Long, Twisted Zayat Bankruptcy Settlements Approved

Two settlement plans in bankruptcy cases involving Ahmed Zayat and his now-disbanded Thoroughbred racing and breeding stable were approved Aug. 23 when no legal objections to the separate compromises were filed prior to a court-appointed deadline.

The approvals in United States Bankruptcy Court (District of New Jersey) marked a quiet closure to the latest set of complicated and often-intertwined international financial woes of the mercurial and formerly high-profile owner and breeder of 2015 Triple Crown champ American Pharoah.

But the two settlements won't deliver any significant compensation to the 132 non-secured creditors who Zayat, in his own Chapter 7 filing in 2020, admitted were owed $19 million of his debts.

Of those non-priority claimants, 112 are Thoroughbred trainers, horse farms, bloodstock businesses, veterinarians, and equine transportation companies. They were left largely adrift in the separate involuntary bankruptcy case lodged against Zayat Stables.

In July, the court-appointed trustee in the involuntary bankruptcy case had negotiated a settlement in which Zayat and his family members will pay $5 million to be allocated between MGG Investment Group and the trustee.

MGG is the lender that alleged in a 2020 lawsuit that Zayat and his family members obtained $30 million in loans by fraud, then never repaid a large chunk of that debt.

Of that Zayat Stables settlement, only $30,000 got earmarked to go to the unsecured creditors who are legally much further down the totem pole for getting paid. MGG will also get a disbursement from the funds in the bankruptcy trustee's account amounting to $1,025,145.

In Zayat's personal bankruptcy case, the trustee in June had negotiated a $1.5 million settlement to be paid by the debtor's brother, Sherif Zayat. That compromise will allow Zayat and his family to continue to live in an eight-bedroom, 7,714-square-foot home in Teaneck, New Jersey, that is currently assessed at $2.6 million.

The trustee in the bankruptcy case had written in a June court filing that fighting the Zayats over the house wasn't worth the time and cost.

“Although the Trustee believes that he would likely prevail on the claims against the Debtor, the Zayat Parties, and Sherif, the Trustee wishes to settle the claims, in order to save the Debtor's estate time and money that would otherwise be spent on litigation of the claims,” the filing stated.

Issues like “the Debtor's potential homestead exemption, the cost and time to seek approval under [the] Bankruptcy Code to sell the NJ Property, and the time and cost to avoid the [multiple mortgages]” would eat up money that could otherwise be applied to a settlement, the filing stated.

When Zayat first filed for Chapter 7 bankruptcy protection on Sept. 8, 2020, he wrote in court documents that he owned only $300 in cash and $14.22 in two checking accounts.

Throughout the legal ordeal, Zayat's twin bankruptcy proceedings brimmed with fraud allegations.

In March 2021, MGG Investment Group told the bankruptcy court that “Ahmed Zayat is a perpetual liar determined to hinder and obstruct the Trustee, the Court and creditors at every turn.”

In July 2021, his Chapter 7 bankruptcy trustee alleged that Zayat and his family were engaging in an “ongoing pattern of delay, obstruction, and gamesmanship.”

In July 2021, the attorney representing Zayat was granted permission by a judge to walk away from the Chapter 7 case based on Zayat's alleged non-payment of $368,273 to his law firm.

In September 2021, the Chapter 7 trustee alleged that Zayat had attempted to execute “fraudulent transfers” that resulted in “unjust enrichment” in the days just prior to his bankruptcy filing.

Throughout the nearly two-year bankruptcy proceedings, Zayat consistently denied that he had engaged in any illegal activity or that he had hidden money. He also insisted that neither he nor his family members were trying to obstruct the work of either of the trustees who were assigned to vet his personal finances and business operations.

Money troubles and financial controversies were hardly new for Zayat, an Egyptian-born, global beverage entrepreneur known for high-stakes deals prior to getting into horse racing.

In 2009, Fifth Third Bank sued Zayat for $34 million, alleging he had defaulted on loans. That suit resulted in a 2010 federal bankruptcy court repayment settlement that also reorganized Zayat Stables.

At the time of that settlement, Zayat said in a statement that, “Zayat Stables will come out of this in a stronger financial position than ever, and it will allow us to devote all of our energies to what is most important: nurturing, developing, and racing the next generation of great American horses.”

The brash and opinionated Zayat seemed on his way to making good on that vow when American Pharoah captivated the sport in 2015.

But even as the glow from that once-in-a-lifetime colt's accomplishments was still warm, Zayat Stables was in deep financial difficulties behind the scenes.

In 2016, Zayat entered into an agreement with MGG to finance his existing debt via a series of loans totaling $30 million. In September 2019, Zayat allegedly began defaulting on those loan repayments.

According to MGG's lawsuit, the two parties in late 2019 began discussing liquidation proposals that involved selling off Zayat Stables' equine collateral to bring the payments current.

But then the firm found out that starting in 2017, Zayat family members had already begun selling off shares in breeding rights and in horses that, three years later, Ahmed Zayat was claiming were still on the books as security against his loans.

A January 2020 court order granted MGG's motion to appoint a receiver “to take charge of, operate, preserve, maintain and care for” Zayat Stables. Eventually all of the horses and assets were liquidated.

Yet even as Zayat was facing dizzying financial difficulties, a court filing that he made in March 2021 practically boasted that he had allegedly lined up at least two global investment partners purportedly willing to pump hundreds of millions of dollars into his failing racing and bloodstock operation.

Most notably, Zayat claimed that in early 2020, he had been tantalizingly close–just days away–from securing a $100-million “equity infusion” from an undisclosed entity in China that would have kept MGG from suing him.

And even as recently as this summer, when the bankruptcies were on their way to negotiated settlements, court documents indicated that Zayat had significant overseas assets. “The Debtor has an ownership interest in a farm located in Egypt,” a June 6 filing by the Chapter 7 bankruptcy trustee stated.

TDN attempted to reach Zayat via his last known working phone number on Wednesday to see if he'd like the opportunity to comment on the settlements. No reply was received prior to deadline for this story.