MGG Investment Group | Horse Racing Free Tips

MGG to Bankruptcy Judge: ‘Zayat Is a Perpetual Liar Determined to Hinder and Obstruct’

On Mar. 16, Ahmed Zayat asked a federal judge not to grant the trustee in his bankruptcy case extra time that had been requested to scrutinize Zayat's finances so the trustee could make sure the owner and breeder of Triple Crown champ American Pharoah was telling the truth about not being able pay $19 million in debts because he allegedly only had $314.22 to his name.

Now, one week later, 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 same court that the trustee's probe must be allowed to go forward 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's Mar. 23 filing in United States Bankruptcy Court (District of New Jersey) is rooted in the New York-based lending company's desire not to have Zayat's debts declared legally forgiven under the Chapter 7 bankruptcy protection he is seeking.

MGG has previously asserted in court 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.

“There is only one reason the statutory meeting of creditors commenced in this
Case…has been kept open and must remain open—namely, notwithstanding Ahmed Zayat's unsupported assertions of cooperation, he has done everything in his power to frustrate the process,” MGG wrote in its objection to Zayat's recent cross-motion to move the case toward conclusion.

MGG's filing continues: “Far from being the 'honest but unfortunate debtor' that the Chapter 7 process aims to protect, Ahmed Zayat has demonstrated time and again that his ultimate goal is to manipulate the bankruptcy process to shield himself at the expenses of the Trustee and creditors.”

According to MGG, since Zayat filed for bankruptcy protection back in September, he has delayed the administration of his case by 1) Refusing to produce documents prior to the initial hearing; 2) Refusing to respond to “numerous questions” on the basis that he did not have the necessary documents in front of him; 3) Promising, then subsequently refusing, to produce requested materials; 4) Providing paperwork that was so heavily redacted that the documents made no sense.

“Ahmed Zayat should not be able to impede the Trustee's analysis or derail his investigation, all of which is being conducted for the ultimate benefit of the Debtor's creditors,” MGG wrote.

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.

And 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.

MGG wrote that in addition to supporting the trustee in his request for one more month to sift through documentation, the lender also wanted to “advise the Court of significant recent developments” that arose out of Zayat's testimony under oath at a Feb. 25 hearing.

Specifically, MGG alleged, documents pertaining to bank accounts in the names of Zayat's wife (Joanne Zayat) and son (Justin Zayat) are now “indisputably relevant to the Trustee's investigation and analysis, as they appear to have been used as conduits through which Sherif El Zayat, the Debtor's brother, loaned money to Ahmed Zayat.”

Last week, Ahmed Zayat's 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 Mar. 16 that “The Debtor has been extremely cooperative with the Trustee [and has] provided to the Trustee significant documentation respecting his financial affairs…. The Debtor has responded with voluminous documents in satisfaction of the Trustee's three very extensive document requests, and temporarily withheld only a small portion of those documents for legitimate, good faith, objectively supportable reasons…The Debtor [eventually] provided the Trustee with the temporarily withheld documents, and the Trustee has been in possession of all the requested documents for more than 60 days.”

MGG wrote in its Mar. 23 filing that “Ahmed Zayat has attempted to create a record based on false and misleading assertions.”

MGG's filing contained excerpts from email exchanges between Ahmed Zayat and MGG that date to Jan. 12, 2020, which was 10 days before MGG filed its bombshell lawsuit against him in a Kentucky court.

“It kills me and tore me part, not being transparent with you,” Zayat allegedly wrote at the time, apparently in an effort to stave off the impending legal action.

“I did not disclose to you why we had to sell some assets in order for us to fund and continue to operate Zayat Stables and allowing myself the time to find the capital to get you paid in full…. I did not want you to panic knowing that I still have a chance to save the day…

“There is still a glimpse of light that a miracle can happen,” Zayat allegedly wrote.

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MGG Wants Zayat Debt Ruled ‘Non-Dischargeable’ Because of Alleged Fraud

MGG Investment Group, LP, is already nearly a year into a civil lawsuit initiated to try and recoup $24 million in loan defaults by Ahmed Zayat and his family-owned bloodstock and racing operation. Now the New York-based lender is going after the insolvent Triple Crown-winning owner and breeder in a different court by trying to get a federal bankruptcy judge to rule that some of Zayat’s debts shouldn’t be legally forgiven under the Chapter 7 bankruptcy protection he is seeking because those loans were the product of years of systematic fraud that Zayat allegedly orchestrated.

