Bankruptcy Trustee Warns of Risk that Zayat Will Wipe Away Electronic Records

Two weeks after being granted an extra month to determine if Ahmed Zayat is hiding assets while seeking Chapter 7 bankruptcy protection, the court-assigned trustee in the case told a federal judge Friday that the allegedly insolvent owner and breeder of Triple Crown champ American Pharoah (Pioneerof the Nile) is still trying to evade scrutiny by withholding records.

And trustee Jeffrey Testa further warned that the longer the case drags on, the higher the risk is that Zayat will wipe away cloud-storage financials before the trustee can examine those documents.

Testa now wants the judge to “compel turnover” of Zayat's trove of electronic records, and to “direct” Zayat to cooperate with the investigation, according to an Apr. 16 United States Bankruptcy Court (District of New Jersey) filing.

In that document, the legal team for the trustee wrote that because of the “serious and disturbing allegations of fraud at play in this case,” the court “should not leave it to chance that Mr. Zayat or his designees will act competently” to maintain the integrity of the evidence.

“Given the overwhelming allegations of fraud and expected sought-after delay, the Chapter 7 Trustee simply cannot wait any longer for access to the Cloud,” the filing states. “Although Mr. Zayat has represented that the Cloud is secure and that he is aware of his obligations, the longer the information on the Cloud remains in the hands of Mr. Zayat the more susceptible it is to manipulation or destruction, and this ongoing and unreasonable delay impedes the Chapter 7 Trustee's investigation.”

The job of trustee in a voluntary bankruptcy case is to make sure that a debtor's claim of insolvency is on the up-and-up. In Zayat's case, he alleged in his initial filing last September that he has $19 million in debt but only $314.22 in assets, with a huge chunk of that money owed to Thoroughbred-related creditors.

People who file for bankruptcy protection generally try to cooperate with their assigned trustees, because without the trustee's seal of approval, their debt likely won't get forgiven by a judge.

But Zayat's case has been riddled with accusations of his stonewalling and evasion since the outset of the initial hearings. Zayat, through his attorney, has repeatedly denied those claims and stated that he has been a willing and cooperative petitioner.

Not only can a trustee file an objection if aspects of the filing don't seem legit, but if alleged fraud is uncovered in a bankruptcy petition, the Federal Bureau of Investigation can investigate, and the U.S. Department of Justice can prosecute.

The trustee's request to the judge on Friday capped a week of drawn-out, back-and-forth demand letters and phone conferences between the trustee and Zayat's legal team over whether and how the access to his cloud-storage records would be granted.

According to the filing, just when the trustee thought the parties had agreed on safeguards that would satisfy Zayat's concerns about not wanting anyone to read his family's personal emails, Zayat on Apr. 15 instead proposed an unworkable alternative, which essentially was that the trustee should ask for specific financials it believed were stored in the Cloud and Zayat would retrieve them for the trustee.

“This proposed process was simply a close cousin of Mr. Zayat's previous proposals designed, in the Trustee's view, to dictate and control the process contrary to law [and] leave the Cloud unsecured, delay, and make Mr. Zayat the lynchpin of any document search and review,” the filing states.

“Mr. Zayat's primary basis for refusing to grant the requested access is that the Cloud allegedly commingles and contains his emails and those of his family members that are supposedly unrelated to the Debtor's business and that might comingle and contain, among other things, HIPAA-implicated, non-business, and attorney client-privileged communications,” the filing continues.

“The fact that Debtor's principal and his family members supposedly decided to mix business and non-Debtor affairs does not negate Debtor's statutory duty to turn over property of the estate and recorded information to the Chapter 7 Trustee,” the filing asserts. “There is simply no valid reason why the Chapter 7 Trustee should not be granted access to independently secure the Cloud. The law does not support Mr. Zayat's position…

“Given these circumstances and Mr. Zayat's decision not to allow the Chapter 7 Trustee to have access to and independently secure the Cloud and its contents raise serious concerns on the part of the Chapter 7 Trustee that the cloud and its contents might not be secure while under Mr. Zayat's exclusive possession and control, and that the Chapter 7 Trustee might be obstructed in reviewing documents that can lead to recoveries for the benefit of all creditors.

“The Chapter 7 Trustee has already taken steps to engage a reputable IT partner–Epiq–to take control of the Cloud, preserve it, and copy its contents. Mr. Zayat will have access copies to any information on the Cloud once it is secured; thus there is and will be no prejudice to Mr. Zayat or his family members,” the filing states.

MGG Investment Group, LP, the lender that is separately suing Zayat and his family members for allegedly obtaining a $24-million loan by fraud and then not repaying it, has alleged in court documents 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.”

