A private plane landed at a small airport near Eugene, Oregon, one day in May 2022. Two people disembarked and drove through vegetable farms and marijuana shops to a quiet business district on the town’s western edge. Their destination was a dusty warehouse with hundreds of rows of neatly stacked boxes containing some 60,000 pairs of sneakers.

Those shoes were the stock of Michael Malekzadeh, owner of Zadeh Kicks, one of the largest resellers of athletic shoes in the United States. Many were among the most valuable on the secondary market, with thousands of dollars per pair. The two men had come in order to collect the value of orders that Malekzadeh did not supply.

They were among some of his former clients who came in the same period looking for Malekzadeh, either to get the shoes they had bought, or to get their money back. Records show that local police received four calls about the warehouse over a two-day period, two of which were described as “suspicious conditions” and the third as “criminal trespass”. Local media also reported that shooting occurred without casualties at one point.

No one left that store satisfied. Malekzadeh no longer owned the shoes or the company after they were handed over by a bankruptcy agent appointed by the court, and he was working to liquidate the company’s assets days before that.

Unique offer

For at least four years, Zade Cakes has been offering shoe lovers and other distributors something no other company has been able to offer: the way to order highly anticipated shoes months before they hit the market, at prices that are usually well below their market value.

Buyers of goods for resale relied on the company’s unbelievable price cuts, although they wondered how Malekzadeh was able to release so many coveted models in such huge quantities.

Shoe lovers had theories about this: maybe Malekzadeh was making enough money on some orders that he could afford to lose money on others, or maybe he had a connection to someone at Nike who was leaking information to him, or was surreptitiously selling him shoes in off-the-books dealings, or was a relative of his ex-wife really an executive in the Foot Locker supply chain? No matter what Malekzadeh was doing; Seems to have been successful.

Zadeh Kicks has become such a major force in the sneaker resale market that smaller operators have generated millions of dollars in profits based on its sales. “I respected him for a long time, he was a good guy…someone you looked up to,” said Sebastian Catlin, co-owner of Eugene distribution company Sneakorhead, who first heard of Malekzadeh on Instagram.

indictment

There was no secret shoe production line. In fact, Malekzadeh was simply waiting for the shoes he had previously sold to be released and buying them on the open market from retailers like StockX, according to people familiar with his business who asked not to be identified due to the sensitivity of the matter.

Delivery delays can be up to a year, but he managed to fill most orders – until one day he couldn’t.

In an indictment made public in July 2022; Federal prosecutors charged that Malekzadeh sometimes sold at a loss, taking part of the advance sale proceeds for himself. Sometimes, prosecutors said, he would buy back the pre-order if he didn’t have enough merchandise to supply it, then pay an extra amount either in cash or as store credit.

Prosecutors also charged Malekzadeh in the indictment with money laundering, wire fraud and conspiracy to commit bank fraud.

What was stated in the prosecution papers actually amounted to an $85 million fraud scheme that affected thousands of people across the United States. According to court records, Malekzadeh “promoted, sold, and collected payments from customers for pre-orders knowing that he could not fulfill all orders.” Authorities charged Malekzadeh’s fiancée, Bethany Muckerman, the company’s chief financial officer, with conspiring with him.

The two declared their innocence of the charges against them. The company’s dissolution documents indicate that its inability to fulfill orders was because demand for shoes grew faster than expected and because the company did not have sufficient internal procedures to keep up with demand.

Malekzadeh and Mukerman were released while they awaited trial or a settlement deal with the government. If convicted, Malekzadeh faces up to 30 years in prison. Malekzadeh’s lawyer wrote in a statement: “Since he filed a request to place the company into receivership and initially cooperated with the authorities last year, Michael has continued to work to ensure that he repays as much as possible for his clients and investors. He has voluntarily handed over tens of millions of dollars worth of personal and company assets to receivership and the government. He has also assisted in ensuring the maximum possible extraction of personal and company assets. Michael remains committed to taking responsibility and minimizing harm to others to the maximum extent possible.” Muckerman’s attorney declined to comment.