“The indebtedness owed by Ahmed Zayat to MGG is non-dischargeable as it is a debt for money, property, services, or an extension, renewal, or refinancing of credit, that was obtained by false pretenses, false representations and/or actual fraud within the meaning of Bankruptcy Code Section 523(a)(2)(A),” MGG stated in a Dec. 4 complaint filed in United States Bankruptcy Court, District of New Jersey.

“[I]t is a debt…that was obtained by use of a series of statements in writing that were materially false, respecting an insider’s (Zayat Stables) financial condition, on which MGG reasonably relied, and that Ahmed Zayat caused to be made or published with the intent to deceive MGG,” the complaint continued. “[I]t is a debt for willful and malicious injury caused by Ahmed Zayat to the property of MGG within the meaning of [the] Bankruptcy Code.”

The specifics of MGG’s fraud allegations against Zayat are not new. They were just introduced in a different court in a different legal context.

In fact, the “adversary proceeding” that MGG filed Dec. 4 covers the nearly identical timeline of alleged deceit and evasion involving racehorses and bloodstock between 2016 and 2020 that MGG first brought to light in January in its Kentucky lawsuit in Fayette Circuit Court.

That case revolves around accusations that Zayat hid the proceeds from the sale of nine lifetime breeding rights shares to 2015 Triple Crown winner American Pharoah, plus at least 15 other “valuable racing Thoroughbreds” that had been pledged to MGG as loan collateral.

Also Dec. 4, in a separate status report filing related to that case, the court-appointed receiver who has been managing and liquidating Zayat Stables reported that the operation is down to just three remaining horses after nine sold at public auction in November, grossing $566,000.

The MMG suit is one of at least three intertwined and currently active court cases involving Zayat and his racing stable.

Separately, in a federal Chapter 7 bankruptcy petition filed Sept. 8 by Zayat himself, horse farms, trainers, bloodstock businesses, veterinarians and equine transportation companies were among 132 entities listed as creditors.

Zayat stated they are due $14.7 million in “non-priority unsecured claims,” which means they are at the bottom of the hierarchy to get paid–if they get paid at all–if the plea for bankruptcy protection gets granted. This is the bankruptcy case that MGG is now trying to influence with its Dec. 4 adversary proceeding.

Complicating matters further, Zayat’s personal voluntary bankruptcy pleading is different from a separate involuntary bankruptcy petition that Zayat’s former financial advisor and other entities initiated against his racing stable Sept. 14.

Involuntary bankruptcy proceedings are relatively uncommon, and are generally designed to protect creditors as opposed to debtors. Involuntary bankruptcies 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.

MGG’s Dec. 4 complaint pertaining to Zayat’s Chapter 7 petition demanded entry of a judgment declaring that he “is personally liable for all of the indebtedness owed to MGG under the Loan Documents in an amount to be determined by this Court and that such indebtedness owed by Ahmed Zayat is determined to be nondischargeable pursuant to [the] Bankruptcy Code [while] awarding MGG such other and further relief as this Court deems appropriate.”

The filing continued: “For several years, Ahmed Zayat’s fraudulent scheme worked for his benefit. In light of the fraudulent sales of MGG’s Equine Collateral, the concealment of sales revenue relating thereto, the manipulation of accounts payable, and the nondisclosure of Defaults and Events of Default under the Loan Documents by Zayat Stables…MGG was intentionally deceived and kept ‘in the dark…’

“As a result, MGG was defrauded of the opportunity to accelerate its Loans at or before the time when these fraudulent actions were occurring, thereby enabling Ahmed Zayat to continue to orchestrate the wrongful sale of additional Equine Collateral and further deprive MGG of the ability to insure that such sales realized fair market value and that the proceeds thereof were applied in accordance with the Loan Documents.”

MGG’s Dec. 4 filing also stated that “This Complaint is not intended to supersede or modify any of MGG’s claims against Ahmed Zayat or any other party asserted in the Kentucky [lawsuit]….

“Pursuant to this Complaint, MGG is setting forth the grounds on which it objects to the dischargeability of debts owed by Ahmed Zayat to MGG, and is preserving its right to have the claims against Ahmed Zayat set forth in the Kentucky [lawsuit] consolidated with the claims set forth herein at such time as the issues relating to the Kentucky [lawsuit] are ripe for further discussion by this Court.”