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The Week in Review: Quintessential ‘American Way’ on Display at Breeders’ Cup

Nearly two decades apart, we’ve witnessed a Breeders’ Cup in the aftermath of a devastating terrorism attack, which led to armed marksmen defending the rooftop of the host track, and now during a global pandemic, which necessitated the barring of the general public from the two-day event and kept the relatively few essential attendees masked and socially distanced from one another.

Unlike 2001, this year’s championships produced no singular “Tiznow wins it for America!” moment to buoy the spirit of a nation in crisis. But the crescendo of Authentic (Into Mischief)’s GI Classic win was dramatically satisfying in its own right, and the subplots of the supporting races unfolded with enough twists of interest to spur decent day-after debate while providing more than a few intriguing horses to look forward to in 2021.

Not everything went perfectly–we’ll get to that momentarily. But with COVID-19 adversely tilting the balance of everyday life right now, the industry can breathe a collective sigh of relief that the Triple Crown races and the Breeders’ Cup are safely in the books and not too badly banged up considering the outsized doses of disruption and havoc that 2020 imposed upon our economy and the sporting landscape.

Yes, big-event betting handles have been down, overnight purses nationwide have taken hits, and the auctions are in flux. But things could be far worse for Thoroughbred racing considering everything that’s happened over the past 10 months. Viewed through the prism of realistic expectations, this year’s Breeders’ Cup rates a thumbs up based on perseverance and competitiveness alone.

You can take your pick among the dueling storylines percolating to the surface in the aftermath of this year’s event. The pandemic itself even provided a few in microcosm: Three of the Grade I races (Turf, Mile, Filly and Mare Turf) were won by jockeys picking up those mounts only because the first-call riders tested positive for COVID-19.

But the “old-fashioned American dirt horse dominance” theme has to rank near the top of Breeders’ Cup topics that will resonate. The trend is notable because it’s part of an intentional shifting of the arc.

When Keeneland switched from a main synthetic surface back to a traditional dirt track in 2014 after an eight-year experiment with Polytrack, one of its stated intentions was to “be more competitive in attracting the top horses and Triple Crown and Breeders’ Cup contenders and in hosting major racing events.”

It’s now six years into that dirt rebirth and Keeneland has hosted two Breeders’ Cups. The first, in 2015, was capped by Triple Crown winner American Pharoah engineering an unprecedented “Grand Slam” by trouncing the field at every call in the Classic. On Saturday, we saw Authentic, this year’s wire-to-wire GI Kentucky Derby winner, step up against older foes and unleash yet another front-running tour de force that catapulted him 2 1/4 lengths clear of a deep field of Classic contenders.

Those speed-centric accomplishments are already (in American Pharoah’s case) and will eventually be (for Authentic) having an impact on the bloodstock marketplace, underscoring how one major racing venue (and sales company)’s decision to switch surfaces can produce wider downstream effects in a relatively short period of time.

“The American dirt horse is tough, strong, and fast,” colleague Sid Fernando wrote in a 2019 TDN column. “He’s an athlete. He’s a combination of speed and stamina, bred to race on an unforgivingly hard surface, bred to race at two, bred to break quickly from the gate, bred to run hard early, bred to withstand pressure late.”

That pretty much sums up Authentic in 2020, doesn’t it? Or, for that matter, the Breeders’ Cup performances of Knicks Go (Paynter), the newly explosive wire-to-wire winner of the GI Dirt Mile, and pedal-to-the-metal phenom Gamine (Into Mischief), who conceded the early lead but stalked menacingly before pouncing in the stretch of her 6 1/4-length romp in the GI Filly and Mare Sprint. All three winners were credited with track-record times, providing future fodder to bolster the sales catalogue pages of their offspring.

Records made to be broken?

We’ve all heard the old saying that records are made to be broken. But the two-day Breeders’ Cup meet at Keeneland took that concept to the extreme. Counting the undercard races, dirt-track records were smashed at 6, 6 1/2, 7, 8 and 10 furlongs. Had Monomoy Girl (Tapizar) run just a tenth of a second faster in winning the GI Distaff, she would have eclipsed the 9-furlong mark. For good measure, the rarely contested 1 3/16 miles turf record also fell.

Keeneland’s main-track records have to be taken with a figurative grain of salt (or grain of dirt in this case). The track has not only changed in composition several times, but its configuration has been altered since 2006, making comparisons to previous dirt-era records impossible. The current dirt records pertain only to races from the autumn of 2014 onward, and the first Breeders’ Cup at Keeneland also established five then-records, largely because so few dirt races were available for comparison at that time.

Complicating matters additionally on Saturday, Keeneland’s teletimer was inadvertently tripped prior to the start of the Classic. So Authentic’s track-record time of 1:59.19 for 1 1/4 miles in a $6-million championship race had to be determined by timing it off a video replay, which is neither ideal nor the industry standard. As of this writing, no fractional splits have been added to the official Equibase chart.

