Zayat Stables: Chapter 7, Fraud Claims, and Settlements

Zayat Stables, the Thoroughbred racing and breeding operation that bred and campaigned 2015 Triple Crown winner American Pharoah, collapsed into bankruptcy in 2020 after its lender MGG Investment Group sued for roughly $52.86 million and alleged fraud. A Kentucky court appointed a receiver who auctioned off the stable’s horses for pennies on the dollar, founder Ahmed Zayat filed personal Chapter 7 listing about $19.4 million in debts, and three creditors forced Zayat Stables LLC into involuntary bankruptcy days later. Both cases were resolved through settlements approved in August 2022, with unsecured creditors sharing a $30,000 carve-out against more than $14 million in claims.

How the Collapse Started

On January 21, 2020, MGG Investment Group filed suit against Zayat Stables in Fayette County (Kentucky) Circuit Court. MGG alleged the stable had defaulted on loans totaling approximately $52.86 million and had committed fraud by misrepresenting the assets pledged as collateral and concealing the sale of breeding rights to American Pharoah and interests in other stallions.¹

The court moved immediately. One day after the filing, Judge Kim Bunnell held an emergency hearing and appointed Elizabeth Woodward of the accounting firm Dean Dorton as receiver, ordering her to take control of every Zayat Stables asset, including every horse the operation owned.² In February 2020, MGG amended its complaint to add Coolmore and its Ashford Stud as defendants, alleging they had bought breeding rights that served as collateral for MGG’s loan.¹ In June 2020, Judge Bunnell entered summary judgment for MGG on the loan itself, ruling Zayat owed approximately $24.5 million in loan payments and interest, and allowed MGG’s fraud claim to proceed.³

Selling Off the Horses

Receiver Woodward dispersed the stable’s equine assets through Fasig-Tipton and Keeneland auctions, private sales, and, in one case, a giveaway. The results ran far below prior valuations. Nine of the final ten horses cataloged at the Keeneland November 2020 sale brought a combined $491,000, roughly 8% of the $5.9 million at which Zayat’s representatives had valued them in December 2019. A Grade 1-caliber filly by American Pharoah out of La Vita Bella sold at Fasig-Tipton September for $300,000, netting the estate about $135,000 after expenses.⁴ One colt originally purchased for $450,000 as a session topper was given away because his boarding and veterinary costs exceeded his fair market value.⁵

By November 2020, 12 horses remained across eight locations, and Woodward expected to place the last two privately by Thanksgiving. The receivership had collected roughly $1.62 million in total, against roughly $1.03 million spent on board, veterinary care, and commissions.⁵ The petitioning creditors who later forced the involuntary bankruptcy alleged that horses had been sold at “significantly deflated prices,” that some private sales went to insiders, and that Woodward had failed to keep insurance on high-value animals. Woodward and her consultant defended their handling of the receivership and pointed to market conditions worsened by the COVID-19 pandemic.⁶

Ahmed Zayat’s Personal Chapter 7

On September 8, 2020, Ahmed Zayat filed for personal Chapter 7 bankruptcy in the U.S. Bankruptcy Court for the District of New Jersey. He listed about $1.9 million in assets and $19.4 million in liabilities, most of it business debt. He described Zayat Stables LLC as “insolvent” and valued it at $1.⁷ He reported $300 in cash and $14.22 across two checking accounts, while living in a Teaneck, New Jersey home assessed at $2.6 million.⁸

The filing listed 132 creditors owed a combined $14.75 million in non-priority unsecured claims, most marked “disputed.” The largest single unsecured claim was $7.9 million owed to Cedarview Capital Management. Prominent trainers who had conditioned Zayat horses were also creditors:

Rudy Rodriguez: $394,437
Richard Baltas: $316,070
Bob Baffert: $227,884
Brad Cox: $194,836
Todd Pletcher: $125,598
Mike Maker: $120,921
Steve Asmussen: $102,541

Trainer debts alone exceeded $1.5 million. The filing stated bluntly that “No property appears to be available to pay creditors.”⁹

The Involuntary Petition Against Zayat Stables LLC

Six days later, on September 14, 2020, three creditors forced Zayat Stables LLC into involuntary bankruptcy in the same New Jersey court (Case No. 20-20524). The petitioners were Steven Keefer, a former New York investment banker who had served as chief of staff at Ahmed Zayat’s former Egyptian brewery Al Ahram Beverages; Keefer’s New Jersey apparel firm U.S. Elite LLC; and Joseph Bodner, a Teaneck resident. They alleged $613,500 in unpaid loans and asserted that Zayat Stables was “generally not paying its debts as they become due.”¹⁰ Jeffrey Testa was appointed trustee for the Zayat Stables estate; Donald Biase served as trustee for the personal case.¹¹

Fraud Allegations Inside the Bankruptcy

Trustee Biase alleged in court filings that in 2018 Ahmed and Joanne Zayat had taken out a $400,000 mortgage on two lots next to their Teaneck home and wired the proceeds to a Zayat Stables bank account. Biase characterized the transaction as a fraudulent transfer that reduced the equity available to legitimate creditors. In July 2021, Biase told the court that third-party documents “strongly suggest that the Debtor still possesses significant assets in Egypt” and that Zayat and his family had repeatedly refused to cooperate with efforts to trace millions in potentially fraudulent transfers. Zayat denied engaging in illegal activity or hiding assets.⁸

