By William K. Rashbaum and Danny Hakim
A figure under scrutiny in the federal investigation into a charity set up by State Senator Malcolm A. Smith and United States Representative Gregory W. Meeks was placed on the Senate payroll by Mr. Smith in 2002 shortly after he lost his job as a Queens prosecutor for lying to a judge, officials said Wednesday.
The former prosecutor, Claude N. Stuart, 58, became the director of the New Directions Local Development Corporation sometime before May 2007, when he signed its tax return. Two years earlier, the State Appellate Division suspended his law license for three years, citing the same conduct that lost him his job as an assistant district attorney in Queens.
The investigation into the nonprofit group, which is linked to a charity set up to aid the victims of Hurricane Katrina but in its tax return for 2006 reported distributing only $1,392 of the tens of thousands it had collected for that purpose, appeared to widen on Wednesday.
Gov. David A. Paterson’s counsel, Peter Kiernan, issued a statement saying that federal prosecutors in Manhattan had served a subpoena on the state’s Division of Lottery on Tuesday and that lottery officials were told that it was in regard to New Directions.
The statement was unusual, however, in that it also said that Lottery officials were advised what the subpoena was not in regard to — Mr. Paterson’s awarding of a lucrative contract for video lottery terminals at Aqueduct raceway to a company called the Aqueduct Entertainment Group. The statement added, “To the best of our knowledge, no such investigation into this selection exists."
But one official briefed on the matter said that the subpoena sought documents related to Aqueduct Entertainment Group. Another official indicated that the investigation, which is in its earliest stages, encompasses both the nonprofit group and the gambling company, which has promised a $300 million bonus for the state.
Indeed, tax filings for New Directions suggest that there may be indirect ties with the gambling company, which counts the Rev. Floyd H. Flake, a former congressman and among New York’s most influential and politically astute black pastors, as one of its investors.
The filings and the group’s Web site indicate that the treasurer for New Directions is Edwin Reed, until 2007 the chief financial officer of Mr. Flake’s Greater Allen A.M.E. Cathedral of New York and Mr. Flake’s executive staff director when he served in Congress.
Mr. Flake, however, said that he had no involvement with New Directions. He said that he was unaware that federal authorities were investigating Aqueduct Entertainment Group, and that he did not know why they would.
One of the partners of Aqueduct Entertainment Group, Jeffrey Levine, said in a statement, “We are unaware of any investigation and have not been contacted by any law enforcement or regulator agency of any kind.”
Ken Frydman, a spokesman for the company, said there was no relationship between Aqueduct Entertainment Group and Mr. Reed.
Mr. Reed declined to comment on Wednesday night. Austin Shafran, a spokesman for Mr. Smith, the Senate president, sought last night to play down the senator’s hiring of Mr. Stuart, the former prosecutor. He said Mr. Smith had hired Mr. Stuart to work part time and that Mr. Stuart did not stay on the state payroll long, leaving for another job, although Mr. Shafran was unable to say what it was.
He said that, because the Senate offices were closed, he could not say precisely when Mr. Stuart started, when he left, how many hours he worked or how much he was paid.
Asked whether the fired prosecutor had special skills or whether there was another reason why Mr. Smith had hired him, Mr. Shafran said, “Senator Smith hired Mr. Stuart to serve as a constituent liaison as someone who had an intimate knowledge of community affairs and could be beneficial to his district office.”
A telephone message left for Mr. Stuart with a family member was not returned, and efforts to reach him through an associate were unsuccessful.
Congressman Meeks said through an aide, “I believe in transparency, so to the extent that there is an investigation, like everybody else, I look forward to a clear presentation of the facts.”
Another employee of Senator Smith’s was also on the board of New Directions. His counsel, Mortimer Lawrence, was listed as the group’s chairman on its 2003 tax return.
A man who answered the telephone at the Long Island accounting firm that prepared New Direction’s tax returns, but declined to identify himself, said he gave federal authorities “all the records I had in my office.” He added, “All I did was prepare the returns and that was it.”