So what about the other cliché we’ve all heard, that time only matters when you’re in jail? Maybe it’s more important to assess how the Breeders’ Cup winners ran rather than how fast.

The B-word (bias) is never far from discussion on big race days or championship weekends, although it’s evolved considerably since the era when dirt tracks were widely believed to be souped up (and in some cases actually were) for major events.

The raw numbers tell us that Keeneland carded 14 main-track races over Friday and Saturday. Five of them were won wire-to-wire. Five were won by forwardly placed horses not too far off the lead. Four were won by off-the-pace closers.

By that calculation, speed-centric horses accounted for 10 of 14 wins. But six of those winners were favored, and most likely would have been well-backed regardless of how the track was perceived to be playing. Perhaps more impactful is the argument that ties into the point above about the defining quality of American dirt racers in general: If speed is more or less the “universal bias” on this continent, no one should be surprised when races slant that way.

If you drill down further and cull from those Keeneland results two “outlier” races that were won by closers–the marathon 1 5/8 miles race on Friday that started from a backstretch chute and the second race on Saturday whose complexion was marred by a spill at the front of the pack turning for home–that leaves only two horses over the weekend who legitimately closed into the teeth of the prevailing trend: Essential Quality (Tapit) rallied from well back to win the GI Juvenile (aided by the fastest opening half-mile split in that race since 2003), and fan favorite Whitmore (Pleasantly Perfect), who upset the GI Sprint under a deft rail-skimming ride after being buried in the back for most of his trip.

Lasix: Don’t let the door hit you on the way out

There is one other over-arching aspect of the 2020 Breeders’ Cup that is worth mentioning: This was the first year of the planned phasing-out of Lasix for the World Championships. Earlier this year, most major American racing jurisdictions prohibited the 2-year-old use of the controversial anti-bleeding medication on race day, and all five of the races for juveniles on Friday were mandated Lasix-free.

Those 2-year-old fields were robust, diversely matched, and for the most part formful. It was also heartening to hear a respected trainer like Ken McPeek say earlier in the week that not having one of his Juvenile entrants on Lasix was a reason he felt confident about running the young colt back with only 12 days between starts.

But Saturday was a different story because the older Breeders’ Cup horses were allowed Lasix. After getting blanked on Friday, European-based trainees swept all four of the second-day grass championships–and every single one was captured by a first-time-Lasix (FTL) user.

Glass Slippers (GB) (Dream Ahead), the only FTL entrant in the GI Turf Sprint, won by a half-length at 10-1.

Audarya (Fr) (Wootton Bassett {GB}), the FTL course-record victress in the Filly and Mare Turf, won by a neck at 17-1.

The GI Mile trifecta (73-1, 11-1,18-1) was keyed by FTL Order of Australia (Ire) (Australia {GB}), with the other two placings rounded out by another European going back on Lasix for only the second time in his life and yet another FTL entrant.

The GI Turf exacta was comprised of the FTL filly Tarnawa (Ire) (Shamardal) besting Magical (Ire) (Galileo {Ire}), whose only other lifetime Lasix start was when she ran second in the 2018 version of the Turf.

Lasix is on schedule to be completely phased out for all Breeders’ Cup stakes in 2021.

The irony can’t be understated: America is attempting to follow a European-styled model of prohibiting race-day medications. Yet the rules that were in place for this year’s Breeders’ Cup allowed for the European shippers to maximize the use of Lasix to their advantage.

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Two Odds-On, Length-of-Stretch Charles Town Winners DQ’d for Class 1 Positives

Two odds-on favorites who won their respective races by 15 1/2 and 7 1/2 lengths at Charles Town Sept. 17 have subsequently been disqualified after both tested positive for the widely abused-in-humans synthetic opioid fentanyl and eutylone, the street-drug stimulant known as “bath salts.”

The Charles Town board of stewards, however, is citing “substantial mitigating factors” and terming both “trace level” cases as “environmental contamination” that will spare both horses’ trainers from steep Class 1, Category A penalties.

The explanation, according to a pair of West Virginia Racing Commission (WVRC) rulings dated Oct. 22, is that a stable employee who handled both animals pre-race contaminated them with traces of the illicit drugs. That licensee, identified only as “he” in the rulings, subsequently refused to take a drug test ordered by the stewards and has since been suspended.

The Jack Hurley-trained Morality Clause (Verrazano) broke her maiden in start number nine in the second race at Charles Town on Sept. 17. She forced the pace and drew off handily by 15 1/2 lengths at 2-5 odds for ownership partners Cutair Racing and Randall Manor Racing.

Two races later, the filly Take Me Home (Take Charge Indy) won a starter/$10,000 optional claiming race by 7 1/2 lengths at 7-10 odds for ship-in trainer Timothy Kreiser and Bush Racing Stable.

