For months customers questioned whether Eugene sneaker reseller Michael Malekzadeh scammed them, using their preorder money to support a lifestyle filled with sports cars and expensive watches.
Now, Malekzadeh has been charged in federal court with running a nationwide Ponzi scheme to defraud thousands of customers, owing them more than $70 million prior to his company’s dissolution in May, according to prosecutors.
The charges were released Friday in U.S. District Court and document some of the same allegations angry customers had about Malekzadeh’s operation.
The charges include wire fraud, conspiracy to commit bank fraud and money laundering. Malekzadeh’s fiance, Bethany Mockerman, who acted as Zadeh Kicks’ chief financial officer, was also charged with conspiracy to commit bank fraud.
On Wednesday, Mockerman and Malekzadeh pleaded not guilty during a video call appearance at the federal courthouse in Eugene. They also waived their rights to an indictment by grand jury. Their trial is set to begin in June 2023.
During the hearing, Malekzadeh’s attorney, Joanna Perini-Abbott, said Malekzadeh has been selling assets involved in the case and will turn the proceeds over to the government.
Some of the company’s victims have been posting about refunds they have received in recent weeks in the “Zadeh Relief Group” on the messaging app Discord. Malekzadeh is also listed as a manager and agent for the local cannabis company Eugreen Farms LLC.
Rise to fame and collapse
Zadeh Kicks LLC was formally established by Malekzadeh in 2013. It was a popular online option for sneakerheads: people who collect and trade sneakers, often rare or exclusive shoes from brands like Nike and Adidas that run from the hundreds to thousands of dollars. The company promised customers the eventual delivery of valuable shoes that weren’t yet released, often below retail cost, which attracted other resellers wanting to make a profit.
On May 19, the company requested for it to be dissolved in Lane County Circuit Court and petitioned for a court-ordered receiver to take control of the remaining assets.
Not long after, the company’s website was shut down. Malekzadeh deleted his social media accounts, and some furious customers began trying to contact him in-person.
Eugene Police were called a few times to Malekzadeh’s warehouse in west Eugene following the dissolution of the business, reporting “suspicious persons and circumstances,” according to police department spokeswoman Melinda McLaughlin.
Police call logs show officers responded four times to Malekzadeh’s primary warehouse in west Eugene in the two weeks after the dissolution, including one report of criminal trespassing, two for “suspicious conditions” and one request for backup after reports of a shot fired.
With the dissolution, Malekzadeh requested a court-appointed receiver to take control of the remaining assets. David Stapleton, the receiver, did not respond to requests for comment. Following the dissolution, the FBI began investigating the business.
Allegations of a “financially ruinous” scheme
In 2019, Malekzadeh transitioned from only selling shoes he had purchased to taking preorder money for shoes that had not been released and would offer them at, near or below the suggested retail price to drive up orders, according to prosecutors.
Malekzadeh was unable to purchase the sneakers below the price he asked from customers, but still purchased shoes from third-party vendors at or above the retail price, meaning he knew it would be financially ruinous, prosecutors said.
By fall 2020, Malekzadeh was taking money from customers knowing he could not satisfy all their orders.
Instead of refunding the customers for undelivered sneakers, Malekzadeh offered a combination of refunds and gift cards to those who did not receive sneakers. He also offered more money back than what they originally paid, prosecutors said.
Offering gift cards as part of the scheme allowed Malekzadeh to keep more of the profits from the presale scams, according to court documents.
Malekzadeh also delayed sending sneakers up to a year in some cases, and left many orders unfulfilled without a refund or gift card.
Zadeh Kicks took preorder sales for over 600,000 pairs of sneakers, worth more than $70 million, but only acquired a little more than 6,000 pairs, prosecutors said.
Customers were owed additional millions of dollars for the gift cards.
Malekzadeh used the preorder money on extravagant personal purchases including several million dollars for Bentley, Ferrari, Lamborghini, Porsche and Mercedes cars; over $3 million for Louis Vuitton luxury bags, purses and other items; a large amount of jewelry; fur items; and millions of dollars for watches, with some valued at over $600,000.
Federal agents have seized millions of dollars in cash Malekzadeh acquired through the scheme, nearly 100 watches and about $6.4 million from him selling the watches and cars.
In a statement, Perini-Abbott said her client has “cooperated fully” with the federal government and court-appointed receiver since he dissolved his company.
She said Malekzadeh’s primary goal is to minimize financial harm to the customers and other interested parties.
“Before the criminal charges were even filed, Mr. Malekzadeh voluntarily turned over Zadeh Kicks and all its assets to a receiver and provided millions of dollars of his personal assets — including cash and hundreds of valuable items — to the federal government,” Perini-Abbott said in an email. “He did so with the understanding that those assets would go toward making the parties who have suffered financial harm as whole as possible in a fair and equitable way and to protect those parties from any single creditor ‘jumping the line’ to receive an unfair share.”
Perini-Abbott added that Malekzadeh is “not hiding from his conduct.” She declined to comment further on the case.
Attempts to contact Malekzadeh at his home in southwest Eugene were unsuccessful.
The charge for conspiracy to commit bank fraud, which names both Malekzadeh and Mockerman as defendants, was connected to an alleged scheme to defraud victim financial institutions.
According to the charging document, the couple provided false and altered bank statements and financial information about Zadeh Kicks when applying for loans.
The couple submitted more than 15 fraudulent loan applications, and received more than $15 million in loan funds, prosecutors said.
The charge of money laundering against Malekzadeh stems from June 2021, when he allegedly made a $790,000 transfer from Zadeh Kicks’ bank account to his personal account to purchase a $420,000 watch and a $79,000 car.
Mockerman’s attorney, Whitney Boise, said his client has cooperated and is determined to minimize the harm to customers.
“Ms. Mockerman has been fully cooperating with the government; she’s provided full access to records, answered questions, and handed over assets,” Boise said. “She remains committed to doing what she can do to minimize the financial harm to Zadeh Kicks’ customers and creditors.”
Louis Krauss covers breaking news for The Register-Guard. Contact him at firstname.lastname@example.org, and follow him on Twitter @LouisKraussNews.