After weeks of controversy and federal and state investigations involving Gov. David Paterson's selection of Aqueduct Entertainment Group to develop the Aqueduct racino, Rev. Floyd Flake and rapper Jay-Z both withdrew themselves from the project Tuesday afternoon. The defections come at a time when the deal was already foundering, and sources say that it is now coming apart quickly and could be canceled by the governor within days.

“Unfortunately, my ongoing participation in Aqueduct Entertainment has become a distraction that has taken me and my attention away from the community projects I created and nurtured,” said Rev. Flake in a press statement, adding that he continues to support AEG. Mr. Flake had a 0.6% stake in AEG, worth a mere $625,000, and he insisted last month that his role was strictly limited to consulting on the community affairs and affordable housing aspects of the project.

Jay-Z, who also withdrew his participation in the group Tuesday, according to sources, had a small stake amounting to 2% in AEG through an entity called Gain Global Investments Network.

The news of the withdrawal came just an hour after AEG released a statement to the press saying that it is continuing to move forward to complete the memorandum of understanding on the deal.

AEG will be able to pay the state $300 million by March 31 “and break ground on this vital job-creating project as soon as possible,” said Jeff Levine, chief executive of Levine Builders and a partner in AEG. “All applications have been submitted in full compliance with the State's instructions.”

AEG was required by Mr. Paterson's office to submit all of its applications by noon Tuesday or the state would withdraw its support for AEG, according to sources. The successful bidders were also required to obtain a gaming license from the New York Lottery. The deadline meant there could be no further changes to the AEG team going forward, said one source.

Some said Mr. Flake decided to pull out of the bid because he was required under new conditions outlined by Speaker Sheldon Silver to meet several conditions. One of those required every investor, even minority ones, in AEG to obtain a gaming license from the State Division of Lottery. Last month, Mr. Flake, who could not be reached for comment on Tuesday, told Crain's that he was did not view Aqueduct as a gambling project but a development deal. But he admitted to having a hard time explaining to his constituents why he remained dedicated to the project that revolved around gambling.

Meanwhile, the Aqueduct selection process continues to be investigated by the state Inspector General office. Last month, the governor publicly released all documents related to the selection project from all five bidders. Those bidders included Manhattan's largest commercial landlord, SL Green, which was seen until the decision was announced as the front runner to win the bid.

The latest withdrawals follow AEG's move to cut ties with Darryl Greene, who pleaded guilty more than a decade ago to stealing $500,000 from city agencies, to meet Mr. Silver's conditions. Mr. Greene and his firm, the Darman Group, relinquished their 0.6% stake in the project.

AEG is now made up of the Canadian investment firm Clairvest, Las Vegas-based Navegante Group and several New York City-based firms, including Levine Builders, Turner Construction, GreenStar Services Corp.