 10 (Reuters) - The choice of a slot machine vendor for New York's Aqueduct Racetrack came under more scrutiny on Wednesday as federal prosecutors subpoenaed a charity with ties to the vendor.

Peter Kiernan, counsel for Governor David Paterson, said in a statement that the Lottery Division had been issued subpoenas by the U.S. Attorney's Office on Feb. 9 that concern an entity called the New Direction Local Development Corporation.

On its website, the corporation says it was founded by two Democrats, Congressman Gregory Meeks and state Senate President Malcolm Smith, to aid residents of Queens and the Rockaways.

One of its missions was raising money for victims of Hurricane Katrina, through a "New Yorkers to Assist Hurricane Families" fund. But the New York Post on Feb. 8 ran an article saying almost none of the money reached the victims.

The governor's counsel said: "The Lottery Division has been advised that the inquiry by the U.S. Attorney's Office is in regard to the New Direction Local Development Corporation, and not the selection of Aqueduct Entertainment Group to run Video Lottery Terminals at Aqueduct Race Track."

The New York Times and other newspapers have raised questions about whether the Democratic governor's selection of Aqueduct Entertainment was due to Meeks' political clout.

Paterson, in a radio show last Friday, called Meeks a "minute" investor in the venture, with a stake of less than 1 percent. The list of companies that had sought the contract included SL Green Realty Corp (SLG.N).

"No investigatory agency has contacted the Governor's Office about the selection of AEG to run VLT's at Aqueduct Race Track, and to the best of our knowledge, no such investigation into this selection exists," Kiernan said.

A spokesman for Smith said, "Senator Smith has played no role in the day-to-day operations, management or administration of the charity, and looks forward to a full investigation into this matter." A spokesman for Meeks was not immediately available.

The New Direction Local Development Corp's website is: ndldc.org/index.html

The inquiry is another blow for an already embattled governor who began the week by denying that he was resigning because the New York Times was working on a story about an unspecified scandal. On Thursday, Paterson told Albany reporters he will only leave office through the ballot box or "in a box."

Paterson replaced Democratic Governor Eliot Spitzer after he resigned due to a prostitution scandal, and the former Lieutenant Governor's bid to win November's gubernatorial election increasingly looks like a long-shot. For details on Paterson's missteps, please see: [ID:nN08203009].

This also has been a difficult week for the state senate, which on Tuesday evening expelled Democratic Senator Hiram Monserrate, who was convicted of assaulting his girlfriend.

It was the first time a senator was booted since the 1920 "Red Scare" but two more senators' seats are also at risk: Senator Kevin Parker was charged with assaulting a photographer and Attorney General Andrew Cuomo is probing whether Senator Pedro Espada profited from a charity. Cuomo and both senators are Democrats.

(Reporting by Joan Gralla; Editing by Kenneth Barry and Dan Grebler)

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