Creditors Claim Zayat Undermined Global Settlement

A somewhat heated letter exchange between attorneys involved in the Ahmed Zayat bankruptcy cases reveals that a global settlement was agreed in principle, including a specific dollar amount, but that Zayat is either not holding up his end of the bargain or that circumstances beyond his control rendered a need to alter the deal's structure. Zayat bred and campaigned 2015 Triple Crown winner American Pharoah. MGG Investment Group holds a judgment against Zayat Stables exceeding $24 million granted almost two years ago in Fayette Circuit Court in Lexington. Three months later, Zayat and Zayat Stables filed for bankruptcy protection in New Jersey. On May 20, attorneys Clement J. Farley and Sean O'Brien penned a letter to bankruptcy judge Vincent J. Papalia on behalf of the Zayat Stables bankruptcy trustee, Jeffrey Testa, and three MGG-entity creditors, asking for his assistance in resuscitating a sputtered settlement that called for Zayat's brother to provide the money. According to the Farley-O'Brien letter, earlier this year a comprehensive settlement "in principle" was reached whereby a single amount would be paid for the benefit of creditors to settle a variety of messy disputes in the Zayat bankruptcy cases. The letter says that no sooner was the agreement reached that Zayat's side called for changes to the deal that would undermine it, and that more recently it appears the trustee for Zayat's personal bankruptcy, Donald Biase, intends to enter a separate global settlement that would basically appropriate the funds intended for the original settlement made with the participation of Zayat Stables. In return, the latter says, Biase would not object to Zayat's personal discharge in bankruptcy. If a bankruptcy court determines a debtor has committed misconduct material to a bankruptcy filing, the court has the authority to deny the debtor's discharge, meaning the debtor emerges from bankruptcy still owing creditors. On May 23, attorney Bruce H. Levitt signed a letter to Papalia for five lawyers representing Zayat and his family, including Zayat's brother Sherif Zayat, who, according to the letter, would be the source of any settlement money. The responsive letter says in summary: When settlement talks began with Zayat Stables, MGG insisted that any settlement be global, or comprehensive, in nature and that discussions turned in that direction "essentially" in March of this year. An agreement was reached for a global settlement whereby "a commitment" was made by Zayat "to attempt to fund an agreed upon settlement amount" from his brother Sherif, who is a resident of Egypt. That it was made clear that Zayat would need to "ascertain from Sherif Zayat the amount of funds he would be willing to provide." That the war in Ukraine caused a 15% devaluation of Egyptian currency and a 25% devaluation compared to the U.S. dollar. That as a result, Sherif Zayat offered to pay 70% of the agreed amount up front and the remainder over time with collateral to secure the obligation. That MGG rejected the revised proposal. That a deal has in fact been made between Zayat and the trustee of his personal bankruptcy, Biase, and that it will be presented to the court for approval in the near future. The amount of any proposed, agreed, or actual settlement amount is not disclosed in the letters. The first letter to Papalia says the trustee in Zayat's personal bankruptcy, in exchange for the receipt of settlement funds, would not object to Zayat's discharge in bankruptcy despite Zayat's ownership of real estate in Egypt that was not revealed in his disclosures to the bankruptcy court and creditors, and what is described as "an array of other potential false statements and omissions that would justify denying the discharge in its entirety." The response letter refutes the allegation of ownership of real estate in Egypt and relates sworn testimony by Zayat that in 2016 he inherited an interest in real property there from his father but transferred it to his mother and Sherif to pay off a debt. Zayat borrowed $30 million from MGG Investment Group in that same year, forming the basis of the $24 million judgment in Fayette Circuit Court. The initiating letter asks Papalia to serve a mediative role in the settlement dispute, but if he is not so inclined, to approve the engagement of another sitting bankruptcy judge for that purpose or to involve a mediator already familiar with the case. The Trustee in Zayat's personal bankruptcy case, Biase, would agree to participate, according to the letter. The response letter says the Zayat family does not believe mediation will be productive unless all parties are willing to discuss the proposal calling for a partial payment with the balance paid over time. Papalia responded to the letters May 26, when he scheduled a telephone conference with the attorneys to take place June 7.