Fasig-Tipton Sale Next Chapter in Zayat Case

When the Fasig-Tipton Winter Mixed Sale takes place Feb. 10-11, a half dozen late additions owned by Zayat Stables, including the only mare cataloged in foal to Triple Crown winner American Pharoah , will be included in the entries.

The horses, all consigned by St George Sales, represent the first to be offered for sale at public auction since a receiver was appointed to oversee all assets of Zayat Stables in response to an emergency hearing requested by MGG Investment Group.

MGG has sued Zayat Stables and Ahmed Zayat, contending the stable defaulted on a $23 million loan. MGG claims Zayat sold assets, including breeding rights to American Pharoah, the leading first-crop sire in North America last year, that were being held as collateral against the loan, and that the receivership was necessary to protect its interests in the Zayat holdings. 

Fayette Circuit (Ky.) Judge Kim Bunnell appointed Elizabeth Woodward as receiver, allowing her to "take charge of, operate, preserve, maintain, and care for all of the assets of the defendant, Zayat Stables, including, but not limited to, all horses, breeding rights, files, papers, records, documents, insurance policies, monies, securities, bank accounts, books of account, and all other property, real or personal."

Woodward, the director of forensic accounting and litigation support at the Lexington accounting firm Dean Dorton, hired Gatewood Bell of Cromwell Bloodstock to advise her in the role of receiver.

The Zayat horses supplemented to the Fasig-Tipton sale include Flashly (Hip 630), a half sister to Longines Kentucky Oaks (G1) winner Cathryn Sophia being offered in foal to American Pharoah on a last cover date of May 6.

A winning daughter of Denman—Sheave (by Mineshaft ), Flashly was bought by Zayat Stables for $190,000 at the 2016 Keeneland September Yearling Sale. The 5-year-old mare was bought back on final bids of $150,000 and $285,000 at last year's Keeneland April 2-Year-Olds in Training and Horses of Racing Age Sale and the Keeneland November Breeding Stock Sale, respectively. 

Also included in the Zayat group at Fasig-Tipton are mares in foal to Paynter , Carpe Diem , and Kitten's Joy , a yearling Paynter—Fateer (by Eskendereya) filly, and the racing/broodmare prospect Stylish Ash, a 4-year-old Malibu Moon  filly out of the Medaglia d'Oro  mare Stylish d'Oro.

During a Feb. 6 hearing, Bunnell denied a motion by Zayat's attorneys to dismiss or amend the receivership order and directed the owner to have all racing paperwork and required accounting documentation turned over to the receiver by Feb. 14.

Meanwhile, attorney Ellen Arvin Kennedy, representing the receiver, filed a report with the court providing an update on the case, stating there had been a lack of cooperation from Zayat Stables in the receiver's efforts to catalog the assets of the estate and make plans to "maximize their value."

Attached to the report was a letter Woodward had sent requesting access to Zayat's books and records to assist her in "evaluating horses and ascertaining their most valuable use (racing, sales, etc.) and locating any other assets that add value to the estate, such as insurance proceeds, accounts receivable, and purses."

The receiver's report stated she did not receive the requested financial information and had to compile a horse-by-horse asset list, a time-consuming process. 

The report also noted that many of the Zayat horses the receiver had located were under the care of farm owners or trainers who "have not been paid for some time. The receiver, Mr. Bell, and the undersigned (Kennedy) have fielded dozens of calls from farm operators, trainers, veterinarians, and transport companies reporting what they are owed and many are demanding payment in order to continue to provide services to Zayat Stables' horses.

"In the receiver's view, while it is true that the horses were and are being cared for, that is due to the goodwill of farm owners, who could not in good conscience allow any animal to bear the brunt of its owner's inability to pay bills when they came due," the report stated.

The receiver has almost completed a "go-forward operations budget through which she plans to pay for vital services," the report continues. "As explained, the process was unnecessarily prolonged in the absence of financial data, but she anticipates it to be completed this week."

Jay Ingle, Zayat's attorney, responded to the report with a filing that said: "the receiver never asked Zayat Stables for a current list of equine assets, their location, or their trainers." Zayat did receive requests from the receiver for accounting records, the entire network server, identification of employees, and all books and records.  

Ingle's filing stated Zayat had been working with the receiver to try to narrow the scope of information and that the information being requested was already in possession of MGG.

"MGG had full access to Zayat Stables' bank account, was provided financial reports by Zayat Stables, and received a list of accounts payable as recently as the end of December," the filing stated. "It is difficult to believe that MGG has not provided this information to the receiver.

"Perhaps the biggest problem with the report is that the receiver is already reaching conclusions about MGG's fraud claims, stating in her report, 'Through that process, the receiver found that some horses listed as MGG collateral were previously sold, apparently without notice,'" Zayat's filing continued. "Not only are such conclusions improper and outside the scope of the receiver's task, they have been reached prematurely and improperly."

Ingle noted that missing from the report was specific information regarding the training or racing future of any of the horses, information regarding the funding of the receivership promised by MGG, and specific information regarding any dispersal or liquidation plan for the equine collateral.