Zayat: Lender’s ‘pattern of deception’ led to lawsuit

Saying his lender “did not understand the (racing) industry it was invested in or the collateral securing its loan,” an attorney representing Triple Crown-winning owner Zayat Stables on Friday filed a motion to dismiss the lawsuit filed in Kentucky by MGG Investment Group, which last month claimed Zayat defaulted on a multimillion-dollar loan.

In a list of counterclaims against the New York-based MGG, lawyer Jay Ingle alleges the lender posed “a false front” after agreeing their loan necessitated “freedom from restrictions,” instead instituting a number of controls that prevented Zayat Stables from operating at full capacity.

“MGG’s true intent, pattern of deception, and bad faith was made clear when Kevin Griffin, CEO, told Zayat Stables that MGG ‘never intended to’ fund the full capital commitment,” Friday’s filing reads.

Principal Ahmed Zayat’s attorney says that, rather than a lawsuit, MGG should have pursued the clause for a breach of contract, adding that “MGG wrote a sham loan…written to fail.”

As for why Zayat — despite winning the 2015 Triple Crown with American Pharoah and selling breeding rights to Coolmore — needed a loan, “Zayat Stables’ plan was to continue to expand and grow the breeding and other aspects of the business.”

Zayat was looking for a lender to help him spend money to make money. He sought $35 million to work with, per the filing, and this represented MGG’s first foray into the equine industry. But repeated attempts to acquire the cash were thwarted, and Zayat’s assets were tied up in the process, he argues.

Zayat’s attorneys accuse MGG of building a case against their client last fall, after Zayat Stables defaulted on its loan, despite MGG representatives saying there was a “path forward” for the two.

On Jan. 17, the parties met, at which point negotiations continued. But Zayat’s attorney noted that “despite the representations MGG made to Mr. Zayat and his reliance on those representations, MGG had already seized Zayat Stables’ bank account the day before.”

The lawsuit was filed Jan. 21 in Kentucky with MGG looking to recover $23 million. A third-party controller was then assigned to manage Zayat Stables in hopes of maintaining its value.

In one instance, the counterclaims state, the third party controller entered the broodmare Megalicious in the Fasig-Tipton Winter Mixed Sale. She hammered for $6,000 while in foal to Paynter with no reserve price, “far less than her actual value.” At the more recent Ocala Breeders’ Sales March Sale, Megalicious’ 2-year-old daughter of American Pharoah fetched $650,000.

MGG added defendants in the lawsuit related to horses sold off by Zayat Stables, as well as shares of breeding rights in American Pharoah. A number of those claims have already been dismissed by the court.

Zayat’s full list of counterclaims can be read below, with correspondence between Zayat and MGG attached detailing conversations leading up to the lawsuit’s filing.