“The Kentucky Supreme Court heard oral arguments Feb. 8 pitting MGG, a lender of millions of dollars to Zayat Stables, against buyers of some of the now-defunct Zayat operation's Thoroughbreds and breeding interests. The parties landed in court when money generated by purchases did not turn up in the hands of the lender, even though it held liens on the assets,” Downey reported.

“After the Zayat loan lapsed into default in early 2020, MGG obtained in Fayette Circuit Court in Lexington an uncontested judgment of more than $24 million. Ahmed Zayat and Zayat Stables subsequently took shelter in bankruptcy court, where MGG filed several adversary proceedings based on allegations of fraud and other misconduct. Those claims were eventually settled for substantial sums, but sums well short of the defaulted obligation,” Downey reported.

According to court records cited by Downey in his Blood-Horse story, the sales included “breeding rights to American Pharoah to LNJ Foxwoods and Orpendale, breeding rights in stakes-winning mare Lemoona to Flintshire Farm and Brad Sears, and horses El Kabeir to Yeomanstown Stud, American Cleopatra  to Hill 'n' Dale, and a 50% interest in Solomini to McMahon Thoroughbreds.”

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According to the court filings, Zayat was insolvent at the time the transfers were made, and therefore, the law firms who are the defendants in the suits received more than they would have done through the Chapter 7 bankruptcy proceedings “had the Transfer[s] not been made.”

Trustee Donald Biase alleges in his court filings that the largest transfer of money Zayat fraudulently made was $42,812.32 to Rabinowitz, Lubetkin and Tully.

Zayat also made separate $20,000 payments to law firms Landrum & Shouse and Lavely & Singer respectively, and another $7,500 to Becker & Poliakoff, the suits allege.

Biase suggests that the monies stipulated might not be the total amounts Zayat allegedly paid to each company, his attorney writing in all filings that Biase is seeking to recover both the stipulated transfers “and such other Transfers that may be unknown to the Trustee.”

TDN reached out via email to each of the law firms listed as defendants in the filings but didn't hear back from any before deadline.

When reached by phone Tuesday, Zayat declined to comment.

This latest round of legal crossfire constitutes just the latest twist in a long, complicated and often-times convoluted war of financial attrition, as creditors have sought to reclaim millions from Zayat and his now-disbanded Thoroughbred racing and breeding stable, one most famously attached to 2015 Triple Crown winner American Pharoah.

In his own Chapter 7 filing in 2020, Zayat admitted to owing some $19 million to 132 non-secured creditors, the majority of whom consisted of Thoroughbred trainers, horse farms, bloodstock businesses, veterinarians, and equine transportation companies.

Towards the end of last month it appeared as though events had drawn to a close with the approval of two settlement plans in separate bankruptcy cases. Neither settlement delivered significant compensation to these 132 non-secured creditors though.

In Zayat's personal bankruptcy case, the trustee in June negotiated a $1.5 million settlement to be paid by the debtor's brother, Sherif Zayat, one which allows Zayat and his family to continue to live in an eight-bedroom, 7,714-square-foot home in Teaneck, New Jersey, that is currently assessed at $2.6 million.

In July, the court-appointed trustee in the involuntary bankruptcy case negotiated a settlement in which Zayat and his family members divvy up $5 million between MGG Investment Group and the trustee.

MGG is the lender that alleged in a 2020 lawsuit that Zayat and his family members fraudulently obtained $30 million in loans, then never repaid a large chunk of that debt.

Of that Zayat Stables settlement, only $30,000 was earmarked for the unsecured creditors who are legally much further down the payment ladder of priority.

In each of the court documents filed Tuesday, Biase seeks judgment against the defendants “for the avoidance and recovery” of the amounts allegedly transferred, for the defendants “to immediately pay to the Trustee the sums owed,” the interest owed and costs of suit, and “for such further relief as the Court may allow.”

The post New Court Filings in Zayat Bankruptcy Proceedings appeared first on TDN | Thoroughbred Daily News | Horse Racing News, Results and Video | Thoroughbred Breeding and Auctions.

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Of that amount, only $30,000 is earmarked to eventually go to “unsecured creditors,” some of whom are Thoroughbred industry participants owed money by Zayat Stables and are much further down the legal pecking order for otherwise getting repaid.

MGG will also get a disbursement from the funds in the bankruptcy trustee's account amounting to $1,025,145.

