Ahmed Zayat Files for Chapter 7 Bankruptcy Protection

Owner/breeder Ahmed Zayat, who has been entangled in a messy fraud and breach of contract lawsuit with a New York investment firm throughout 2020, filed for Chapter 7 bankruptcy Sept. 8 in his home state of New Jersey.

Zayat reported owing money to 100-199 creditors with liabilities assessed between $10 million-$50 million in a filing initially reported by Thoroughbred Daily News. Chapter 7 bankruptcy is also known as liquidation bankruptcy, so it does not involve the restructuring of debt. Instead, it is a way to clear away many types of unsecured debts.

In court documents filed with the U.S. Bankruptcy Court obtained by BloodHorse, Zayat disclosed that he owns assets valued at $1,892,815 and is carrying liabilities valued at $19,371,466. He also reported a monthly income of $13,875 against monthly expenses of $72,903.

Zayat's racing operation known as Zayat Stables is embroiled in a complicated legal battle with MGG Investment Group, a New York-based company that loaned Zayat Stables tens of millions of dollars. MGG took action in February to put the racing operation under control of a court-appointed receiver because it claimed assets used as collateral for the loans were being sold without MGG being notified.

Regarding Zayat Stables, the bankruptcy filing reports the operation with total assets of approximately $4 million and total secured debt of $22 million and an additional $4 million in debt.

MGG won a summary judgment put before Fayette (Co.) Circuit Court Judge Kimberly Bunnell in June that said Zayat Stables had breached its contract and owed the investment group $24,534,166. The company cannot collect on its debt yet because Bunnell's ruling was not a final ruling in the case and, therefore, not subject to appeal.

Attorney W. Craig Robertson III, who is representing MGG, said because only Ahmed Zayat filed for bankruptcy this action is unlikely to impact MGG's judgment against Zayat Stables.

Zayat and Zayat Stables' web of debt drapes coast-to-coast across dozens of training stables, transportation companies, veterinary clinics, and farms that all fall in the category of non-priority, unsecured creditors, which includes 132 companies and individuals.

Among these creditors are the stables for eight prominent U.S. trainers who all put high-profile horses for Zayat Stables in the winner's circle. Rudy Rodriguez has incurred the most debt with Zayat Stables at $394,437. Rodriguez has an ongoing legal battle to collect what he claims he's owed that was recently combined with MGG's lawsuit. Trainer Mike Maker also has pursued separate legal action to recover $120,922 he says Zayat owes. The Zayat bankruptcy documents identify these debts and those of all other trainers as "disputed."

Other trainers carrying Zayat debt are Richard Baltas ($316,070), Bob Baffert ($227,884), Brad Cox ($194,836), Todd Pletcher ($125,560), Steve Asmussen ($102,541), and D. Wayne Lukas ($8,157). Zayat even ran up tabs overseas, with an outstanding debt of around $23,700 owed to Ballydoyle Racing.

Zayat Stables rang up big bills with veterinary clinics from Florida to California totaling more than $390,000. Lexington's Rood & Riddle has the largest outstanding debt with more than $57,000 owed for care and medications provided in Kentucky, Florida, and New York.

Transportation companies are on the hook, too, for more than $183,000 in shipping costs with the bulk of the debt, more than $163,000, owed to Brook Ledge Horse Transportation.

Several attorneys involved in other legal actions with Zayat Stables reserved comment on how the bankruptcy filing might affect the outcome of other lawsuits. None of them were surprised by the bankruptcy filing, citing a June 27 order from Bunnell that denied a motion from Ahmed Zayat and his son Justin Zayat asking that they be personally excluded from fraud claims alleged by MGG. Bunnell did exclude other members of the Zayat family, which collectively include Joanne Zayat (Ahmed's wife) and siblings Benjamin, Ashley, and Emma Zayat.

"The Court finds that it has both general and specific personal jurisdiction over Ahmed Zayat. The Court also finds that (MGG's) amended complaint states a valid fraud claim against Ahmed Zayat and that Kentucky law applies to said fraud claim," Bunnell wrote in her June order. She wrote that the same personal jurisdiction extended to Justin as well.

Bunnell did add some restrictions to the personal allegations that can be made against the Zayats. For Ahmed Zayat, she said any fraud allegations were limited to any representations made prior to the execution of the loan agreements with MGG or related to any statements made regarding the collateral in written reports required by the loan agreements. For Justin Zayat, fraud claims can be pursued related to any pre-contact representations made regarding American Pharoah  breeding rights, which were included in the collateral and subsequently sold allegedly without notifying MGG.

With Ahmed Zayat and Justin Zayat now personally exposed in the MGG lawsuit along with Zayat Stables, attorneys contacted said they were surprised the bankruptcy had not been filed sooner.

Ahmed Zayat could not be reached for comment.