MGG separately filed an adversary proceeding seeking to have its debts declared non-dischargeable, alleging false pretenses, false representation, actual fraud, and willful and malicious injury. Zayat Stables denied those allegations.¹¹

The 2022 Settlements

Both cases were largely resolved in mediation before retired U.S. Magistrate Judge Mark Falk on June 23, 2022.¹¹

In the Zayat Stables case, Ahmed Zayat and family members agreed to pay $5 million to resolve claims with MGG and trustee Testa, split between $3 million upfront and $2 million deferred. MGG was recognized as holding an allowed claim of at least $27.17 million, secured by liens on Zayat Stables property. The trustee, holding roughly $1.25 million, was to pay about $1.03 million of that to MGG, and MGG agreed to return about $452,000 to the trustee to fund administrative costs and unsecured-creditor payments. Just $30,000 was carved out for unsecured creditors. The overall value of the Zayat Stables settlement exceeded $6.5 million, and the trustee agreed to return the family’s racing memorabilia.¹¹¹²

In Ahmed Zayat’s personal case, trustee Biase proposed a separate $1.5 million settlement funded by Zayat’s brother, Sherif Zayat. In exchange, the trustee agreed to drop claims seeking to block Zayat’s discharge, disputes with family members, challenges to equity in the Teaneck mansion, and claims against several disputed mortgages and other assets, including an ownership interest in a farm in Egypt.¹³

No objections were filed to either settlement. On August 23, 2022, Judge Vincent F. Papalia approved both deals, ending the main disputes.¹² The $30,000 unsecured-creditor carve-out represented a fraction of a cent on the dollar against more than $14 million in unsecured claims. Trainers like Rudy Rodriguez, owed nearly $400,000, received almost nothing.

An Earlier Bankruptcy in 2010

The 2020 collapse was not the first time Zayat Stables sought bankruptcy protection. In December 2009, Fifth Third Bank sued the stable in U.S. District Court, claiming it had defaulted on $34 million in loans.¹⁴ On February 3, 2010, the stable filed Chapter 11 in the U.S. Bankruptcy Court for the District of New Jersey (Case No. 10-13130) to block a takeover of its assets. The filing reported assets exceeding $38 million (almost all in horses) against liabilities of about $38.5 million, with Fifth Third accounting for roughly $34.3 million of the debt. Zayat Stables contested the bank’s lien and accused Fifth Third of “misleading, deceptive and predatory lending practices.”¹⁵

By June 2010, the parties reached a global settlement. Zayat described the reorganization plan as spanning about five years and said he intended to repay all creditors in full, with proceeds from the sale of a share in the stallion Eskendereya helping reduce the debt.¹⁴ The stable emerged from Chapter 11 and, five years later, bred and campaigned American Pharoah to the Triple Crown.

What Happened to American Pharoah

American Pharoah was a homebred, the product of the stable’s mare Littleprincessemma bought at the Keeneland September Yearling Sale and its stallion Pioneerof the Nile. Zayat Stables bought the colt back at the 2013 Fasig-Tipton Saratoga Sale.¹⁶ In January 2015, before the Triple Crown run, Coolmore’s Ashford Stud purchased his breeding rights from Zayat Stables. That transaction later became central to MGG’s fraud claims, which alleged the sale of breeding rights had been concealed from the lender.¹ American Pharoah stands as a stallion at Ashford Stud.¹⁷

Zayat Stables LLC has not resumed operations. Its equine assets were fully or nearly fully liquidated through the Kentucky receivership by the end of 2020, and the New Jersey bankruptcy proceedings confirmed the operation’s insolvency.⁵

1
BloodHorse. Ashford Stud Responds to Amended Suit Filed by MGG
2
BloodHorse. Zayat Blindsided by Court Action Appointing Receiver
3
Lexington Herald-Leader. Sidelines With John Clay
4
Paulick Report. Zayat Stables Equine Liquidation Approaches Finish Line After Keeneland November Sale
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Thoroughbred Daily News. Former Session Topper Given Away as Zayat Liquidation Continues
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BloodHorse. Zayat Creditors Want Court Receiver Replaced
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Bloomberg. American Pharoah’s Owner Zayat Files for Personal Bankruptcy
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Thoroughbred Daily News. New Fraud Allegations Against Zayat Over $400K Mortgage
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Thoroughbred Daily News. Tens of Millions in Debt, Ahmed Zayat Files for Chapter 7 Bankruptcy
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Thoroughbred Daily News. Former Zayat Financial Advisor Among Creditors Trying to Force Stable’s Bankruptcy
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BloodHorse. $6 Million to Change Hands in Zayat Stables Settlement
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TrueNicks. Bankruptcy Court Approves Settlements in Zayat Cases
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BloodHorse. Zayat Trustee Seeks Approval of $1.5 Million Settlement
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Fox Sports. Zayat Stables, Bank Reach Financial Agreement
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GovInfo. Zayat Stables Bankruptcy Filing
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BloodHorse. Industry Voices: American Pharoah 10 Years Later
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Thoroughbred Racing. American Pharoah