In return, MGG–the lender that alleged Zayat and his family members obtained a $24 million loan by fraud in 2016 then never repaid it–will issue a “waiver” giving up any further pursuit of the total $27.1 million total amount it had been seeking as a secured creditor.

MGG has also agreed to return $452,500 of the settlement money it gets from the “Zayat Parties” to the trustee, which will provide for the above-mentioned $30,000 “carve-out” that gets set aside to pay unsecured creditors.

The trustee will then be permitted to use $185,981 of that MGG payment to cover “administrative obligations” that the estate has incurred.

“[E]ntry into the Settlement Agreement serves the paramount interest of the creditors of the Debtor's estate,” trustee Jeffrey Testa wrote in a July 26 series of documents filed in United States Bankruptcy Court (District of New Jersey). “Resolution of the claims by and between the Chapter 7 Trustee MGG and the Zayat Parties through the Settlement Agreement represents a successful outcome for the Debtor's creditors.”

Not every creditor is going to agree with the trustee on that “successful outcome” statement.

Drew Mollica, the attorney for New York-based trainer Rudy Rodriguez, told TDN in a phone interview that his client has an unsecured claim of $397,000, and the $30,000 set aside for all unsecured claimants amounts only to a “drop in the bucket” for what Rodriguez is owed.

“Although I don't know all of the details and I'm going to reach out to the trustee, it seems the only carve-out for anybody but MGG is $30,000, Mollica said. “And all of the other unsecured claimants are in the same boat.”

It's important to note that this involuntary bankruptcy petition involving Zayat Stables is different from the Chapter 7 personal bankruptcy claim that the allegedly impoverished breeder and owner of Triple Crown champ American Pharoah initiated Sept. 8, 2020, when he claimed to own just $300 in cash and $14.22 in two checking accounts.

Six days later, on Sept. 14, 2020, an involuntary bankruptcy petition led by Zayat's former financial advisor was initiated against Zayat's family racing business.

Involuntary bankruptcy proceedings are relatively uncommon in United States courts. They are designed to protect creditors, not debtors, and are often filed against companies (as opposed to individuals) as an attempt to get paid when it is believed that a firm is rapidly burning through assets and/or financial malfeasance is alleged.

The trustee could have elected to keep battling MGG to try and whittle down the sought-after $27.1 million. But Testa explained in court documents that the proceedings had reached a point where resistance equated to a losing proposition for the estate.

“Litigation against MGG would involve sufficiently complex legal and factual issues, particularly regarding the substance of complex loan documents and the establishment of lender liability, which would require protracted hard-fought and arduous litigation and significant expert costs,” Testa wrote.

“In addition, as a result of MGG's properly-perfected status and outstanding amounts owed to it, the Chapter 7 Trustee has no encumbered funds to fight such a taxing battle,” Testa wrote.

“As to the Zayat Parties, litigation against them would be equally challenging, demanding, complex, and come at significant additional cost and delay,” Testa wrote. “In addition, based on the litigious history of this proceeding, any judgment obtained would almost certainly be subject to an appeal.

“The Settlement Agreement avoids these obstacles in favor of a prompt and efficient resolution without the need to expend further estate resources,” Testa wrote.

Other family members of Ahmed Zayat (identified in court documents as his wife, Joanne; four children, Justin, Ashley, Benjamin and Emma, plus a brother, Sherif) are on the hook for contributing to the $5-million settlement payment because, Testa wrote, “The Zayat Parties strenuously asserted that to their detriment they provided funds to Zayat Stables in an effort to keep the entity operating [by contributing] approximately $2.5 million more to Zayat Stables than the transfers they had received from Zayat Stables.”

The proposed settlement agreement even includes a section related to who gets the trophies and other racing mementos that the trustee has been storing since their seizure from the under-receivership Zayat Stables offices.

“Zayat and several of the Zayat Parties objected to the removal of the Memorabilia based upon the position that the Memorabilia were not estate property,” Testa wrote.

The trustee added that he now considers that property “abandoned,” which likely means that Zayat can reclaim it.

“So it looks like he keeps the trophies, and the horsemen who earned the trophies get nothing,” Mollica said.

The next step in the process is for the court to approve the settlement. If other parties file an objection by Aug. 16, then an Aug. 23 hearing will take place to hear the objection(s). If no one objects, the court will enter a notice of “no objection” and the settlement will be completed as proposed.

Asked if he would be objecting on behalf of Rodriguez, Mollica said, “I'll know more after I reach out to the trustee. I'll reserve my right.”

