The Department of Internal Affairs has confirmed it is investigating southern racing clubs as part of an alleged money-go-round involving pokie funds.
The Otago Daily Times understands the investigation was launched after substantial increases in poker-machine grants going to southern racing clubs was discovered.
The investigation relates to the ownership of several South Auckland pokie venues, aligned with a racing-friendly gaming machine trust.
Internal Affairs gambling compliance director Mike Hill confirmed the department was investigating southern clubs for alleged possible breaches of the 2003 Gambling Act.
The Act "makes clear that decisions about gaming-machine grants must be free from conflicts of interest or conditions".
Mr Hill said recipients recording dramatic increase in pokie funds "does beg the question, what is going on?"Since 2006, several racing clubs have recorded on their annual reports investments with the trust account of Christchurch solicitor Peter Cordner - Hagley Trustees No 10.
These include the Riverton Racing Club, Gore Racing Club, Beaumont Racing Club, Central Otago Racing Club, Tapanui Racing Club and the Southland Racing Club.
Records show these funds range from a $5000 investment from the Beaumont club in 2007, to an $85,664 investment in 2008 from the Riverton club.
At the heart of the department's investigation appears to be whether these investments, some of which were later written off by some clubs, were used to buy shares in properties through a third-party company and whether pokie proceeds from bars aligned with these properties were returned to the clubs in the form of grants.
Two South Auckland bars have links with Mr Cordner through his company Chantilly Investments.
Mr Cordner said, when contacted, investments by the racing clubs were legally privileged and he declined to divulge details about them.
He assured the ODT none of the clubs' investments was with pokie venues, and "the clubs have no interest in any gaming machine sites".
Mr Cordner said he had written two letters to Internal Affairs in response to the investigation, and "there has been no great breach of the Gambling Act".
He added there were no pokies in any venues owned by Chantilly Investments.
However, the ODT understands there have been changes to a South Auckland venue connected with his company.
Kai Restaurant, formerly the Blue Moon, in Otahuhu, had its licence suspended by Internal Affairs on June 25 after it was found to be used primarily as a place to play pokies.
New Zealand Community Trust chief executive Mike Knell said the trust surrendered its licence with the bar rather than "fight an appeal process".
He had not heard of the department's investigation.
Records show the trust gave more than $750,000 in grants to Southern racing clubs in 2007, $660,000 in 2008 and $811,500 for 2009.
The trust's website lists grants dating from the third quarter of 2006, with $26,000 given to Southern racing clubs during that period, compared with $313,000 for the last quarter of 2006.
Mr Knell said racing grants were allocated on a national basis and as such contribute "towards these as they do for other recipients classified as national organisations".
"Each application is considered on its merits."
GallopSouth Southland regional manager Doug Stuart confirmed last week there was an Internal Affairs investigation, but was unsure if it had been completed.
Investments through a lawyer was common business practice for those wanting to obtain higher rates of interest, and funds were invested in property.
Asked where the clubs had invested, Mr Stuart said it was somewhere in Auckland, but stressed it was "not for bars in South Auckland".
Conflcits of Interest
Internal Affairs is understood to be investigating a range of sports and racing clubs in connection with "conflicts of interest" over funds from gaming trusts.
The 2003 Gambling Act says allocations of grants must be free from such conflicts.
In this context, conflict arises if a sports organisation has an interest - usually at arms length or through third-party companies - in a property, for example a pub, in which a gaming trust operates its gaming machines.
If the sports or racing club is then favoured in the trust's distribution of gaming-machine takings, this would be considered a conflict of interest.
