How Nike's Air Jordan 11 Cool Grey exposed a $85 million alleged Ponzi scheme
2 min read 01 Jul 2023, 05:57 PM ISTUS prosecutors described an elaborate scheme run by Michael Malekzadeh resembling a Ponzi scheme focused on sneakers, totaling $85 million in damages
PremiumIn 2021, Nike launched one of its coveted sneakers the Air Jordan 11 Cool Grey which created a wave of excitement among sneaker enthusiasts. The Air Jordan 11 Cool Grey was backed by basketball legends like Jayson Tatum and was one of the biggest single releases since Nike initiated Direct-to-consumer (D2C) in 2017. But, the sneaker launch also exposed an alleged $85 Million sneaker Ponzi scheme at one of the largest US sneaker resale operations.
According to a report by Bloomberg Businessweek, the federal prosecutors indicted Michael Malekzadeh, the owner of Zadeh Kicks in July 2022 and charged him with money laundering, wire fraud, and conspiracy to commit bank fraud. The prosecutors described an elaborate scheme resembling a Ponzi scheme focused on sneakers, totaling $85 million in damages and negatively impacting a wide range of individuals throughout the United States.
How Michael Malekzadeh ran his operations?
The prosecutors alleged that Michael Malekzadeh offered the sneaker lovers and other resellers something extra-ordinary. He was offering them to buy highly anticipated sneakers well in advance of their release at a considerably lower price than the market is expecting.
Sneakerheads and other resellers went on with his gamble despite having their doubts as the deal sounded too attractive.
The report said that many theories were doing rounds in the market about his operations. Some claimed that he makes large amounts of profits on some sneakers, allowing him the headroom to take a loss on others, while some even pointed out his connections at Nike.
Zadeh Kicks emerged as a dominant player in the resales industry, wielding such considerable influence that smaller businesses leveraged the pre-sales he facilitated to generate millions of dollars in profits. “For a long time I looked up to him—he was a good dude," says Sebastian Catlin, co-owner of reseller Sneakorhead in Eugene.
Hollow claims
The secret to Michael Malekzadeh was less lavish than his lifestyle and he simply waited until the shoes he’d presold were released and then purchased them from the open market. The delivery time for his orders was extended to as late as one year.
The court documents submitted by prosecutors alleged that Malekzadeh “advertised, sold, and collected payments from customers for preorders knowing he could not satisfy all orders placed."
The prosecutors also charged his fiancée, Bethany Mockerman who served as the chief financial officer of his company.
How Air Jordan 11 Cool Grey Exposed the Alleged Ponzi Scheme
By now, Michael Malekzadeh was going good and was earning well through his "business". Residents in the vicinity recount witnessing an assortment of high-value automobiles, collectively worth millions of dollars, lined up along the roadside—an impressive array consisting of a Rolls-Royce, a Lamborghini, and a Porsche, among others.
Nike launched the Air Jordan 11 Cool Grey in 2021 at a market price of $225. Following his game Michael Malekzadeh offered the sneaker at a price of $115 and that's when things started going downhill. Upon the launch day, Michael Malekzadeh found himself indebted to customers for an astonishing quantity of over 600,000 pairs of sneakers—an immense portion of Nike's overall inventory, which was estimated by the sneaker website Housakicks to range from 1.2 million to 1.7 million pairs.
With no hope to fulfill an order of this scale and hundreds of other pre-orders, he simply went to his attorney and that's where the federal prosecutors took over.
