The federal judge overseeing Ahmed Zayat's Chapter 7 bankruptcy petition has ordered that the trustee in the case will now have through Apr. 30 to pore over financial documentation to make sure the allegedly insolvent owner and breeder of Triple Crown champ American Pharoah isn't hiding assets.
In a court order dated Mar. 31 that was filed Apr. 2 in United States Bankruptcy Court (District of New Jersey), Judge Vincent Papalia wrote that “the Trustee's time to file a complaint objecting to the Debtor's discharge is further extended…”
In the same order, the judge also denied a cross-motion that Zayat had filed Mar. 16 asking the court to put a stop to the discovery process, which is now nearing the seven-month mark since Zayat filed for bankruptcy protection.
According to documentation that Zayat filed back in September, he allegedly has $19 million in debt but only $314.22 in assets.
MGG Investment Group, LP, the lender who is separately suing Zayat and his family members for allegedly obtaining a $24-million loan by fraud and then not repaying it, told the court Mar. 23 that the trustee's probe must be allowed to go forward with the extra time granted because Zayat's attempt to put an end to the discovery process “does nothing more than establish that Ahmed Zayat is a perpetual liar determined to hinder and obstruct the Trustee, the Court and creditors at every turn.”
MGG has previously asserted that loans it made in 2016 to Zayat's racing and bloodstock business were the product of years of systematic fraud that Zayat allegedly orchestrated, including Zayat Stables' desperate selling-off of equine assets that had been pledged to MGG as collateral.
Because MGG is seeking to recover that money, it does not want Zayat's debts to be declared legally forgiven under the Chapter 7 bankruptcy protection he is seeking.
MGG has specifically alleged that the trustee needs to examine bank accounts in the names of Zayat's wife (Joanne Zayat) and son (Justin Zayat) because “they appear to have been used as conduits through which Sherif El Zayat, the Debtor's brother, loaned money to Ahmed Zayat.”
Ahmed Zayat's Mar. 16 cross-motion included a letter from his attorney, Jay Lubetkin, who wrote that the trustee's request for the banking documents of family members didn't “have any apparent relevance to the Trustee's decision whether to file an objection to discharge complaint.”
Lubetkin also wrote that “The Debtor has been extremely cooperative with the Trustee [and has] provided to the Trustee significant documentation respecting his financial affairs….”
The primary role of a trustee in bankruptcy cases is to ensure that a debtor who files for federal bankruptcy protection is not hiding assets that could instead be used to pay creditors. An objection can be filed to the proceedings if a trustee believes aspects of the filing are not on the up-and-up. A judge can either dismiss a case on his own or by acting on a trustee's objection. A judge can also deny the discharge of a particular debt.
If alleged fraud is uncovered in a bankruptcy filing, the Federal Bureau of Investigation can investigate, and the U.S. Department of Justice can prosecute if it believes a crime has been committed.
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