But according to the ruling, because of COVID-19 pandemic protocols, “Mr. Kreiser could not enter the backside so Take Me Home ran out of the barn of Jack Hurley. Mr. Kreiser and Mr. Hurley were not acquaintances but were brought together by a mutual owner.”

The same handler from Hurley’s shed row had contact with both horses, the stewards deemed.

According to Equibase, Hurley has been training since 2018 and has seven lifetime wins from 47 starters. Kreiser, Penn National’s leading trainer the past six years, has 1,907 lifetime wins in a conditioning career that dates to 1993.

Fentanyl and eutylone have no acceptable threshold concentration levels according to WVRC standards.

Hurley’s ruling stated that “The trainer is the absolute insurer of and responsible for the condition of the horses he or she enters in an official workout or a race, regardless of the acts of third parties…. Mr. Hurley’s past record as a permit holder is good in that he has one medication violation in this jurisdiction in the past 365 days. The amount of fentanyl and eutylone found in the horse is a trace level which lends credibility to the probability that the horse was inadvertently exposed to the drug in some manner…. Therefore, the standard penalty for a first offense Class A medication violation (one-year suspension/$10,000 fine) is not imposed in this matter.”

Kreiser’s ruling stated that “There is no reason to believe that Mr. Kreiser knew of or caused the drug to be administered to the horse…. The stewards are explicitly authorized to consider inadvertent exposure as a factor in determining medication violations…. Weighing and balancing these factors, the board of stewards find that while Mr. Kreiser is held responsible for the positive in this case, the stewards shall impose no penalty against Mr. Kreiser’s permit.”

In addition, neither Hurley nor Kreiser will be docked the six Multiple Medication Violation points they would typically be assessed in this instance.

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Iowa Trainer Testifies He ‘Accidentally Spilled’ Class 1 Substance Into Feed

A Prairie Meadows-based Thoroughbred who twice ran second within eight days while carrying a Class 1, Penalty A substance that humans consume to produce psychoactive effects has earned its trainer a one-year suspension and a $1,000 fine.

According to an Iowa Racing Commission ruling dated Oct. 23, trainer Robert Roe “did not dispute the findings, nor did he deny he has to be penalized” after the Sept. 20 and 28 blood and urine samples for Candy My Boy (Candy Ride {Arg}) both came back positive for the banned substances mitragynine and 7-hydroxymitragynine, which have no acceptable allowable levels in a racehorse by Association of Racing Commissioners International (ARCI) standards.

Instead, Roe argued at an Oct. 22 stewards’ hearing that he legally purchased a substance marketed as kratom and took it for his own personal use, but inadvertently dropped some into a preparation that ended up in the feed of his $5,000 claimer.

“Mr. Roe testified it was a contamination when he accidentally spilled some into a joint supplement he feeds his horse,” the ruling states. “He did not think he had spilled enough into it that it would affect the horse. He did not speak with his personal veterinarian, nor the state veterinarian to get their opinion, nor did he throw out the contaminated joint supplement. During the hearing he acknowledged he should have just thrown the contaminated supplement out.”

According to the ruling, Roe testified that the substances are misclassified by the ARCI, and that kratom “should not be a Category 1, Penalty A.” It was not immediately clear whether Roe (3-2-1 from 17 starters in 2020) intends to appeal his suspension and fine.

According to the website drugabuse.gov, kratom is a tropical tree native to Southeast Asia, “with leaves that contain compounds that can have psychotropic (mind-altering) effects…. Kratom can cause effects similar to both opioids and stimulants…. When kratom is taken in small amounts, users report increased energy, sociability, and alertness instead of sedation.”

It is not illegal to possess kratom in the United States, but the Drug Enforcement Agency lists it as a “drug of concern” with potential for abuse in humans.

The most recent–and perhaps only other–known penalty for kratom in North American racing was in 2017 when the New York State Gaming Commission indefinitely suspended a harness owner/trainer/driver for racing four horses at Monticello Raceway on it (two won and another was second).

Candy My Boy, a 7-year-old gelding with a 6-for-47 lifetime record, was competing at the “non-winners in six months” level when he ran second at 16-1 and 7-1 odds in his two September races while positive for the substances.

The ARCI guidelines for a Penalty A are a minimum one-year suspension and a fine of $10,000 or 10% of total purse (greater of the two) absent mitigating circumstances. According to the ruling, the stewards are considering the positives in the two races to “be a single violation, as both tests occurred prior to notifying Mr. Roe.”

Candy My Boy has been ordered disqualified from Race 9 on Sept. 20 and from Race 1 on Sept. 28. Owner Brett Marceau has been stripped of the purse winnings, which will be redistributed.

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