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Zayat’s Bankruptcy Lawyers Want to Sever Ties Over $368K in Unpaid Fees

The law firm representing Ahmed Zayat in his $19-million bankruptcy pleading asked a federal judge Monday for permission to walk away from the case based on Zayat's alleged non-payment of $368,273 to the firm in outstanding legal fees.

“The representation of the Debtor has consumed an extremely significant amount of the available resources of our firm,” wrote attorney Jay Lubetkin of Rabinowitz, Lubetkin & Tully, LLC, in a July 26 “motion to withdraw” filed in United States Bankruptcy Court (District of New Jersey).

“The Debtor has been consistently advised that absent satisfactory arrangements for the payment of the outstanding fees and expenses due to our firm and newly incurred billings, the firm would have no alternative but to seek to withdraw from representation of the Debtor,” Lubetkin wrote.

The purportedly insolvent owner and breeder of Triple Crown champ American Pharoah hired the firm when he filed for Chapter 7 bankruptcy protection nearly one year ago.

Lubetkin's firm has also been defending Zayat in an adversary proceeding filed against him by MGG Investment Group, LP, for allegedly obtaining a $24-million loan by fraud and then not repaying it. MGG wants that debt ruled as non-dischargeable.

Zayat's bankruptcy case has repeatedly been slowed by allegations from the trustee assigned to the case that Zayat and his family members have been uncooperative and obstructive as the trustee tries to trace millions of dollars in possibly fraudulent transfers.

Lubetkin wrote in his court filing that at the outset of their legal relationship, Zayat promised to pay what he owed in legal fees based on 60-day receivable terms. He later agreed to make at least $50,000 monthly minimum payments.

At the time of his initial bankruptcy filing in September 2020, Zayat told the court he had only $314.22 to his name.

Lubetkin wrote that Zayat has not paid his firm since May 5, 2021.

“If the Debtor were to satisfy his previously expressed commitment to keep our receivables within 60-day terms, it would require an immediate payment of $232,899 and a further payment of $76,717 when the billing governing July's efforts is tendered,” Lubetkin wrote.

“I attempted at least nine times during the month of July to communicate with the Debtor regarding status of payments to our firm, without substantive or satisfactory response by the Debtor,” Lubetkin wrote.

As for who might next represent Zayat, Lubetkin wrote in his filing that Zayat himself “fully understands the Chapter 7 bankruptcy process” and “is fully capable of representing himself.”

Lubetkin wrapped up his motion for withdrawal by noting that when he finally did manage to reach Zayat July 21, it seems as if Zayat tried to tell him he was fired before Lubetkin could quit.

“[W]hile not knowing what the Debtor's intentions were at the time of the communication,” Lubetkin wrote, “the Debtor requested that I write to the Court to advise my firm was 'no longer defending” the Debtor, which may be interpreted as the Debtor terminating his relationship with our firm.”

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Trustee In Zayat Bankruptcy Cites Potential Assets in Egypt

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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Bankruptcy Judge Grants Extra Time to Probe Zayat’s Finances

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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Report: MGG Asserts Zayat ‘Is A Perpetual Liar,’ ‘Has Done Everything In His Power To Frustrate The Process’

The lengthy legal battle between New York firm MGG Investment Group and Triple Crown-winning owner Ahmed Zayat continues to drag on, according to the Thoroughbred Daily News.

On March 16, Zayat requested that a federal judge not grant his bankruptcy trustee extra time to look at his finances. This week, MGG told the court that the extra time must be allowed because Zayat, despite his “unsupported assertions of cooperation, he has done everything in his power to frustrate the process.”

Zayat declared bankruptcy in the fall of 2020, seeking Chapter 7 protection. MGG is asking a federal judge to order that Zayat can't get his debts to the investment group forgiven because the company says the $24 million in loans Zayat still owes were acquired fraudulently.

MGG's March 23 filing asserts that the Thoroughbred owner and breeder's latest action “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.”

Read more at the Thoroughbred Daily News.

For more about Zayat and the legal issues described above, click here.

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