The post Proposed $5M Zayat Settlement Gives Only $30K to ‘Unsecured’ Claimants appeared first on TDN | Thoroughbred Daily News | Horse Racing News, Results and Video | Thoroughbred Breeding and Auctions.

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The motion for approval of that settlement, if so ordered by a judge in a New Jersey federal bankruptcy court July 6, doesn't mean the end to the complicated, now 21-month-long Chapter 7 petition by the allegedly insolvent former Thoroughbred owner and breeder.

But it does mean some of that $1.5 million might trickle down to creditors once the case gets fully settled.

As an attorney for trustee Donald Biase put it in his June 6 court filing, the settlement will “provide a benefit for the Debtor's estate, which was otherwise uncertain.”

The settlement documents were filed exactly seven years and one day after Zayat's superstar homebred American Pharoah swept the 2015 Triple Crown.

The $19-million debt question for Thoroughbred trainers, horse farms, bloodstock businesses, veterinarians, and equine transportation companies who are among the 132 entities listed as non-secured creditors still hasn't changed much.

That's because the money owed to them is in the form of “non-priority unsecured claims,” which puts those people and businesses far down in the pecking order for repayment of Zayat's debts.

Under Chapter 7 bankruptcy laws, non-priority unsecured claims are at the bottom of the hierarchy to get paid–if they get paid at all–once a trustee liquidates assets and discharge debts. They get ranked behind “secured” loans in which property is pledged as collateral, like with liens and mortgages.

The June 6 filing stated that there are five known first-, second- and third-mortgage loans secured by Zayat's 7,714-square-foot home and two adjacent lots in Teaneck, New Jersey.

However, the same document stated that three of those mortgages–which were made by friends and family members and not lending institutions or banks–would be considered by the trustee as “avoidable transfers,” which means that they can be canceled and the proceeds returned to the estate for distribution to creditors. Avoidable transfers can also lead to fraud charges.

One of those property-secured loans that Biase wrote was “avoidable” was for $500,000 from the Egypt-based Sherif Zayat.

That loan was recorded as a mortgage with a New Jersey county clerk Sept. 2, 2020–six days before Ahmed Zayat filed for Chapter 7 bankruptcy protection while claiming that he had only $300 in cash and $14.22 in two checking accounts.

On September 14, 2020, an involuntary bankruptcy petition was initiated against Zayat's family racing business, Zayat Stables, LLC. That case is separate from this personal bankruptcy case, although many of the racing-related creditors overlap in both cases.

In a riches-to-rags case brimming with fraud allegations since its onset, Biase's filing stated that he has attempted to trace the tangled web of Zayat family finances via the “issuance of numerous Rule 2004 Subpoenas, reviewing thousands of pages of documents, including bank statements and tax returns, and conducting Rule 2004 depositions and extensive motion practice, including numerous motions to obtain access to the Debtor's real property, and the contents of same, by my appraisers.”

Beyond not having his Chapter 7 bankruptcy protection granted by the court if he isn't being truthful, Zayat faces a possible federal investigation and/or charges if the U.S. Department of Justice believes crimes have been committed.

Biase has repeatedly claimed the Zayat and his family have hindered his investigation with evasive tactics and non-compliance.

Zayat has consistently denied that he has engaged in any illegal activity or that he is hiding money. He has also insisted that neither he nor his family members are trying to obstruct the work of either of the trustees who are assigned to vet his personal finances and business operations.

The June 6 filing revealed one new nugget about Ahmed Zayat that had not been previously contended: “The Debtor has an ownership interest in a farm located in Egypt,” the Biase filing stated.

If true, it is unclear whether that alleged property interest could be also attached as an asset to pay creditors. The filing did not elaborate either way.

The settlement document, which was signed by all parties May 26, stated that “the Debtor, the Zayat Parties, and Sherif, and any entity they have an interest in shall waive any claim against the Debtor's estate [and] the Parties shall have released each other from any and all claims and causes of action and the Trustee shall be deemed to have abandoned the Debtor's estate's interest in the NJ Property pursuant to Section 554 of the Bankruptcy Code.”

Biase's filing stated that this type of settlement was preferable to continuing to fight the matter in court and/or by forcing a sale of the real estate.

“Though the Trustee believes that he would likely prevail on the claims against the Debtor, the Zayat Parties, and Sherif, the Trustee wishes to settle the claims, in order to save the Debtor's estate time and money that would otherwise be spent on litigation of the claims,” the filing stated.

