Thoroughbred owner and breeder Ahmed Zayat said he was caught off-guard by an emergency hearing Jan. 22 in which a judge ordered a receiver to oversee operations of Zayat Stables in connection with a civil suit filed by a New York investment firm.
“I was totally blindsided,” Zayat said Thursday. “I have not even been served yet.”
On Wednesday, Fayette County (Ky.) District Judge Kim Bunnell ruled a receiver should be appointed in response to a motion filed by attorneys for MGG Investment Group, a New York-based firm that filed suit Jan. 21 against Zayat Stables and Ahmed Zayat.
Zayat said there had been a hearing scheduled for Jan. 27 in the suit and that he was not informed of the emergency hearing at which the receiver was appointed.
“I worked for 13 years to build this stable,” Zayat said. “I have produced 26 stallions (Zayat-raced horses who were retired to stud). I just don’t understand. I put every single nickel I have into this.”
On Thursday, Elizabeth Woodward, the director of forensic accounting and litigation support at the Lexington accounting firm Dean Dorton, was appointed as receiver in the case.
MGG claims Zayat Stables defaulted on a loan from MGG and has sold assets, including breeding rights to 2015 Triple Crown winner American Pharoah that were being held as collateral against the loan, and that the receivership was necessary to protect its interests in the Zayat holdings. The suit is seeking damages of not less than $23 million.
According to the order appointing Woodward, she will be paid $365 per hour. Among Woodward’s duties will be 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.”
Zayat Stables defaulted in September 2019 on loans made by MGG that were secured by all of Zayat’s assets, horses, and breeding rights, according to the suit. The investment group requested the motion to appoint a receiver to protect its interests in the horses as collateral.
During American Pharoah’s Triple Crown year in 2015, Zayat Stables topped the owners’ earnings list with $10 million, primarily due to the exploits of their striking son of Pioneerof the Nile, a top sire Zayat had also raced. In the ensuing years, Zayat has finished 31st among owners in 2016 ($2.17 million), 24th the following year ($2.38 million), 36th in 2018 with $2.09 million, and 81st last year with $1.41 million.
American Pharoah, who stands at Ashford Stud, was the leading North American first-crop sire in 2019.
According to the suit, on Jan. 16, 2015, Zayat Stables sold 100% of the stallion shares in American Pharoah—well before the colt’s Triple Crown run—to Orpendale, which is affiliated with Coolmore Stud and Ashford, for $23 million, with Zayat continuing to own the racing rights to American Pharoah.
The lawsuit stated that upon American Pharoah’s retirement to stud, Zayat, his wife, and children were assigned a total of nine breeding rights entitling the holder the right to breed one mare in each breeding season over the course of the horse’s life.
According to the MGG filing, those breeding rights were among the assets that were pledged as collateral for a term loan of $25 million made in July 2016. The suit alleges that over a seven-month period, the Zayat’s subsequently sold the nine breeding rights in American Pharoah in violation of the loan agreements.
MGG alleges Zayat defaulted on the loan payment due Sept. 30, 2019, and that Zayat informed company officials that “several hundreds of thousands of dollars in proceeds of a recent sale of his family’s personal assets were used to pay other debts of Zayat Stables and were not used to pay MGG as required by the loan agreements,” according to the suit.
In addition to the American Pharoah breeding rights, the suit contends Zayat sold other collateral that had been pledged against the loan, including assets related to American Cleopatra, Bodemeister , Eskendereya, Zensational, Justin Phillip, and Prayer for Relief , among others.
Meanwhile, the status of Zayat’s operation has some trainers wondering what’s next.
“My bookkeeper was supposed to have a phone call with Justin Zayat this morning,”said Robertino Diodoro, who trains four horses for the Zaya’s. “I think there are more than a few of us that are nervous now. I guess it could have been worse for us earlier last year when we had 12.”
Diodoro indicated he felt there was some problem going on with Zayat, but “I didn’t think it would be this big. It is not a good situation for everyone involved, especially the Zayats.”