Updated on 09/17/2011 11:09AM

Slots parlor at Aqueduct is on hold, NYRA says

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SARATOGA SPRINGS, N.Y. - The New York Racing Association and MGM Mirage have delayed construction of a slot-machine parlor at Aqueduct racetrack in Queens because of MGM's concerns over a federal investigation of the racing association, according to a statement issued by racing officials.

NYRA, which announced the delay Thursday night, reached agreement in April for MGM Mirage to manage the slots facility and for construction to begin in late July. A law passed this year allows NYRA to operate as many as 3,500 slot machines at Aqueduct, which would make it the country's largest racetrack slots operation.

According to the statement by NYRA, the decision to put the project on hold is "a cautionary measure that MGM Mirage felt was necessary in light of the uncertainty surrounding the [U.S. attorney's] ongoing investigation." The statement said that MGM Mirage will back out of the project if NYRA or its officials are indicted.

Barry Schwartz, the chairman of NYRA, did not return a phone call Friday requesting comment. On Thursday night, a spokeswoman for MGM Mirage, Yvette Monet, said the company would not comment on the decision.

NYRA officials met with horsemen Friday morning at Saratoga to explain the postponement, according to Bob Flynn, the executive director of the New York Thoroughbred Horsemen's Association. Flynn said that if MGM backs out of the plan, NYRA would have to go back to the drawing board to work out the funding and management of the slots operation.

"That would be very difficult and complicated," Flynn said. "You'd have to find somebody else and do all the work on their regulations and rules."

NYRA has been under investigation by the U.S. attorney for the Eastern District of New York since at least February. The U.S. attorney has been considering whether to indict NYRA or several of its top officials for tax fraud related to the convictions of 16 NYRA mutuel tellers for tax fraud in 2001.

Earlier this week, NYRA officials met with representatives of the U.S. attorney's office in Brooklyn to discuss ways in which NYRA could avoid any indictments. In its settlement proposal, NYRA offered to pay a fine to avoid criminal charges, arguing that an indictment would damage its reputation and its ability to send its simulcast signal to states with strict licensing regulations, including Nevada and New Jersey.

MGM Mirage owns and operates several Las Vegas casinos. The properties are highly regulated by the state.

Some regulators have disputed NYRA's contention that its simulcasting licenses would be threatened by an indictment. But earlier this week, a NYRA official said that a suspension of the licenses was a "real threat."

In the past three years, 16 NYRA mutuel tellers have been convicted of tax fraud and three for money laundering. In the tax-fraud scheme, tellers would pocket money from their cash drawers, then report that their drawers were short at the end of the day. NYRA would dock their pay, and the tellers would use the deductions from their paychecks to reduce their taxable incomes.

The legislation authorizing slots has been challenged by an Albany-based group on the grounds that the bill violates the New York Constitution. The New York Supreme Court is expected to issue a decision in the case by the end of August.