The shoe resale market has boomed in recent years, reaching $2 billion in North America, according to financial services firm TD Cowen. What was once a hobby among shoe collectors; It has now become a complex market with many full-time investors and speculators.

Zadeh Cakes has been one of the biggest beneficiaries of this shift, as the company has supplied shoes to everyone from inexperienced teens looking to double their $1,000 investment to nationwide businesses that have spent millions filling their distribution centers.

Some lucky customers have made huge profits. But when the company closed its doors, thousands lost their money, and some even lost up to a million dollars. Some of the residents told Malekzadeh that some of them were angry enough with him to go into hiding. Malekzadeh’s trial, which was supposed to take place in June, has been postponed because the bankruptcy agent is working to sell inventory and pay clients, but not everyone is likely to get their money back.

Friends and business acquaintances of Malekzadeh said he had often wanted to get into the shoe business. Malekzadeh earned a degree from the University of Oregon, and began selling athletic shoes on eBay around 2010. Malekzadeh also said he worked briefly at Nike, which was founded in Eugene, but got into trouble because he got involved in reselling shoes. Nike did not respond to a request for comment.

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In those days, Malekzadeh sold sneakers that he had customized to order. He also established relationships with retailers, and began buying their unwanted inventory and selling it online. “He was artistic and charismatic, and he seemed to have big goals,” said Tyler Angels, the owner of a paint company that sponsored Malezadeh briefly as a shoe artist in the early 2000s.

Company beginnings

Malekzadeh officially founded the company “Zadeh Kicks” in 2013, and his model at the beginning was clear, which is to buy and sell sports shoes. His company got its start when major shoemakers like Nike and Adidas began developing a large ecosystem of special editions online, periodically announcing specific shoe models and leaking them months in advance to generate anticipation. The secondary market followed suit, with shoe lovers like Malekzadeh competing to get the most shoes and resell them for a profit.

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Malekzadeh ran his business from his warehouse in Eugene, which was in the same building as his family’s biotechnology company. Gradually, the vast space was filled with Air Jordans from Nike, Yeezys from Adidas, and more in all their dazzling styles and color combinations.

The location of Zadeh Cakes was unusual in its area. It was located in an industrial neighborhood across from a furniture distributor and auto repair shop. But the company quickly became a major business, even though it only required a limited number of employees to pack shipments.

Malekzadeh’s small office was plastered with posters, dotted with street art, as well as his own collection of sneakers and a limited-edition rug designed by the late Virgil Abloh, then artistic director at Louis Vuitton.

Big losses

Malekzadeh‘s ambitions were briefly derailed in 2014 when a warehouse fire destroyed thousands of pairs of shoes. Malekzadeh told Complex magazine that the fire may have been caused by a stray cat that had dropped candles he had lit to drown out the smell of the dye.

He added that Liberty Mutual, the insurance company he contracted with, had sent a representative to evaluate his collection of 20,000 pairs of shoes, which Malekzadeh estimated were worth more than $400,000 in total. Liberty paid Malekzadeh the value of the damaged shoes at retail price, and offered those that were not damaged by the fire at auction. Malekzadeh said he bought back the shoes for $32,000. Liberty declined to comment.

The previous “Zade Cakes” sales model is starting to recover after the fire. Customers were ordering models of the sneakers up to six months in advance, at prices lower than they were likely to find on the resale market when the shoes were released.

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This approach was not common, and Zadeh Cakes became increasingly distinguished by its low prices and large sales. Buyers were essentially placing a bet, fixing a price and hoping the value of the shoe would be higher once it was released.

When it comes to shoes, Malekzadeh caters in any way he can, and the launch of Stock X, GOAT, and Stadium Goods around the same time contributed to that. After these companies developed into major distributors, they became the largest source of Malekzadeh‘s shoe inventory. The company was taking more pre-orders, and he could have incurred a loss to fulfill orders for an earlier version.

“He ran a casino and it was weird and against the rules,” said Matt Havehill, who runs footwear news site Nice Kicks. “The problem is he has to rely on not-so-sophisticated buyers to make money.”

