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

Michael Malekzadeh would have mounted a huge financial scam by promising the delivery of 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 “trading trainingonline, it’s the turn of urban sneakers 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 having defrauded thousands of people, the all for an estimated damage of 85 million dollars.

The interested party would have mounted a vast financial scam around sneakers, these city sneakers, in particular from the Nike or Adidas brand, whose market has exploded in recent years and upset fashion. The American faces several decades in prison and is already nicknamed by the American press the “Bernard Madoff of the Sneaker“, in reference to the famous American financier sentenced in 2009 to 150 years in prison for having set up a similar scam.

A Ponzi scheme

How did he do it? 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 have left the factories of the suppliers, and, above all, in astronomical quantities. Offers on which retail investors immediately jumped, hoping to see the value of these ultra-speculative products continue to climb over time, in order to resell them at even higher prices. Customers did 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 had no partnership 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). He actually got his supplies from other retailers or from shops, at the lowest prices he could find. Unable to honor all of his customers’ orders, the boss Zadeh Kicks LLC offered the 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 on. The latest arrivals pay the refund of the wave of previous buyers, each time adding a new “stageat the pyramid. The only real winner of this opaque system, the one who is at the top of the building and who receives a percentage with each new wave of buyers: Michael Malekzadeh.

An inevitable fall

The scam lasted for years, and it will finally be a limited edition of Air Jordans, the 11 Cool Grey, which will reveal the pot of roses. While Nike displayed the pair at 225 dollars before its release, Zadeh Kicks LLC promised them at 115 dollars, with delivery only a few weeks after the official marketing. The enthusiasm for this model was such that too few orders could be honored by the fraudulent company, that is to say 6000 out of the 600,000 passed, for it to go unnoticed. Investors have lost their confidence in Michael Malekzadeh and his fabulous offers, his company went bankrupt in May 2022 and the last floor of the pyramid has never seen the color of the sneakers ordered. This kind of financial arrangement is mathematically doomed to failure in the medium to long term, hence its illegality. For the same reason, banks are required to have a minimum of capital available, in case a large number of customers 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, its warehouse in Oregon still houses nearly 60,000 pairs of sneakers, mainly from the Nike brand, whose provenance remains shrouded in mystery. The latter, placed in sequestration, should very probably be used to compensate some of the victims. The trial of Michael Malekzadeh and his fiancée, also being sued as the company’s chief financial officer, is due to begin in June 2023.

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

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