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

The great financial scam of the "Bernard Madoff of sneakers" shakes the sneaker market in the United States

Michael Malekzadeh would have set up a huge financial scam by promising to deliver some rare sneakers that they did not have, taking advantage of the craze for this ultra-speculative product. BENOIT TESSIER/REUTERS

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

After cryptocurrencies or even “commercial trainingonline, it’s the urban sneaker’s turn to bankrupt 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 having defrauded thousands of people, all for an estimated damage of 85 million of dollars.

The interested party would have mounted a great economic scam around the shoes, these city shoes, specifically from the Nike or Adidas brand, whose market has exploded in recent years and has disrupted fashion. The American faces several decades in prison and is already dubbed by the American press the “Bernard Madoff’s slipper“, in reference to the famous American financier sentenced in 2009 to 150 years in prison for having mounted a similar scam.

a ponzi scheme

As it did? By using a type of scam that is over a century old: the Ponzi scheme. In 2013, Michael Malekzadeh founded Zadeh Kicks LLC in Oregon. He offers pairs of sneakers for pre-order at very attractive prices, even before the shoes in question have left the supplier’s factories and, above all, in astronomical quantities. Deals that retail investors immediately jumped on, hoping to see the value of these ultra-speculative products continue to rise over time, to be resold at even higher prices. Customers did not hesitate to pay Zadeh Kicks LLC in advance to receive, three to six months after its official launch, the famous sneakers in quantity.

Problem, Michael Malekzadeh’s company had no association with the leading brands in the sector and therefore could not in any way guarantee such large stocks (or, in any case, not at an attractive price). In fact, he got his supplies from other retailers or stores, at the lowest prices he could find. Unable to fulfill all of his customers’ requests, boss Zadeh Kicks LLC offered disappointed 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 customers who had received their famous sneakers. And so right away. The last arrivals pay the refund of the wave of previous buyers, each time a new one is added “sceneryin the pyramid. The only real winner of this opaque system, the one at the top of the building who receives a percentage with each new wave of buyers: Michael Malekzadeh.

an unavoidable fall

The scam lasted for years and it will finally be a limited edition of Air Jordans, the 11 Cool Gray, which will reveal the pot of roses. While Nike showcased the pair for $225 before its release, Zadeh Kicks LLC promised them for $115, with delivery just weeks after official release. The enthusiasm for this model was such that very few orders could be honored by the fraudulent company, that is, 6,000 of the 600,000 passed, so that it would go unnoticed. Investors have lost confidence in Michael Malekzadeh and his fabulous offers, his company went bankrupt in May 2022 and the top floor of the pyramid has never seen the color of the ordered sneakers. This type of financial arrangement is mathematically doomed to failure in the medium and long term, hence its illegality. For the same reason, banks are required to have a minimum amount of capital available, in case a large number of clients suddenly decide to withdraw money from their account.

Michael Malekzadeh now faces up to 30 years in prison. According to justice, he would have spent most of the profits generated by his tricks on watches, cars and other luxury accessories. 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, his warehouse in Oregon still houses about 60,000 pairs of sneakers, mainly from the Nike brand, whose provenance remains a mystery. The latter, put in sequestration, should most likely be used to compensate some of the victims. The trial of Michael Malekzadeh and his fiancée, also sued as the company’s chief financial officer, will begin in June 2023.

SEE ALSO – This iconic pair of Michael Jordan sneakers sold for almost $1.5 million at auction

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