The Sneaker-Fueled Ponzi Scheme That Cost Collectors Millions

Sneaker collecting is a popular pastime among shoe enthusiasts. From Air Jordans to ASICS to Yeezys, sneaker collectors seek out sometimes rare or limited release shoes in hopes of filling their cherished collections. As CNBC says, many of the most sought-after sneakers in the world were initially sold at a reasonable price. However, due to various factors, like artificial scarcity or a shutdown in manufacturing, their prices have skyrocketed, sometimes costing tens of thousands of dollars more. 

Sneaker collecting has gone from its humble roots as an enthusiast hobby to a huge multi-billion-dollar industry. As Fast Company explains, the industry, as of 2021, is estimated to be worth a whopping $79 billion. Because of this very lucrative potential, many would-be investors have attempted to carve out a niche for themselves in it. However, this has also attracted a few scammers, such as Michael Malekzadeh, owner of Zadeh Kicks LLC. 

Zadeh Kicks is a Eugene, Oregon-based shoe company started by Michael Malekzadeh that promises early release of high-end shoes to would-be buyers before other competitors. However, on August 3, 2022, it was revealed that Zadeh Kicks had been a scam operation the entire time, not fulfilling deliveries and stealing millions of dollars from consumers. As Bloomberg reports, Malekzadeh is currently being investigated by federal authorities for a series of fraud charges. 

Many day-traders and would-be sneaker enthusiasts got into the business of flipping shoes. Flipping basically means buying a product or commodity with the intent of reselling it at a higher price. This is where Malekzadeh comes into the story. See, Malekzadeh's idea was to procure popular shoes at low prices well before their widespread release and sell them for an enormous profit. But something else happened instead. Malekzadeh accepted thousands of orders for sneakers but had no intention of fulfilling any of them. He would instead take the money and run with it (via Complex). 

Michael Malekzadeh had been able to orchestrate this crime for years. As Bloomberg says, both the pandemic and an inability to fulfill Air Jordan 11 Cool Grey orders helped undo his entire operation. Zadeh Kicks reportedly offered to sell the shoes for $115, which was less than the $225 on Nike's official website. Out of 600,000 orders made, Zadeh Kicks could only deliver 6,000. $70 million was extracted from this scam, most of which went to personal luxury for the owner. 

This is how Ponzi schemes operate. As described by Investopedia, Ponzi schemes are basically when an organizer or businessperson takes funds from new investors to pay old investors. The idea here is that there is no actual commodity being sold or any real profit from stock trading going on — only empty promises and money funneled in from newly scammed victims. Ponzi schemes come in different variations, but the core idea is an investment not being fulfilled, as is the case with Malekzadeh. Malekzedeh's company eventually shut down, and he's now facing some very serious charges, which could see him sent to prison for 30 years.