“With respect to the NJ Property, even if the Trustee could obtain an offer of $4.8 million and avoid [the three mortgages with individuals] after deducting the first and second mortgages totaling $3.4 million and the broker's commission of $240,000, there would be non-exempt net equity in the approximate amount of $580,000…” the filing stated.

“This amount also does not include the Debtor's potential homestead exemption, the cost and time to seek approval under [the] Bankruptcy Code to sell the NJ Property, and the time and cost to avoid the [individual mortgages],” the filing stated.

“The Settlement Amount of $1.5 million greatly exceeds the potential non-exempt equity in the NJ Property,” the filing summed up.

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Such a request, if granted at a Feb. 1 hearing, could pave the way for the financial institution to initiate foreclosure proceedings against Zayat.

Citing the $1.86 million outstanding on the loan plus liens totaling $2.91 million, lawyers for Fay Servicing, LLC, wrote in a Jan. 7 motion in United States Bankruptcy Court (District of New Jersey) that “it is self-evident that the debtor lacks any equity in the subject property [and] the debtor has failed to make any showing that the property is required for reorganization under the Bankruptcy code.”

The filing specifically asks for relief “including but not limited to allowing [Fay] to enforce its remedies to foreclose upon and obtain possession of the Property.”

In a riches-to-rags case brimming with fraud allegations that has languished in federal court for an unusually long 16 months, the owner and breeder of Triple Crown champ American Pharoah is seeking legal clearance to get out from under $19 million in debt.

Many of those creditors are Zayat's former Thoroughbred trainers, plus numerous breeding, boarding, horse transportation and veterinary entities.

When Zayat first filed for Chapter 7 bankruptcy protection on Sept. 8, 2020, he wrote in court documents that he owned only $300 in cash and $14.22 in two checking accounts.

Yet he and his wife continue to own and live in a 7,714-square-foot home in Teaneck, New Jersey.

Six days after Zayat filed his personal bankruptcy claim, Zayat's former financial advisor and several other entities initiated a separate “involuntary bankruptcy” petition against Zayat's family owned racing stable.

Involuntary bankruptcy proceedings, although relatively uncommon in U.S. courts, are designed to protect creditors, not debtors, and are often filed against companies (as opposed to individuals) as an attempt to get paid when it is believed that a firm is rapidly burning through assets and/or financial malfeasance is alleged.

Donald Biase, the trustee assigned by the court to find out if Zayat is being truthful about his alleged state of impoverishment in his personal bankruptcy petition, has repeatedly told the judge in the case that Zayat and his family members are refusing to cooperate in his legal attempt to trace millions of dollars in possibly fraudulent transfers.

In July, Biase wrote in a court filing aimed at uncovering hidden assets that “Documents obtained by the trustee from third parties strongly suggest that the Debtor still possesses significant assets in Egypt.”

Zayat has repeatedly denied that he has engaged in any illegal activity or that he is hiding money. He has also insisted that neither he nor his family members are trying to hinder the work of either of the trustees who are assigned to vet his personal finances and business operations.

Beyond not having his Chapter 7 bankruptcy protection granted by the court if he isn't being truthful, Zayat faces a possible federal investigation and/or charges if the U.S. Department of Justice believes crimes have been committed.

The post Filing Could Trigger Foreclosure on Zayat’s $3.5M Home appeared first on TDN | Thoroughbred Daily News | Horse Racing News, Results and Video | Thoroughbred Breeding and Auctions.

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Zayat Stables was put under the care of a third-party receiver, and as of early 2021 was down to two horses. Zayat Stables owners Ahmed Zayat has filed for Chapter 7 bankruptcy since the start of the MGG lawsuit.

Read more at The Blood-Horse

The post Kentucky Appeals Court Upholds Dismissal Of Farms From MGG/Zayat Case appeared first on Horse Racing News | Paulick Report.

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What an industry!

The recent, well-publicized ongoing legal sagas of both Ahmed Zayat and Ken Ramsey have brought issues surrounding owner-trainer financial relationships into clear focus. Yet, the truth is that no-pay or slow-paying owners probably have been a small, but existing part of racing since the game was invented.

Despite its topical nature, the problem is not going away anytime soon, and the reason is simple: horse racing is a 21st-century industry that is based on an 18th-century business model. At this late date, virtually all owner-trainer relationships are still based upon oral contracts.

