zayat stables | Horse Racing Free Tips

New Fraud Allegations Against Zayat Over $400K Mortgage

In a bankruptcy case already brimming with fraud allegations that has languished in federal court for over a year, the trustee pouring over the finances of Ahmed Zayat filed a new complaint alleging wrongdoing Friday.

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.”

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Claiming They Are Owed $368,272, Zayat’s Attorneys Want Out Of Bankruptcy Case

Ahmed Zayat, who filed for Chapter 7 bankruptcy last year after being sued by MGG Investment Group for allegedly defaulting on a $24 million loan, has stopped paying his attorneys, according to a court filing.

Jay L. Lubetkin, a partner in the Rabinowitz, Lubetkin & Tully law firm that has been representing Zayat in both the bankruptcy and MGG adversary proceedings, filed a notice with U.S. Bankruptcy Court in New Jersey on Monday seeking to withdraw from the case.

Lubetkin said Zayat has failed to fulfill his promise to keep outstanding invoices within 60-day terms and a subsequent promise to make minimum monthly payments of $50,000. Lubetkin said he tried communicating with Zayat “at least nine times” in July to discuss the status of payments but has not received a “substantive or satisfactory response” from the Eclipse Award-winning owner and breeder who campaigned 2015 Triple Crown winner and Horse of the Year American Pharoah.

Lubetkin said Zayat currently owes $368,273.33, not including billings incurred since June 29, 2021. Lubetkin said the last payment received was May 5, with outstanding bills now dating back to February of this year.

“If (Zayat) were to satisfy his previously expressed commitment to keep our receivables within 60-day terms,” Lubetkin wrote, “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 commented that the MGG Investment Group lawsuit is “in its earliest stages” and likely would not go to trial until the second quarter of 2022, at the soonest.

Zayat's “payment failures constitute a failure to substantially fulfill obligations to our firm,” Lubetkin wrote, “and the debtor (Zayat) has been given reasonable warning that we will have no choice but to withdraw unless those obligations were fulfilled. … Additionally, continuing representation of the debtor will result in an unreasonable financial burden on our firm.”

Zayat, Lubetkin added, is “an extremely intelligent individual who fully understands the Chapter 7 bankruptcy process, the nature of the claims being made against him by MGG Investment Group in its adversary proceeding seeking the non-dischargeability of the alleged debt due MGG Investment Group, the role of his individual Chapter 7 trustee, the role of the Chatper 7 trustee for Zayat Stables LLC, the prospect of an objection to discharge complaint being filed against the debtor by his individual Chapter 7 trustee and the prospect of a Section 523 complaint being filed against the debtor by the Stables' trustee. The debtor also understands the exemption available to his interest in residential real property, the exemption available to his ownership interest in home furnishings, and the impact of the real property and personalty appraisals obtained by his Chapter 7 trustee.

“Based on the debtor's intelligence and the detailed statutory and caselaw information which has been shared with the debtor,” Lubetkin concluded, “the debtor is fully capable of representing himself in his main bankruptcy case and in the adversary proceeding.”

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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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Zayat Bankruptcy Trustee Alleges ‘Ongoing Pattern of Delay, Obstruction, and Gamesmanship’

Ahmed Zayat's attempt to get out from under $19 million in debt has reached yet another–and purportedly intentional–legal bottleneck.

The trustee assigned to the case is now alleging that three children and the wife of the financially strapped owner and breeder of Triple Crown champ American Pharoah are refusing to cooperate in providing documentation the trustee had subpoenaed from them to try and trace millions of dollars in possibly fraudulent transfers.

“[T]he Trustee's investigation reveals that the Debtor and his family members have engaged in a pattern of intermingling of assets and ongoing financial transactions among themselves,” the attorney bankruptcy trustee Donald Biase wrote in a July 13 filing in United States Bankruptcy Court (District of New Jersey).

“Notably, the [Zayats] have made only paltry productions in response to the subpoenas directed to them. Worse, their counsel has engaged in extensive redactions of the bank account statements they did produce based upon nothing but their own unilateral determinations of relevance, and has also simply omitted bank records for important periods,” the filing continued.