The post MGG Wants Zayat Debt Ruled ‘Non-Dischargeable’ Because of Alleged Fraud appeared first on TDN | Thoroughbred Daily News | Horse Racing News, Results and Video | Thoroughbred Breeding and Auctions.

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November Auction Anticipated for Zayat Horses Under Receivership

Attorneys representing MGG Investment Group, LP, which is the plaintiff in a $24.5 million Kentucky civil lawsuit alleging fraud and loan defaults against Ahmed Zayat and his family’s Zayat Stables, LLC, disclosed in a legal document filed Sept. 18 that the court-appointed receiver in that case intends to hold a November auction to sell off horses that are being held as collateral against the unpaid debts.

News about this anticipated November auction was made public in the form of a letter dated Friday and filed in United States Bankruptcy Court, District of New Jersey (Newark) by MGG’s counsel.

That letter pertains to a separate court proceeding initiated Sept. 14 by three other creditors who are attempting to force an “involuntary bankruptcy” petition against Zayat Stables. If the forced bankruptcy moves forward, it could keep MGG (and other creditors who are not part of either court action) from collecting on debts that MGG claims are backed by its own “first priority perfected security interest in all of Zayat Stables’ personal property, equine collateral, accounts and proceeds.”

Complicating matters further, Zayat himself (as an individual, not as his racing stable) filed for Chapter 7 protection Sept. 8 in a federal bankruptcy court in New Jersey, claiming to be $19 million in debt. And within that filing, the insolvent 2015 Triple Crown-winning breeder and owner disclosed that he is a party to three other active lawsuits involving money woes.

So right now the tangled financial mess involves numerous creditors jockeying for position to secure spots in a disputed pecking order that could determine which might be first to recoup proceeds from the Zayat horses held in the Kentucky receivership.

That’s important, because the federal court with jurisdiction in Zayat’s personal bankruptcy has already notified the 132 non-priority, unsecured-claim creditors in that case that “no property appears to be available to pay creditors.” So reaping proceeds from the sale of Zayat Stables’ horses appears to be the only means for some of the creditors to get paid.

The Sept. 18 letter from MGG’s attorneys was an attempt to slow down the process in the forced bankruptcy attempt. The day before, the three petitioning creditors in that involuntary bankruptcy case (Zayat’s former financial advisor is one of the parties) filed an Application for Order Shortening Time, in which they requested that an expedited hearing be set for Sept. 22.

“We are writing to request that any hearing on the Motion be scheduled for no earlier than Sept. 29 as the Petitioning Creditors have not presented any emergent circumstances that would require a hearing to be held as quickly as Sept. 22,” the MGG counsel wrote.

“The underlying premise of the Motion appears to be the Petitioning Creditors’ dissatisfaction with a Kentucky State Court receivership proceeding commenced by MGG on January 22, 2020 in the Fayette Circuit Court, in which Elizabeth Z. Woodward has been appointed receiver. The Receivership proceeding, which has been pending for almost eight months, has been heavily contested by Zayat Stables, which has not only failed in its efforts to date to get the Receivership dismissed, but has suffered the entry of judgment against it in the amount of $24,534,166.13.

“Substantially all of the ‘issues’ raised by the Petitioning Creditors in support of their Motion have already been advanced in the Receivership by Zayat Stables, to no avail.

The Receiver and her retained professionals have, under contentious circumstances, made substantial progress in monetizing Zayat Stables’ assets in a manner typical for the liquidation of equine collateral and consistent with accepted industry practices.”

The letter continued: “We are informed that the Receiver does not anticipate selling any of the horses or other components of MGG’s Collateral until a scheduled auction in November 2020, to be conducted by a recognized Thoroughbred auction house, such as Keeneland; nor will any of the proceeds of the MGG Collateral being held or to be collected by the Receiver be disbursed other than for the ordinary course care and maintenance of the Zayat Stables’ horses.

“Notwithstanding that MGG has a first priority security interest in all of the assets that the Receiver is charged with liquidating, and notwithstanding the fact that MGG has made substantial protective advances to the Receiver to preserve the MGG Collateral, MGG will not seek the Receiver make any distributions to MGG until there has been a disposition of the Motion or a further order of this Court,” the letter concluded.

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