2010-05-14 / Front Page

Smith To Meet With Investigators

By Howard Schwach
State Senator Malcolm Smith has agreed to testify and turn over documents in a probe of the failed Aqueduct Racino deal, Senate officials say.

Those officials say that Smith may talk under oath with probers from the state’s Inspector General’s office sometime next week.

“They want to ask him questions about the Aqueduct deal, and we’re prepared to answer those questions,” Smith’s attorney, Gerald Shargel, told reporters.

Both state and federal grand juries are investigating the back-door selection of former Representative Floyd Flake and his Aqueduct Entertainment Group (AEG) to run the lucrative gambling facility slated for the aging racetrack, a deal that fell through in March when the state’s Lottery Commission said that it could not license AEG because of problems with several of its investors.

It is widely believed that AEG was chosen because of the close ties between Smith, Flake, Congress man Gregory Meeks and Governor David Paterson.

That belief led to the federal and state probes and Paterson’s decision to void the state’s deal with AEG.

Smith’s voluntary participation in the investigation is a turn-around from last March, when Senate leaders unsuccessfully attempted to squash the subpoenas.

Sources say that Paterson has already testified in the IG’s probe.

Paterson told a radio audience late last month that he would cut other prominent state political leaders out of the decision on who would run the Racino at Aqueduct Racetrack, despite the fact that a law governing the selection process says that the vendor must be picked by a unanimous decision of the Governor and the leaders of the other two legislative branches.

“We have switched to a procurement plan,” Paterson said in a radio interview. “That was not popular with the other two leaders, because this is going to shift authority to the executive branch.”

Paterson added that the highest bidder would be selected by the state’s Lottery Division through a standard public bid and that the decision would come “by June at the latest.” Paterson’s decision to move to a standard procurement plan for the Racino follows by a few weeks his decision to nullify an earlier move to give the Racino to the Aqueduct Entertainment Group, fronted by former Congressman Floyd Flake and rapper Jay-Z.

Paterson will now open the Racino process to competitive bidding. The decision to choose AEG for the Racino was made by Paterson, State Senators John Sampson and Malcolm Smith and Assembly Speaker Sheldon Silver.

Silver, however, demanded that AEG meet several conditions before he would sign off on the deal, and several of the AEG investors, including Flake, balked at the additional conditions. Eventually, the Lottery Division ruled that AEG was “not licensable.”

There are four other companies that were bidding for the right to run the Racino at Aqueduct: SL Green/Hard Rock CafĂ©; Delaware North; Penn National; and Peebles/MGM. In addition, Las Vegas casino mogul Steve Wynn dropped out of the process. At the time, Wynn said that he was “frustrated” with the political process and many believe that he will resubmit his bid now that politics is no longer involved.

Federal officials said that the probe would continue despite the fact that AEG is no longer in the running. That probe is focusing on claims that political connections rather than merit spurred Paterson and the legislative leaders to give the Racino to AEG in the first place. Paterson’s tactic of changing the rules in the middle of the game faces uncertainty, insiders say, due to the 2008 law governing the process that says the Governor and legislative leaders must make the decision. Both Silver and Smith declined to comment on the Governor’s decision.

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