They've got muck; we've got rakes. TPM Muckraker

Probe Of Deal To Build Queens 'Racino' Ensnares Gov. Paterson And ... Jay-Z?

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Newscom / b09

On Jan. 29, Gov. David Paterson announced he and other officials had selected AEG for the project, promising "real jobs" for the region, money for the cash-strapped state, and economic development for Queens.

For the consortium of companies, the prospect of running what would be the only casino in New York City -- one with its own subway stop -- promises untold profits.

But an investigation into the deal by the state inspector general -- and possibly the U.S. Attorney -- is yet another ethics headache for Paterson. The probes could also dash hopes that the project will get off the ground anytime soon.

In the latest twist, the New York Post reported Tuesday that AEG investor Jay-Z, and hip-hop mogul Russell Simmons -- who was an adviser to one of the losing bidders -- were being subpoenaed to talk to the IG.

Immediately after the deal was announced by Paterson, AEG's competitors expressed outrage about the process, with one noting that it, not AEG, had offered the highest upfront fee to the state, $300 million. (State officials said AEG had agreed to up its offer to the higher sum).

Then, just a few days after he announced the deal, Paterson called AEG investor Floyd Flake to his office to talk about the governor's race, the New York Times reported. At the time, Paterson was still running for a full term as governor, and an endorsement from Flake -- a powerful former congressman and pastor of the Greater Allen A. M. E. Cathedral in Queens, which has more than 20,000 members -- would have helped cement Paterson's support in the black community in an expected primary against Attorney General Andrew Cuomo.

Flake had invested $625,000 in AEG through his Empowerment Development Corp., the Daily News reported.

Then came the news that the U.S. Attorney's office for the Southern District of New York on Feb. 9 subpoenaed the state lottery division for records from the five bids, the Albany Times-Union reported.

It's not clear why the Feds subpoenaed the records.

Paterson's office denied the probe was related to the Aqueduct, saying it was focused on a Queens non-profit called the New Direction Local Development Corporation, which was co-founded by Rep. Gregory Meeks (D-NY). (That's the group that's also being scrutinized for not being able to account for money raised for Hurricane Katrina victims.)

But NDLDC has links to Flake, the AEG investor. The non-profit's treasurer was previously on Flake's congressional staff and was through 2007 the chief financial officer of his church, the Times reported. And Meeks, who has been described as a Flake protege, replaced Flake in Congress in 1998.

Separately, one of the losing bidders told the Daily News that it had been contacted by the U.S. Attorney about the Aqueduct deal.

Besides Flake, the consortium known as AEG includes several contractors and a casino developer run by the former CEO of MGM Grand.

Jay-Z through his company Gain Global Investments Network took a 7 percent stake in the company after being approached by AEG chairman Richard Mays, according to the Post. The Brooklyn native rapper's interest in the project reportedly goes back to mid-2009 when he was in talks with casino mogul Steve Wynn about getting involved in the Aqueduct development. (Wynn's company later lost interest in the project.)

A few days after the subpoenas from the U.S. attorney, the state's inspector general announced he was looking into the Aqueduct deal.

AGE isn't exactly squeaky clean. A lesser partner named Darryl Greene was forced to withdraw last month because he pleaded guilty in 1999 to fraudulently billing the city for $500,000.

And Flake, according to Crain's New York Business, was charged in the early 1990s with embezzling money from a senior housing complex. That case was dismissed. In a recent article investigating Flake's business dealings, the Daily News noted he lives not in Queens, but on Long Island, in a home worth $3.6 million.

Both Flake and Paterson have defended the deal as fair. AEG said Feb. 10 that it was not aware of any investigation into the deal by the U.S. Attorney.