CORRECTED - CORRECTED-UPDATE 2-NY Lottery Division gets federal subpoenas

Wed Feb 10, 2010 11:04pm EST

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(Corrects identity of minority stakesholder in paragraphs 4, 5 and 8)

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 related to an entity called the New Direction Local Development Corporation.

New Direction, according to its website, was founded by Congressman Gregory Meeks and state Senate President Malcolm Smith to aid residents of Queens and the Rockaways.

Rev. Floyd Flake, the congressman whom Meeks replaced, holds a stake of less than 1 percent in Aqueduct Entertainment Group, the vendor selected to run the video lottery terminals at Aqueduct Race Track.

Governor David Paterson in a radio show last Friday had called Flake a "minute" investor in the video lottery venture.

One of New Development's missions was to raise money for victims of Hurricane Katrina, 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 governor's selection of Aqueduct Entertainment was due to Flake's political clout.

The list of companies that had sought the Aqueduct contract included SL Green Realty Corp (SLG.N).

Kiernan said that "to the best of our knowledge" there is no current investigation New Direction's selection as the Aqueduct vendor.

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

Jeffrey Levine, an Aqueduct Entertainment Group partner, said he was unaware of any probe and not been contacted by investigators or regulators.

"We are continuing to work with the state to finalize a memorandum of understanding and pay the $300 million licensing fee by March 31 so that we can break ground on this vital job creating project," he said.

Aqueduct Entertainment Group said it hired Thatcher Associates, LLC, a law firm, to help devise "a comprehensive integrity monitoring program for the development and ongoing operation...of the casino and entertainment center."

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'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, Dan Grebler and Leslie Adler)

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