Michael Malekzadeh is accused of reselling hundreds of thousands of pairs of limited edition shoes he didn’t have.
They buy collectible sneakers at low prices to quickly resell them for a capital gain. “They” are the sneaker resellers, Nike or Adidas shoe lovers who, for some, have made online sneaker resale their profession. In the United States, Michael Malekzadeh has become one of the best known in this field. But not for good reasons.
In 2013, Michael Malekzadeh founded Zadeh Kicks LLC, his sneaker resale business, in Oregon, his home state and the cradle of Nike. “From his warehouse (…) he offered highly coveted sneakers at prices below the market level,” he says Bloomberg. Problem: The now 39-year-old retailer showed these tempting prices even before the manufacturers launched the product.
Michael Malekzadeh is now suspected of setting up a Ponzi scheme that would have enabled his company to make millions of dollars. The man, nicknamed “Bernard Madoff of basketball”, is accused of defrauding thousands of people and must be brought to justice before the American judiciary, who have accused him of electronic fraud, conspiracy to commit bank fraud and money laundering. He faces up to 30 years in prison.
The Ponzi Pyramid is a scam that consists of setting up a pyramid scheme where the first clients are paid or refunded with the money injected by the newcomers. The pyramid eventually collapses when there aren’t enough new investors. American businessman Bernard Madoff is credited with being the author of the worst Ponzi-type financial scam in history.
Thousands of injured customers
Prosecutors said Malekzadeh is taking pre-orders and collecting the money “for thousands of sneakers that he didn’t have and couldn’t get, at least at commercially attractive prices,” Bloomberg says.
Some buyers, sometimes ordering a hundred sneakers, still received the products and were able to make a profit by reselling them online. But others, victims of the introduced system, were not so lucky and lost thousands of dollars. Michael Malekzadeh offered gift cards as compensation to those customers who never saw the color of the ordered sneakers or only received part of them to keep his cash flow.
Although this pattern has worked for years, it was a pair of limited edition Air Jordans, the 11 Cool Gray, that brought down Malekzadeh. While Nike priced the pair at $225, Zadeh Kicks LLC offered it for $115 even before the model was released last December. The enthusiasm was there immediately. Malekzadeh sold a total of 600,000 pairs and raked in $70 million. But the dealer actually only had 6000 pairs.
$6.1 million seized
Since the Air Jordin 11 Cool Gray episode, Michael Malekzadeh has been the subject of a court investigation. The FBI seized $6.1 million in cash from his home, as well as watches and about 1,000 pairs of sneakers from his personal collection. Malekzadeh is said to have spent a large portion of his profits buying Bentley, Ferrari and Lamborghini cars. He would also have bought Louis Vuitton bags, jewelry, furs and watches for a total of $3 million.
His company Zadeh Kicks LLC went bankrupt. But his warehouse would still house 60,000 pairs of sneakers, according to the federal court-appointed receiver. Selling these sneakers is one of the options on the table to compensate some of the cheated customers. Especially since these limited shoes are not imitations. How Michael Malekzadeh got hold of so many rare pairs remains a mystery in the eyes of industry experts.
According to his attorney, the dealer “voluntarily placed Zadeh Kicks and all of his assets in escrow and provided millions of dollars of his personal wealth — including cash and hundreds of valuables — to the federal government.” “He did so knowing that those assets would be used to ensure parties who suffered financial harm would receive the most ‘fair and equitable’ relief possible.
Still, some disgruntled customers rallied outside Zadeh Kicks’ warehouse several times, prompting Michael Malekzadeh to contact the police four times, according to local media. The latter would also have installed security cameras to protect its camp. Last week he pleaded not guilty to the charges against him. His fiancee is also being sued as the company’s finance director. The trial is scheduled to begin in June 2023.