02/11/2010 12:00AM

Feds look into Aqueduct casino link

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Federal investigators have issued a subpoena to the New York State Lottery Division seeking materials related to a nonprofit charity group with indirect ties to the company recently chosen to run a casino at Aqueduct, New York officials said on Thursday.

The subpoena was issued by the U.S. Attorney's Office for the Southern District of New York to the lottery division on Tuesday, according to representatives from the office of Gov. David Paterson. It requested documents related to New Direction Local Development Corporation, which was founded in 2001 by two Democratic legislators, Sen. Malcolm Smith and Rep. Gregory Meeks. Smith is the majority leader of the state's senate.

According to reports, New Direction also has ties to Rev. Floyd Flake, an influential Queens community leader. Flake holds a 0.6 percent stake in Aqueduct Entertainment Group, the sprawling partnership that was selected two weeks ago to operate the casino.

"The lottery division has been advised that the inquiry by the U.S. Attorney's Office is in regard to New Direction Local Development Corporation, and not the selection of Aqueduct Entertainment Group to run [the casino] at Aqueduct race track," said Peter Kiernan, the counsel to Gov. David Paterson. "No investigatory agency has contacted the governor's office about the selection of AEG to run [the casino] at Aqueduct Race Track, and to the best of our knowledge, no such investigation into this selection exists."

The selection of Aqueduct Entertainment Group has become a lightning rod in New York because of the murky process that was used to name the winning bidder and the hundreds of millions of dollars that will flow to the casino operator. The company was selected over four other bidders, most of them partnerships of casino companies and real-estate development corporations eager to run would will likely be the highest-grossing casino on the East Coast.

Gambling analysts expect the casino to generate $500 million a year in net revenue. The operator will be entitled to approximately 30 percent of the revenue. The racing industry will receive approximately 13 percent as a subsidy for racetrack operations and purses.

Aqueduct Entertainment was selected by Gov. Paterson, Assembly Speaker Sheldon Silver, and Senate Democratic Conference Leader John L. Sampson. All are Democrats.

The lottery division was involved in evaluating the bidders for the casinos. It was unclear on Thursday why the subpoena was issued to the lottery if the investigation did not involve some aspect of the bidding process.

Morgan Hook, a spokesman for Gov. Paterson, said on Thursday that the subpoena has not affected the state's negotiations with AEG over a memorandum of understanding, or MOU, that will lay out the terms of the 30-year operating contract.

"We are moving forward on the MOU," Hook said.

In a statement, Jeffrey Levine, a partner in Aqueduct Entertainment Group, said, "We are unaware of any investigation and have not been contacted by any law enforcement or regulator agency of any kind."