Mr Sabin was a "fully functioning member of the caucus", he said.
He refused to comment on the allegations or whether he had been made aware of a police investigation.
"I'm obviously aware of people wanting to make allegations, but I'm just not in a position, for a variety of different reasons, legal and otherwise, to want to make comments about that," he said.
Mr Key later described the allegations as "rumours", and said he would not "buy into some rumour mill".
If the allegations were correct, the public would "in the fullness of time, subject to the law" be informed about it, Mr Key told the broadcaster.
Despite the potential controversy, it is understood Mr Sabin will be present at Te Tii Marae on Waitangi Day alongside his party colleagues.
Yesterday Mr Key said he would be surprised if Mr Sabin was not present, as he is the local MP for Northland.
"I would be [surprised], but just wait and see. It'll be my expectation that all members who have indicated to the whips that they're going would be there," he said.
"I don't know if he has indicated to whips if he is going or not."
National's senior whip Tim Macindoe expects Mr Sabin to attend.
Labour leader Andrew Little said said the Prime Minister should make it clear to the public what the situation was.
"The issue is whether there's a police investigation going on about Mike Sabin. The Prime Minister will know if there is an investigation, and he should tell the public, the public are entitled to know," he said today.
"If there's an investigation, tell the public. If there isn't one, tell the public - it's that simple."
Police have refused to confirm the investigation, saying they do not usually respond to queries about whether an investigation was going on.
Mr Sabin has been National's MP for Northland since 2011 when he gave up his anti-methamphetamine consultancy business Methcon, which he formed following his departure from the police in 2006.
He lives at Coopers Beach with his partner.
-With Newstalk ZB
