Lawsuit: Zayat 'scheme' wrongly sold American Pharoah rights

Lawsuit: Zayat 'scheme' wrongly sold American Pharoah rights
Photo: Eclipse Sportswire

MGG Investment Group, which last month filed a lawsuit against Zayat Stables and its Triple Crown-winning owner, Ahmed Zayat, has amended its complaint to include prominent industry names.

According to the filing, made Tuesday and published Wednesday by Paulick Report, organizations such as Hill ’n’ Dale and LNJ Foxwoods were aware, or should have been aware, that purchases they made from Zayat Stables were being used as collateral for a $23 million loan Zayat made through MGG.

Since the lawsuit was originally filed, Fayette County Circuit Court in Kentucky has appointed a third party receiver to assume control of Zayat Stables and ensure assets are taken care of and properly valued as they’re sold off.

The updated complaint points to instances, such as the 2017 sale of rights in graded stakes winner El Kabeir to Yeomanstown Stud in Ireland, that Zayat Stables parted with the horse for $500,000. According to MGG, that was well below an independent appraisal by Zayat Stables that valued him at $4.25 million.

Hill ’n’ Dale was named for its private purchase of American Cleopatra, a full sister of 2015 champion American Pharoah, for $1.3 million. She was worth $6.5 million while in foal to Uncle Mo by an independent appraisal, according to the filing.

Also in question are breeding rights to American Pharoah. MGG alleges that “Zayat’s wife and children were active participants in the fraudulent scheme” to sell seasons to the champion and Coolmore stallion after the entire immediate family signed an agreement pledging those assets -- which were in their names -- as collateral on Zayat’s loan.

Zayat family members “purported to own and sell” nine shares despite the deal with MGG, with two going to LNJ Foxwoods for $375,000 apiece; two to Orpendale (Coolmore) for $400,000 apiece; and five more to Orpendale (Coolmore) at $350,000 apiece.

MGG’s attorneys say that before the sales were made, LNJ Foxwoods was put “on notice of MGG’s security interest in all of Zayat Stables’ assets,” and that Coolmore “was fully aware” of the situation.

“Thus,” the filing reads, “whatever interests in the Zayat AP Breeding Rights that Orpendale purported to purchase from Ahmed Zayat’s wife and children and Zayat Stables are subject to MGG’s priority security interests.”

The nine breeding rights fetched the Zayats $3.3 million, which the document says “represents a deep discount” of Zayat Stables’ $14 million evaluation in those assets. Zayat Stables allegedly did not inform MGG of the transactions and did not use the money gained to pay off its loan. Zayat “admitted” to what MGG called a “scheme once confronted by MGG as part of its ongoing investigation of the Zayat Defendants’ malfeasance.”

Zayat Stables similarly allegedly sold off interests in horses such as Solomini, Amandrea and Lemoona.

In a Jan. 12 email, he told MGG, “I am ready if needed to walk away and give you the keys and full control if that is what you want.” On Jan. 22 the court granted MGG’s motion to appoint third party control of Zayat Stables in an effort to maintain value in the assets. Since then, Zayat’s motion to dissolve the receivership was denied.

In addition to monetary damages, MGG is asking that American Pharoah’s breeding rights and racehorses sold off be returned to the receiver, while blocking the sale of their offspring foaled while with the purchasing parties.

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