Justin Zayat | Horse Racing Free Tips

In effort to recoup money from the buyers of horses and bloodstock interests from the financially embattled Zayat Stables, the New York-based lender MGG Investments has taken its case to the Kentucky Supreme Court. Dick Downey of The Blood-Horse first broke the story.

“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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The bankruptcy trustee entrusted with sorting through the assets and liabilities of Ahmed Zayat, the Eclipse Award-winning owner of 2015 Triple Crown champion American Pharoah, charged in court documents filed on Tuesday that Zayat and members of his immediate family are engaged in “an exercise in gamesmanship, obstruction and delay” to prevent the trustee from having access to financial documents.

Trustee Donald V. Biase made those accusations in a memorandum in opposition to a motion by Zayat family members to block subpoenas for records from a number of financial institutions, credit card companies and even wagering accounts with TVG. The motions to quash were filed by Justin Zayat, Joanne Zayat, Emma Zayat, Benjamin Zayat and JPZ Holdings LLC.

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

Even without many of the documents requested, Biase was able to trace a number of financial transactions he found questionable between Zayat Stables and Ahmed Zayat's wife, Joanne, son Justin and other family members.

“The trustee's investigation reveals that the debtor (Zayat) and his family members have engaged in a pattern of intermingling of assets and ongoing financial transactions among themselves, Zayat Stables, LLC, and the creditors of the debtor,” the memorandum from Biase states.

Biase also raises questions about whether Zayat may have assets in his native Egypt. He cited statements from Zayat that he had sold Egypt-based Misr Glass company in 2010 or 2011 for approximately $2 million and no longer had any interest in the company. “Yet despite the trustee's request for records of this transaction, no such records have been produced to date,” the trustee wrote.

“Notably, in 2015, press reports show that Misr Glass was acquired by a third party for $93 million,” Biase wrote. “Furthermore, documents produced by Cedarview Capital Management LP … indicated that the debtor's affiliation and/or ownership of Misr Glass continued well past 2011.

“Documents obtained by the trustee from third parties strongly suggest that the debtor still possesses significant assets in Egypt,” Biase continued.

The trustee obtained a Dec. 23, 2019, communication from Zayat to a creditor stating: “Maybe it is our turn that things turn back to normalcy, and I will have the liquidity and right funds I need to manage Zayat Stables without relying on our income and ownerships on companies in Egypt that have been supporting this business.”

Another note from Zayat to a creditor on Jan. 12, 2020, stated: “I have pushed myself to the brink of bankruptcy personally by using every dollar I have in America to fund the company until I find an investor to pay you in full.”

Biase observed: “Given the foregoing facts, there is reason to believe the debtor still has assets in Egypt, some of which are the funds being funneled to him from the debtor's brother Sherif through accounts held in the name of JPZ Holdings (Justin Zayat's company) and Joanne Zayat.”

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