The vast financial scam of the “Bernard Madoff of sneakers” shakes the United States sneaker market

Michael Malekzadeh could have made a huge financial scam by promising to deliver rare sneakers that they didn’t have, taking advantage of the popularity of this ultra-speculative product. BENOIT TESSIER / REUTERS

Michael Malekzadeh allegedly pocketed millions of dollars by involving thousands of people in a Ponzi scheme.

After cryptocurrencies or even “trading trainingonline, it’s urban sneakers’ turn to ruin some retail investors. According to information from Bloomberg, Michael Malekzadeh, 39, from Eugene, Oregon, was charged a month ago with fraud and money laundering by US authorities for defrauding thousands of people, all for estimated damage of 85 million dollars.

The interested party can put a wide financial fraud around the sneakers, these city sneakers, especially from the brand Nike or Adidas, whose market has exploded in recent years and provoked in fashion. The American faces several decades in prison and has been nicknamed by the American press “Bernard Madoff in Sneaker“, in reference to the famous American financier who was sentenced in 2009 to 150 years in prison for carrying out a similar scam.

A Ponzi scheme

How did he do? By using a type of scam more than a century old: the Ponzi scheme. In 2013, Michael Malekzadeh founded Zadeh Kicks LLC in Oregon. It offers pairs of sneakers for pre-order at very attractive prices, even before the shoes in question leave the suppliers’ factories, and, above all, in astronomical quantities. Offers where retail investors immediately jumped, hoping to see the value of these ultra-speculative products continue to rise over time, to sell them again at a higher price. Customers do not hesitate to pay Zadeh Kicks LLC in advance to receive, three to six months after their official release, the famous sneakers in quantity.

Problem, Michael Malekzadeh’s company does not have a partnership with the leading brands in the sector and therefore cannot in any way guarantee such large stocks (or in any case not at an attractive price). He actually gets his supplies from other retailers or from stores, at the lowest prices he can find. Unable to honor all of its customers’ orders, the boss Zadeh Kicks LLC offers compensation in the form of gift cards or refunds. With what money? That of the new investors who entered the pyramid, attracted by the feedback from the customers who received their famous sneakers. And so on. The latest arrival pays a wave refund to previous buyers, each time adding a new “stagein the pyramid. The only real winner of this opaque system, the one who is on top of the building and who receives a percentage of each new wave of buyers: Michael Malekzadeh.

An inevitable fall

The scam has been going on for years, and it will finally be the limited edition Air Jordans, the 11 Cool Grey, that will reveal the pot of roses. While Nike showed the pair for 225 dollars before its release, Zadeh Kicks LLC promised them for 115 dollars, with delivery just a few weeks after the official sale. The motivation for this model is that very few orders will be honored by the fraudulent company, that is to say 6000 out of 600,000 transmitted, so that it will not be noticed. Investors lost their faith in Michael Malekzadeh and his unique offers, his company went bankrupt in May 2022 and the last floor of the pyramid has yet to see the color of the sneakers ordered. This type of financial arrangement is mathematically doomed to failure in the medium to long term, therefore it is illegal. For the same reason, banks must have a minimum capital available, if many customers suddenly decide to withdraw money from their account.

Michael Malekzadeh now faces up to 30 years in prison. According to justice, he spent most of the profits from his tricks on watches, cars and other luxury items. The FBI reportedly seized $6.1 million in cash from his home as well as 1,100 sneakers from his personal collection. In addition, according to the federal court, its warehouse in Oregon still houses almost 60,000 pairs of sneakers, mainly from the Nike brand, whose origin remains shrouded in mystery. The latter, placed in sequestration, should be very available to compensate some of the victims. The trial of Michael Malekzadeh and his fiancee, who is also being sued as the company’s chief financial officer, will begin in June 2023.

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