While established contract law renders verbalized agreements legally binding, the pragmatic reality is that oral contracts are not easy to enforce and are even more difficult to litigate. In this regard, the words of the late, great movie producer Samuel Goldwyn ring true: “Oral contracts are not worth the paper they are written on.”

Consider that for any contract to be enforceable in court there must be a “mirror image” displayed between the offer of one participant and the acceptance of the other. Agreement terms reflect one another very well when they are written down and subscribed by each party. The establishment of an oral contract almost always degenerates into a he-said/she-said scenario and eventually turns on the credibility (or lack thereof) of the respective parties.

It's for this reason that judges and juries look askance at purported contracts not memorialized in writing and often refuse to find for the litigant (in this case the trainer) who is seeking contract enforcement.

Coady

Suggested Solutions

Clearly, written contracts would make things much easier, both to abide by and to litigate, but a future proliferation of written contracts between owners and trainers would be sea change that is nowhere in sight. Why? The reason is simple: most racetrackers (and people in general, for that matter) hate change.

This said, many would argue that mucking up the existing system–in place for decades if not centuries–with written contracts and more lawyers is not worth the effort. Ironically, it's exactly the opposite; where a writing is missing, it actually encourages non-performance by the owner, and actually clogs the system with more cases, more lawyers, and big problems.

Let's take a common example. An owner and trainer orally agree upon a $100 per-horse day rate–at many tracks, today's standard of what trainers charge.

The question posed is whether a written agreement or an up-front retainer is really necessary for such a simple, straightforward agreement. Consider that by the time a trainer gets her first check from the owner, she has already fronted that owner the training fees for about 45 days. If our hypothetical owner gave our imaginary trainer 10 horses, by the time the trainer bills the first $30,000 at the end of the first month, she is in serious trouble if the owner fails to make timely payment. Worse, the owner might send a check for less, claiming that the day rate verbally agreed to is much less than what the trainer is claiming.

In businesses like law, construction or big-ticket specialty retail, up-front payments, deposits or retainers are the norm. But it is not the standard in the horse industry.

Why are they virtually nonexistent in our industry? The answer is simple. Most successful trainers would tell you they could never ask for either a retainer or a written contract for fear they would not get the horses offered by the owner into their barn, and therein lies the rub.

The late Hall of Fame trainer P.G. Johnson used to say, “An empty stall is better than a no-pay horse.” What Johnson was saying is true: an empty stall does not cost the trainer any money, but the horse of a no-pay owner triggers the same care, custody and control responsibilities (and costs) of any other horse in the barn. Of course, that's when the downward spiral begins.

Coady

The simple fact is that obtaining clients and horses to train is very competitive.

Many times, new owners, who can afford to spend large sums of money on purchasing horses, are greatly influenced to select their trainers based on which trainers win the big races.

Trainers increase their opportunities to win these big races based on the number and quality of the horse they train.

Trainers need horses to train, so when an owner falls behind, the trainer is put in an even more unenviable position. The options are limited: demand payment and most likely lose the horses, or stay the course and hope for a miracle.

The clear answer is demand payment, and don't get further behind. Yet, trainers often keep their no-pay owners on an ever-elongating leash in the faint hope the horse will earn money and the bill will be paid. The consequences of this decision are evident in the headlines today.

Bottom Line

Is there any tax benefit for writing off the accounts receivable as a bad debt?

No.

Most trainers are paid on a cash basis. They only record income as they are paid.

Therefore, they receive no tax benefit for not getting paid.

The Legal Remedy

In every state in the Union except one (Vermont), trainers, or stablemen, have the protection or remedy commonly referred to as an agister's, or stablemen's, lien. In New York, the law is codified as 183 of the New York State Lien Law and in New Jersey it is codified in 2A:44-51.

Under these statutes, a trainer having care, custody and control of a horse has an automatic lien on the horse against unpaid bills. To perfect the lien, the trainer must both formally notify the owner of the indebtedness and the intention to satisfy the debt by selling the horse at public auction. The power of the tool is obvious, because if the horse is worth appreciably more than the bill owned, the wayward owner will usually run to the barn, cash in hand, rather than lose his valuable, income-producing asset in an agister's sale.

Sarah Andrew

Despite this potent legal remedy, most trainers never utilize it.

