The stunning allegations from sponsorship scandal whistleblower Myriam Bedard of drug trafficking and secret payments to race car drivers are being met with stiff denials.

Her testimony is also raising worries about legal repercussions. P.E.I. MP Shawn Murphy told the committee Thursday morning he would not be surprised if allegations made to the committee resulted in lawsuits.

Murphy said that even though parliamentary privilege shields testimony from legal action, innocent people could be slandered and reputations destroyed.

Bedard, an Olympic medallist and fired Via Rail employee, told the House public accounts committee Wednesday that Formula One racer Jacques Villeneuve was paid $12 million US to wear a Canadian logo on his uniform.

"It was for the name of Canada ... I knew that the government was giving money for the word 'Canada' but I didn't know it was sponsorship scandal at that time," she said, adding she was told the payment was top secret.

She said she learned this in 1997 or 1998, and heard it from her agent, Jean-Marc St-Pierre. But she admitted she didn't know where the money came from or if it was even true.

St-Pierre vehemently denied he spoke to Bedard about Villeneuve's financial dealings. 

"I never, never said to Myriam Bedard that Jacques Villeneuve had a $12 million US sponsorship," he told RDS, the French-language sports network. "I don't know anything about Jacques Villeneuve's sponsorships."

In an interview with the Globe and Mail, St-Pierre said what he merely said was that it would likely cost any sponsor $10 million to $12 million to place a logo on Villeneuve.

"From there to put words in my mouth that he had a secret $12-million secret fund . . . is unbelievable," St-Pierre said. "I can swear on the Bible that I didn't say Jacques Villeneuve got secret funds of $12 million.''

The Department of Public Works also denies the allegation, saying Villeneuve was paid $4,500 through the Groupe Everest agency in 1997-1998.

The committee said it would investigate the allegation. Committee chair and Conservative MP John Williams said after the hearing that he considered Bedard an "extremely credible witness.''

Drug allegation

The Villeneuve claim was not the only explosive allegations Bedard made during her testimony.

She also alleged that at a meeting with Via president Marc LeFrancois in 2001, he told her that Groupaction, the Quebec-based advertising companies at the heart of the scandal, was involved in drug trafficking.

A week later, she says, LeFrancois told her to forget what he said.

Groupaction president Jean Brault stiffly denied his company had any involvement in drug dealing. 

"This allegation is completely false and was made without one element of proof, without one iota of truth,'' Brault said in a statement.

He said he's asked his lawyers to review what was said and hinted he might sue. 

Bedard took MPs by surprise when she made one other stunning allegation. She claimed that it was her husband, Nima Mazhari, who persuaded former prime minister Jean Chrétien to stay out of the Iraq war last year.

"Ladies and gentlemen, if Canada is not in the war in Iraq it's because Nima Mazhari gave much advice to the prime minister," she told the committee in a statement, but offered no further elaboration.

Bedard fired

Bedard said she was asked in January 2002 to either leave Via or move to Groupaction after questioning inflated invoices submitted by that company.

Asked why she was fired at that time, Bedard noted it was about the time then-public works minister Alfonso Gagliano was made ambassador to Denmark.

"For some reason, they had to get rid of me immediately," she said.

Bedard said she didn't do anything about her firing at the time because she was "psychologically traumatized."

Bedard said she attended only one meeting with Gagliano, considered one of the principal figures in the scandal. In response to a question from Williams, Bedard said it appeared to her Gagliano was playing a more general role rather than a hands-on one.

Bedard came forward with her allegations in February, shortly after Auditor General Sheila Fraser detailed $100 million in misspending, with money funneled to advertising agencies often for little or no work rendered.

Gagliano was called before the committee last week. The former minister denied knowing anything about the scandal.