The Nelson Harness Racing Club has been named in a Gambling Commission decision as loaning money to set up a trust to run pokie machines, which the club later benefited from.
The Gambling Commission said last week it would shut down Blenheim gaming machines trust Bluegrass Holdings because it obtained its licence to operate pokie machines by deception.
Bluegrass provided false and misleading information to the Department of Internal Affairs (DIA) about its funding, those involved in the society and the role of Blenheim man Mike O'Brien in particular, the commission said in its decision.
"Bluegrass's deliberate and repeated efforts to deceive the Secretary [of Internal Affairs] were intolerable," Internal Affairs acting director of gambling compliance, Raj Krishnan, said.
The trust said it was considering appealing the decision.
O'Brien is well known in the harness racing community and is the son of Patrick O'Brien, former chairman of Harness Racing New Zealand and former chairman of Bluegrass.
It primarily provided grant money to the racing sector - in its March 31, 2014 year return of its total donations of $5m, more than $4.1 million went back into the horse racing industry, to clubs through New Zealand.
Bluegrass Holdings was incorporated in June 2009 and traded as Bluegrass Trust, operating 140 gaming machines in eight venues across New Zealand, including Hardy's Bar & TAB in Nelson.
The trust's licence will be cancelled from August 18. Hardy's owner Carmen Cartwright refused to comment on what she planned to do when the trust lost its licence.
The commission decision comes after a two-year process between Bluegrass Holdings and Internal Affairs.
Nelson Harness Racing Club was listed in the ruling as lending O'Brien $100,000 in September 2009. The Kaikoura Trotting Club and Marlborough Racing Club also made loans of $100,000 each to Bluegrass.
In the following days O'Brien advanced $300,000 to his father, Patrick O'Brien, who in turn advanced it to Bluegrass, the ruling found.
On December 22, 2009 Bluegrass was granted a six-month class 4 operating licence to run pokie machines.
In June 2010 Bluegrass repaid the loan to the Nelson Harness Racing Club.
Over the five years the trust has operated, the Nelson club received a total of $620,000 in grants from Bluegrass.
Department of Internal Affairs senior communications advisor Trevor Henry said while it was legal for grants from trusts to go toward racing clubs, there was an issue with the racing clubs that provided funds that then set up the trust.
"Had the department known of this source of funding we would have been concerned. The Gambling Act 2003 anticipated a separation between societies that operate gaming machines, venues that host those machines, and community groups that receive grants."
Nelson Harness Racing Club former president Terry Nelson said he was part of the committee that loaned Mike O'Brien the $100,000 and did not think the loan request was suspicious. He still believed O'Brien was a trustworthy person.
"At the time Mike said he was trying to borrow money and the bank wanted - I would be guessing - quite exorbitant interest rates. He was happy to borrow off the club and pay us a good interest rate. The club was able to make some good money for whatever was needed at the time, and it was duly repaid."
He said he was told it was a personal loan.
O'Brien had helped out the Nelson Harness Racing Club over the years, and had been its raceday secretary.
Nelson was president for four years, and said he left his post because it took up too much of his time. He was still a member of the club.
He said the grants money the club received would often go toward its raceday stakes.
He said he was never suspicious about the connection between lending the funds to O'Brien and then later getting grants from the trust O'Brien's father set up. He said all grants were used for approved purposes and the club would apply to about six different trusts around the country for grants.
"Sometimes you are lucky with Bluegrass, sometime with the others." However, in the Bluegrass Trust grants records, the club was always "lucky" - records show it had never been turned down for a grant.
Reprinted with permission of the Nelson Mail