For one, they often receive bad advice, sometimes from the stewards, who inform them that they had better give up the horse to the non-paying owner lest they be sued and that they should instead sue the owner to get a judgment or, worse yet, they are encouraged to hold the foal papers. None of these “steward tips” have any validity under the law.

First, if an owner is going to sue a trainer, she will do it whether the trainer has possession or not, so the advice is simply bad.

Second, if the trainer turns possession of the horse back to the owner, the trainer loses possession, hence his statutory lien is now forfeited and the trainer has lost the remedy and most likely any chance of recovering her money.

Third, holding the foal papers is an illegal act and, moreover, foal papers are soon to go the way of bobby socks and land-line telephones, as electronic papers become the norm. This is very bad advice as well.

Aside from this, trainers who are owed vast sums of money often don't perfect their liens because they are afraid they will be looked at as bad guys in the industry, while others simply don't want to pay the legal fees to get their money.

Whatever the reason, trainers who are owed money have a legal recourse, but they have to make the hard decision to perfect their liens and sell the horse. If they don't, we have seen the results.

In sum, although it may be unlikely to ever become a reality, all agreements with owners involving the trainer's care and custody of the horse should be expressed in a clear, concise, comprehensive, straightforward writing signed by the parties, and one of the terms that should not be left out is the payment of an up-front training fee.

Lastly, the question should not be whether to auction off the horse of a non-paying owner, but rather how quickly it can be done after the first training bill is more than 30 days late.

The post This Should be Required Reading for Every Trainer and Owner appeared first on TDN | Thoroughbred Daily News | Horse Racing News, Results and Video | Thoroughbred Breeding and Auctions.

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This latest court action in the twisted saga of the owner and breeder of Triple Crown champ American Pharoah alleges that Zayat and his wife, Joanne, secured a $400,000 mortgage on two back lots adjacent to their New Jersey home in 2018, then had the money wired to the bank account of Zayat's fiscally troubled racing stable in an alleged attempt to execute a “fraudulent transfer” that resulted in “unjust enrichment.”

According to a Sept. 24 filing by trustee Donald Biase in United States Bankruptcy Court (District of New Jersey), “The Defendant received payments on the Leicht Mortgage where collateral was against the Debtor's Properties as opposed to the party in receipt of the funds, Zayat Stables, LLC…. The Defendant's Leicht Mortgage placed a first lien on the assets of the Debtor's Properties and the equity in the Properties, thereby reducing the equity available to the Debtor's individual legitimate creditors.”

Many of those creditors to whom Zayat owes $19 million are Zayat's former Thoroughbred trainers, plus numerous breeding, boarding, horse transportation and veterinary entities.

When he first filed for Chapter 7 bankruptcy protection in September 2020, Zayat said he owned only $300 in cash and $14.22 in two checking accounts.

Yet he and his wife own and live in a 7,714-square-foot home in Teaneck, New Jersey, that is currently assessed at $2.6 million.

And the trustee assigned by the court to find out if Zayat is being truthful about his alleged state of impoverishment has repeatedly told the judge in the case that Zayat and his family members are refusing to cooperate in the trustee's attempt to trace millions of dollars in possibly fraudulent transfers.

In July, Blaise wrote in a court filing aimed at uncovering hidden assets that “Documents obtained by the trustee from third parties strongly suggest that the Debtor still possesses significant assets in Egypt.”

Zayat has repeatedly denied that he has engaged in any illegal activity or that he is hiding money. He has also insisted that neither he nor his family members are trying to hinder the trustee's work.

Beyond not having his bankruptcy protection granted by the court if he isn't being truthful, Zayat faces a possible federal investigation if the U.S. Department of Justice believes a crime has been committed.

The latest legal filing by the trustee lays out the new allegations like this:

“On July 2, 2018, the Debtor and his non-debtor spouse, Joanne Zayat, executed a Mortgage, Assignment of Leases And Rents, Security Agreement, Financing Statement, and Fixture Filing in favor of the Defendant in the amount of $400,000…

“The Leicht Mortgage was secured by two parcels of real property co-owned by the Debtor and Joanne Zayat…. The Properties comprise the back lots of the Debtor's and Spouse's primary residence…

“Documents obtained by the [trustee] indicate that the funds from the Leicht Mortgage, upon closing of the Leicht Mortgage, were deposited via wire transfer into the bank account of [Zayat] Stables. Neither the Debtor nor Joanne Zayat received funds from the Leicht Mortgage despite the Leicht Mortgage being secured by the Debtor's co-owned Properties.