Simple company

Malekzadeh’s operating procedures were not particularly sophisticated either. Malekzadeh had a website, ZadehKicks.com, which he designed using the e-commerce platform Shopify. After shoemakers were announcing an upcoming new release, Malekzadeh would add links directing people to pre-order.

It was also possible for customers, especially those who had previously purchased from him, to send an email directly with the details of what they wanted. Most of the time, Malekzadeh would reply to these messages with prices for different quantities, and sometimes he would add a certain percentage discount to customers who ordered a larger quantity, such as 250 pairs of shoes or more.

Malekzadeh also sold his inventory, and promoted these sales, as well as the precedent, on social media and marketing emails. The company typically received funds through PayPal, although the plaintiffs also cited some wire transfers for some of the orders.

The texts of some of the receipts sent by e-mail included texts that only professionals of the trade could understand; Like: “157X Nike Air Jordan Retro 4 Zen Wave Master Violet Crimson Vivid Black – Brave 2. Eight for $160 per pair.”

activity expansion

As Zadeh Kicks grew, other distributors began to use it to establish their activities, by contracting to buy sports shoes from Malekzadeh in bulk and selling them at higher profit margins. Schmidty Kicks, based in New Jersey, was among the biggest distributors, and the company began relying on Zadeh Kicks to provide athletic shoes for its pre-orders.

Another major source of customers is sneaker fan groups, which usually originate online. These groups are usually found on the Discord platform, and sneaker fanatics exchange tips and information on getting limited edition shoes.

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The main groups, which could have more than 1,000 people and sometimes charge a monthly membership fee, usually included a designated distributor who would get the shoes from Zadeh Cakes and send a notice to members when the company opened up for pre-orders.

Pre-orders from customers poured in on Malekzadeh, despite the periodic delay in the arrival of orders. If someone insisted to get his order, he would sometimes receive a threat to prevent him from buying again. An email seen by Bloomberg Businessweek from Zadeh Cakes to a customer who inquired about their orders reads: “We’ve had multiple messages from you about this. It’s shipping, there are stages, but you can’t seem to wait for the order to complete, so we’ll refund all of those orders now. If that’s a problem, we can also refund all outstanding orders if you like, and then block you.”

circumvent the platforms

PayPal rules require guaranteed delivery within 20 days of purchase, but Zadeh Cakes usually took 10 times that long to ship the sneakers. Malekzadeh also circumvented Shopify’s $9,999 gift card limit, using a third-party app called Rise.ai to issue gift cards well over that amount.

A PayPal spokesperson said: “(Paypal) takes these matters very seriously and continues to work with the many stakeholders to address this situation.” A Shopify spokesperson said: “Shopify’s acceptable use policy clearly defines activities that are not permitted on its platform, and we take steps when we find stores that violate this policy. The (Zada Cakes) store was removed from the (Shopify) platform last year.” Rise.ai did not respond to requests for comment.

When the Corona pandemic began in 2020; Interest in sneakers – and in online speculation – has skyrocketed. Thousands of new customers are turning to Zadeh Cakes. People close to Malekzadeh said they remember him handling multimillion-dollar sneaker deals using mostly his cell phone and a few spreadsheets, and texting individual buyers about quotes and delivery dates. Other distributors have noticed, too. “We knew there were some salesmen in Eugene, but at his level? This guy was doing huge sales in the business,” said Cadence Clint, another Snickerhead co-owner.

Fame and wealth

Rich sneakerheads usually congregate in centers like New York and Los Angeles, not quiet college towns like Eugene. But Malekzadeh has gained a bit of fame. In 2020, Malekzadeh and his fiancée, Muckerman, bought a hillside home in one of the pricier parts of Eugene and renovated it to include a five-car garage.

Neighbors said they saw cars worth millions of dollars collectively parked on the sidewalk, including Rolls-Royces, Lamborghinis and Porsches. Neighbors could hear the roar of one of the engines from down the street. Malekzadeh’s presence was evident in the city center as well, where a sighting of a Lamborghini is a rare occurrence. Most of Malekzadeh’s fleet cars appeared in posts on his social media accounts.

