By T. D. Thornton
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.”