“The Debtor and Joanne Zayat granted a lien on the co-owned Properties without reasonable compensation to same, granting a first position lien to the Defendant reducing the equity in the Properties to the detriment of his other creditors…. The Debtor received no value or less than reasonably equivalent value in exchange for the Leicht Mortgage.”

The filing summed up: “In consideration of the above allegations and counts, the [trustee] demands entry of judgment against the Defendant 1) Cancelling the obligation of the Leicht Mortgage as against the Debtor's Properties on the basis of Fraudulent Transfer; 2) Cancelling the obligation of the Leicht Mortgage based on the Defendant's unjust enrichment.”

The post New Fraud Allegations Against Zayat Over $400K Mortgage appeared first on TDN | Thoroughbred Daily News | Horse Racing News, Results and Video | Thoroughbred Breeding and Auctions.

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Since Sherif El Zayat is not a U.S. resident or citizen, the order stipulates that if he does not comply with the subpoena, the court will hold him in contempt, requiring U.S. Marshalls to detain him upon U.S. arrival.

The trustee in the bankruptcy case, Donald V. Biase, believes that Ahmed Zayat has assets in Egypt being controlled by his brother. Biase wrote in a July filing: “Documents obtained by the trustee from third parties strongly suggest that the debtor still possesses significant assets in Egypt.”

Ahmed Zayat, best known in horse racing as the owner of 2015 Triple Crown winner American Pharoah through his Zayat Stables, filed for Chapter 7 bankruptcy protection on Sept. 8, 2020. Zayat and his racing operation were previously named in a civil lawsuit in Fayette County Circuit Court from New York investment firm MGG Investments, stemming from a $30 million loan he took out in 2016. MGG won a summary judgment in the amount of $24.5 million.

The post Zayat’s Brother Ordered To Comply With Subpoena, Or Risk Contempt appeared first on Horse Racing News | Paulick Report.

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This comes after Donald V. Biase, the trustee overseeing Zayat's bankruptcy case, charged last month that Zayat and members of his immediate family were engaged in “an exercise in gamesmanship, obstruction and delay” to prevent the trustee from having access to financial documents.

Blaise is clearly zeroing in on Sherif El Zayat because he suspects that Zayat has assets in Egypt that are being controlled by his brother. In his July filing, Blaise wrote: “Documents obtained by the trustee from third parties strongly suggest that the debtor still possesses significant assets in Egypt.”

Sherif El Zayat has been ordered to email all documents and information requested in the subpoena by Sept. 8. The brother has also been requested to take part in a video conference examination.

Blaise noted in June that the family members had made only “paltry productions in response to the subpoena directed to them.” Subpoenas seeking documents were issued to Zayat's wife, Joanne, three of his four children, and to JPZ Holdings, a company run by Zayat's son, Justin.

The attempt to subpoena Zayat's brother is trickier because he is not a U.S. resident or citizen and it appears that the court has only limited powers to enforce the subpoena. With that in mind, the judge, Vincent Papalia, wrote in his Aug. 25 filing that if Sherif El Zayat does not comply with the subpoena, the court will issue an order of contempt requiring a United States Marshal to detain Sherif El Zayat upon his arrival in the U.S.

Sherif El Zayat has been involved with a number of Egyptian businesses over the years. He is listed as the CEO of the investment firm Egypt Kuwait Holding. In his bio on the Egypt Kuwait Holding company website, it lists Sherif El Zayat as the founder and former CEO of Misr Glass.

Ahmed Zayat has said that he sold his assets in Misr Glass in 2010 or 2011 for about $2 million, but Blaise has questioned that. In July, he wrote that Zayat's affiliation with Misr Glass continued past 2011 and that in 2015 the company was sold to a third party for $93 million.

In the July memorandum, Blaise wrote that Zayat and family members had not provided information and documents regarding the sale of Misr Glass.

In April, MGG Investment Group, the company suing Zayat, charged that his brother loaned Zayat at least $1.5 million in 2020, which allowed him to maintain a “lavish personal lifestyle.”

Born in Cairo, Egypt, Ahmed Zayat formed an investment group that bought the Al-Ahram Beverages Company in 1997. His brother came on board as the managing director and deputy chairman of the beverage company.

Zayat filed for Chapter 7 Bankruptcy last September after Zayat and Zayat Stables were sued by MGG Capital Group for defaulting on a loan. The company won a $24.5-million summary judgment against Zayat in June 2020.

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