Ahmed Zayat's case seeking Chapter 7 bankruptcy protection has now dragged past the 10-month mark and has been hallmarked by the trustee's multiple allegations of stalling, evasion and non-cooperation. Zayat has repeatedly denied those claims via court filings.

The primary role of a court-appointed trustee in a bankruptcy case is to ensure that a debtor who files for federal bankruptcy protection is not hiding assets that could instead be used to pay creditors–many of whom in Zayat's case are Thoroughbred trainers for his now-liquidated racing stable and various racing- and bloodstock-related entities.

An objection to a bankruptcy protection plea can be filed if a trustee believes aspects of the required documentation 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.

Back on June 4, the trustee issued a Rule 2004 subpoena to Zayat's wife, Joanne Zayat, and three of their four children, Emma, Benjamin and Justin Zayat. A business entity controlled by Justin, JPZ Holdings, LLC, was also subpoenaed.

Federal Rule of Bankruptcy Procedure 2004 authorizes the Trustee to investigate the “acts, conduct, or property or to the liabilities and financial condition of the debtor, or to any matter which may affect the administration of the debtor's estate, or to the debtor's right to a discharge.”

Specifically, the trustee wanted to see detailed information from the family's allegedly intermingled accounts with banks, credit card companies, other lending-related institutions.

The subpoena also wanted access to four TVG betting accounts “belonging individually to or jointly with, including as an additional or authorized user…any member of the Debtor's Family…or JPZ Holding,” as well as any passwords associated with such accounts.

On June 23, the four above-named Zayat family members (the “movants”) asked the court to quash the trustee's subpoena, alleging that “Each Subpoena is exceptionally broad and seeks wholesale financial records and other personal and proprietary financial information regardless of whether it has any relationship whatsoever to the Debtor or the Estate.”

In the trustee's July 13 memorandum in opposition to that proposed quashing, Biase contended that the motion to quash “is an exercise in gamesmanship, obstruction, and delay…. [T]hree of the Movants [Justin, JPZ Holdings and Joanne] were tied especially closely to the finances of the Debtor and to Zayat Stables.”

The filing continued: “Justin Zayat was the President of Zayat Stables, and so far as can be determined his sole source of income during the relevant period was Zayat Stables. Justin Zayat was also the beneficiary of nearly $1 million in transfers at a time when the financial condition of the Debtor and Zayat Stables were deeply troubled. Justin Zayat's company, JPZ Holdings, has also received millions of dollars in payments from the Debtor's brother and creditor, Sherif Zayat.

“Joanne Zayat, the Debtor's wife, was the recipient of over $1 million dollars of direct transfers from Zayat Stables. She is jointly named on every material bank account used by the Debtor, and is also a joint account holder with Justin Zayat.

“The accounts of Justin Zayat, Joanne Zayat and JPZ Holdings have been and are continuing to be used by the Debtor's brother, Sherif Zayat, to pay the Debtor's claimed $72,000 in monthly expenses. Joanne Zayat was also directly involved in obtaining loans from close friends and acquaintances for the benefit of the Debtor and/or Zayat Stables, and she has recently been repaying one of those creditors out of a bank account held in the name of her speech pathology business.

“In short, if the Trustee is to understand the conduct and financial transactions of the Debtor, he must necessarily obtain financial information relating to these third parties,” the filing contended.

The trustee further argued that the subpoenas at issue “are not only fully justified, but many are made necessary because the Debtor himself refused to produce records from a number of the financial institutions at which he has accounts.”

Biase explained the convoluted process by which Zayat, during the course of his bankruptcy plea, even directed the Trustee to serve his own financial institutions with subpoenas, “only to then have the Debtor's family members then move to quash those very subpoenas….”

“The Trustee's investigation also has revealed a substantial number of misstatements and omissions in the Debtor's bankruptcy schedules that were only uncovered through the issuance of Rule 2004 subpoenas to third parties, including overstatements of outstanding debt totaling hundreds of thousands of dollars.

“It is this ongoing pattern of obstructive activity, coupled with the Debtor's shifting and highly questionable statements in his schedules…that more than justified the Trustee's issuance of the subpoenas at issue. That same ongoing pattern of delay, obstruction, and gamesmanship requires that the Motion be denied in its entirety,” the filing stated.

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