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Malekzadeh loved customizing his cars, sending them to 503 Motoring, a luxury car workshop in Beaverton, just outside Portland. Malekzadeh called Tim Walbridge, the president of 503 Motoring, every few months to say he had bought a new car and was ordering special wheels, window tinting, custom-tuned carbon-fiber bodywork or other modifications.

Walbridge said Malekzadeh always paid on time, but didn’t seem to drive much, as his mileage was surprisingly low. “He kept telling us his sales were amazing,” Walbridge said. “He was busy. He was a fraud.”

Reliance on StockX

By 2021, trucks were stopping at the Zadeh Cakes store daily to deliver nearly 1,000 pairs of shoes for Malekzadeh, according to a person familiar with the matter, who asked not to be identified due to the sensitivity of the matter. Most of the UPS trucks were carrying Stock X boxes.

Undisclosedly, Zadeh Cakes has become one of the biggest buyers from that store, the source said, as Zada Cakes flooded the city’s UPS facility with its purchases. “No single buyer ever accounted for more than 1% of our total trade volume in any year,” StockX said in a statement.

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Demand was peaking, and Stock X and sneaker stores just couldn’t keep up. According to federal prosecutors, Malekzadeh has resorted to some of the most extreme methods to satisfy the requests. if he is experiencing difficulties in fulfilling the request; Sometimes he offered to refund the pre-order at a higher price than the customer paid.

The company may refund a portion of the money, but the buyback usually involved mainly offering store credit or gift cards. Zadeh Cakes customers have thousands of dollars worth of unused balances due to unfulfilled orders. Some of the biggest distributors, who continued to resell the shoes and make huge profits, were among the lucky few to get their orders.

Waiting shoe

Ahead of Christmas 2021, Nike introduced a particularly coveted sneaker, the Air Jordan 11 in gray, an over-the-knee shoe with two silver stripes, patent leather sides, and an ice blue sole. It retails for $225. The shoe became an instant hit, garnering massive popularity thanks to promotion from basketball stars such as Jason Tatum.

John Donahue, CEO of Nike, told analysts and investors that it was the largest single-product offering since the company began focusing on direct selling to buyers in 2017.

Zadeh Cakes has been offering the Air Jordan 11 in cool gray for just $115 since the fall before launch. On the day of the launch, the company owed customers orders of more than 600,000 pairs of these shoes, which is a huge part of the entire “Nike” inventory, and the volume is between 1.2 million and 1.7 million pairs, as assessed by the sports shoe site “Housakicks” (Housakicks).

Malekzadeh had no hope that he would be able to fulfill all these requests. What’s worse is that this cycle was repeating itself again. while Malekzadeh was scrambling for Air Jordan 11s in gray; He was receiving tens of thousands of pre-orders for Jordan’s next big release, the Air Jordan 4 Retro in Military Black, which was due for release the following May.

Declaration of bankruptcy

It was out of bounds. At some point in the early months of 2022, Malekzadeh traveled to Portland, where he hired attorneys, and reported what had happened to the US Attorney General’s office. Federal prosecutors later said that in April, Malekzadeh and his company, Zadeh Cakes, owed customers $70 million for shoes they did not supply. Malekzadeh voluntarily dissolved the company the following month, and the court hearing his bankruptcy suit appointed David Stapleton as bankruptcy agent and asset administrator.

Stapleton, who did not respond to an email request for comment, posted a statement on ZadehKicks.com and sent an email notice notifying everyone of his appointment as a bankruptcy agent. Stapleton urged anyone the company owed money to contact him. About 3,500 people contacted Stapleton in a single day, according to court records, and Stapleton compiled a list of creditors that eventually numbered more than 15,000.

The news spread like wildfire through social media, which led to Malik and his family receiving some threats. Some Discord users set up what they called the Zadeh Relief Group for clients seeking compensation, and a few days later a report came of a shooting at the warehouse.

Stapleton is now responsible for $2 million in Zadeh Cakes’ bank account. He also proceeded to take inventory of Malekzadeh’s possessions, including 1,100 sneakers from his personal collection. Soon, neighbors saw trucks coming to tow Bentleys and Ferraris from Malekzadeh’s garage.

