Following Gov. Paterson's controversial selection of Aqueduct Entertainment Group to operate video slot machines at the Aqueduct Racetrack in Queens, federal prosecutors have reportedly seized records related to the politically-connected winning bidder. Investigators are researching ties between Aqueduct Entertainment Group and a Queens nonprofit, which was last in the news for allegedly fleecing Hurricane Katrina victims out of money raised on their behalf.

Critics claim Gov. Paterson selected the Aqueduct Entertainment Group to run the Queens racino in order to win the much-needed support of Rev. Floyd Flake, an influential former congressman who happens to be a shareholder in the company. The Governor has rejected those allegations and said he selected the Aqueduct Entertainment Group based on merit. The Post reports today the US Attorney's Office in Manhattan subpoenaed the state Lottery Division for records on Aqueduct Entertainment Group and its ties with the New Direction Development Corp., a Queens charity founded by Rep. Gregory Meeks (D-Queens) and state Sen. Malcolm Smith (D-Queens), which is taking fire for allegedly raising $31,000 for Hurricane Katrina victims and only giving them $1,392.

Although the nonprofit's treasurer heads the development branch of Flake's church, and the husband of one of the charity's founders withdrew his involvement from racetrack plan because of a past criminal conviction, an Aqueduct Entertainment Group source told the Times Union: "There is no connection between New Direction and AEG." Paterson's counsel emphasized that the U.S. Attorney's inquiries are about New Direction—not his selection of Aqueduct Entertainment Group. "No investigatory agency has contacted the governor's office about the selection of AEG ... and to the best of our knowledge, no such investigation into this selection exists."