03/03/2010 1:00AM

Two states question Zayat's loans

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Ahmed Zayat, the owner of top Kentucky Derby contender Eskendereya, is under scrutiny in New York and Kentucky because of loans he made to two convicted felons who are serving prison sentences for illegal bookmaking.

Racing commission officials in both states said Wednesday that they are conducting the inquiries to determine if the loans run afoul of rules that prohibit or restrict people who hold racing licenses from associating with convicted felons and illegal bookmakers. If the commissions determine that the loans violate the rules, Zayat's license could be revoked.

"We will do everything we have to do to get to the bottom of this," said Joe Mahoney, a spokesperson for the New York State Racing and Wagering Board.

Lisa Underwood, the executive director of the Kentucky Horse Racing Commission, said she had instructed investigators to look into Zayat's relationships with the bookmakers.

"I've asked them to move as quickly as possible," Underwood said.

According to bankruptcy filings in New Jersey, Zayat loaned Michael Jelinsky $155,000 in November 2006. Zayat also loaned $455,000 to Michael's brother Jeffrey in September 2007 and provided two smaller loans to other members of the Jelinsky family in November 2007 and February 2008.

Michael and Jeffrey Jelinsky pleaded guilty early in 2009 to three felony counts of illegal bookmaking, and the brothers are serving 15-month and 21-month prison sentences, respectively. As part of the plea, authorities seized $1.3 million from an account at International Racing Group, a defunct offshore rebate shop formerly owned by Youbet.com, along with $130,000 in two other IRG accounts and hundreds of thousands of dollars from other banking accounts.

On Wednesday, Zayat denied having any knowledge that the brothers were involved in bookmaking at the time he provided the loans. He said that he knew the brothers and other members of the Jelinsky family through a business relationship with their father, who died of cancer. Zayat said that he provided the loans to the brothers because he was told that they were "going through some hard times" after making "millions and millions of dollars a year" in Las Vegas from gambling on horses.

"I gave them this money in 2006 and 2007," Zayat said. "Am I supposed to be clairvoyant, a prophet? They were indicted in 2009. I knew nothing of this. I was trying to be a good guy."

A ruling to revoke Zayat's license could hinge on the interpretation of language in the rules, such as "known" bookmakers or "convicted" felons because the loans were made before the brothers pleaded guilty.

According to officials with knowledge of the investigation, the Jelinsky brothers' Las Vegas-based operation funneled layoff bets from New Jersey bookmakers through IRG and other offshore operations. The Jelinskys also acted as bookmakers for other clients, according to the officials.

Zayat filed for bankruptcy in February to shield his racing assets from a lawsuit filed by Fifth Third Bank alleging that he defaulted on notes owed the bank. Zayat contended that Fifth Third engaged in predatory lending practices, but a statement issued Wednesday by his racing stable said that the stable and the bank had reached an interim agreement.

Eskendereya won the Grade 2 Fountain of Youth Stakes at Gulfstream Park on Feb. 20 by 8 1/2 lengths to emerge as the early favorite in the Kentucky Derby. He is scheduled to run in the March 20 Florida Derby, a major stepping-stone to the Derby.

The interim agreement between Zayat Stables and Fifth Third Bank will allow Zayat Stables to use cash on hand and available credit to operate under a budget the stable has filed with a bankruptcy court in New Jersey. The bank sued the stable in December, alleging the stable had defaulted on loans totaling slightly more than $34 million.

Under terms of the agreement, the bankrupt stable will provide the schedule and plan for repaying its outstanding loans to the bank. The bank will respond with its own plan, and negotiations between the stable and the bank will attempt to reconcile the two plans.

"I am pleased to have reached this interim agreement with Fifth Third, as it is important to both of us that Zayat Stables LLC focus on the business at hand, such as the exciting and remarkable achievements of Eskendereya, the likely favorite in the Kentucky Derby," Zayat said. "It is my hope and desire that this temporary respite will allow us to resolve our differences to our mutual satisfaction."

- additional reporting

by Glenye Cain Oakford