Walbridge, the president of 503 Motoring, said he had received calls from American Express asking if Malekzadeh had any outstanding balances. Federal prosecutors also contacted Walbridge to ask if any of Malekzadeh’s cars were in the possession of 503 Motoring. There was a car in the shop that the FBI teamed up to move. American Express declined to comment.

Assets confiscation

In July, the federal government formally indicted Malekzadeh and Muckerman. Court records indicated that Malekzadeh managed to obtain about 6,000 pairs of gray Air Jordan 11s. Prosecutors accused Zadeh Cakes of misappropriating $70 million in missed orders and providing customers with store credits or gift cards, or nothing at all.

The federal investigation into Malekzadeh’s activities involved the FBI, the Internal Revenue Service, and the Department of Homeland Security, as well as a state working group. Officers seized assets, including $6.4 million in cash, about 100 wristwatches, and hundreds of luxury handbags. by the following spring; Malekzadeh had also sold his house.

About 1,000 Zadeh Kicks creditors are still awaiting information on whether they will get their money back, according to court records. This group ranges from one-time buyers who lost $200 to specialist distributors to whom the company owes $1 million or more.

One buyer who was let down by the company, speaking on condition of anonymity, said he lost more than $600,000, most of it on a single large order he placed just before the disaster. The man had never worked in the shoe resale business before; But it seemed like an effortless investment.

consequences of bankruptcy

Brett Schmidt, the head of Schmidty Cakes, is one of Zadeh Cakes’ creditors, and filed for bankruptcy earlier this year with liabilities of at least $18m. Court records of the action indicate that Schmidt owes money to more than 600 of his clients, some of which amount to hundreds of thousands of dollars. An attorney for Schmidty Cakes declined to comment.

Customers have filed about 400 complaints with the Federal Trade Commission, and credit card companies have received hundreds of claims from people who disputed the amounts Zada Cakes charged them. PayPal has refunded some amounts to a number of customers, although since last July it has sent messages to others stating that refund requests have been rejected, especially to those it considered distributors, as it said that its policies do not apply to their cases.

Anyone else hoping to recover their money will have to wait for the bankruptcy agent to finish liquidating Zadeh Cakes’ assets. Stapleton sells any merchandise held on eBay, including the melting ice-cream-inspired Nike Ben & Jerrys cowhide sneakers ($1,500) and the bright green Nike Zoom Kobe 6 Protro sneakers ($700).

As of May 2023, the sales have raised about $2.6m, well short of the amount the company must repay its creditors. In addition to the $2 million in Zadeh Cakes’ bank account, the sale must also cover the costs of the receivership operation, the company’s rent, and other expenses, which totaled $1.84 million as of May.

Refund requests

Stapleton’s team is also working on identifying the buyers who made the most profit from dealing with Zadeh Cakes, and said those profits should go back into receivership to be used in payments to those with the biggest losses, a power often used in liquidation proceedings. So far, Stapleton has sent refund letters to 19 former clients who made a combined $16 million in profit from Zadeh Cakes. Most of them have responded to Stapleton, but it is not clear how many of them he will cooperate with.

Malekzadeh left behind a number of personal creditors as well. Amex filed suit in federal court against Malekzadeh and Muckerman, seeking to recover more than $2 million in unpaid dues. Financial records show that Malekzadeh also dealt with six other lenders, all of whom were trying to get their money back.

No one knows how long it will take to start getting any refunds for those who ordered Zadeh Kicks sneakers. On a sunny May day, nearly a year after the company’s collapse, Malekzadeh’s father’s car, a blue Porsche 718 Boxster convertible, was parked near the warehouse that housed the family’s biotech company.

Malekzadeh’s father opened the door to his business when we knocked, but refused to answer questions about Zadeh Cakes and then closed the door. The boxes were still stacked on top of each other on the floor of the warehouse, which was monitored by security personnel and cameras around the clock in order to ensure the safety of workers and shoes as well.