Dive Brief:

• Both the former owner and the ex-CFO of now-defunct Oregon entity Zadeh Kicks pleaded guilty to an $80 million wire fraud and bank fraud conspiracy, a Thursday announcement by the U.S. Attorney's Office for the District of Oregon said. The pleas close the door on a years-long saga charting the shoe reseller’s rapid rise and fall, with reports circulating in 2022 that the now-defunct business was running a Ponzi scheme based on unfulfilled pre-orders for luxury sneakers.
• Michael Malekzadeh, the former owner of the site — a platform for the resale of luxury and collectible sneakers — pleaded guilty to wire fraud and conspiracy to commit bank fraud, according to the Thursday announcement. Former CFO Bethany Mockerman, meanwhile, pleaded guilty to conspiring to commit bank fraud.
• Both the ex-owner and ex-finance chief perpetuated “a fraud scheme that cost customers more than $65 million in unfulfilled orders and defrauded financial institutions out of more than $15 million,” the Thursday release said.

Dive Insight:

Once one of the largest players in the sneaker resale field, Zadeh Kicks abruptly filed for voluntary dissolution in May 2022, according to court documents — baffling so-called “sneakerheads” and leaving customers stranded with unfulfilled orders.

Months later, the U.S. District Court for the District of Oregon issued charges against both Malekzadeh and Mockerman, charging the former owner with wire fraud, conspiracy to commit bank fraud, and money laundering and Mockerman with conspiracy to commit bank fraud, according to court documents.

Malekzadeh’s empire — the former owner made over $300 million in the sneaker resale space — began to unravel after complaints regarding unfulfilled orders began to mount, a 2022 report by the Wall Street Journal found. According to Zadeh Kicks’ petition for dissolution, the company experienced “exponential growth” between January 2020 and May 2022, mostly as the result of pre-sales for yet to be released sneakers. The company was “unable to keep up with this growth,” according to the petition.

According to the 2022 charges filed against the ex-owner and former CFO, however, Malekzadeh “advertised, sold, and collected payments from customers for preorders knowing he could not satisfy all orders placed,” according to an August 2022 press release. The owner accepted preorder sales for over 600,000 pairs of soon-to-be released Air Jordan sneakers in 2021, for example, but had “no way of acquiring the quantity of sneakers needed to fill the pre-orders received” and was only able to acquire just over 6,000 pairs, according to the August release.

The former owner offered to “buy back” undelivered sneakers from customers offering gift cards or cash, according to a plea agreement for ex-CFO Mockerman filed Wednesday. He also “delayed sending sneakers, sometimes for up to a year, and left numerous orders unfulfilled without providing a refund or gift card to customers,” according to the plea agreement.

To purchase the sneakers and to continue to fund the company’s operations, both Malekzadeh and Mockerman applied for numerous loans to various financial institutions, which contained “altered and false financial information from Zadeh Kicks LLC,” including altered bank statements which removed references to other loans the company had received, according to the agreement. Malekzadeh also conducted a transfer of $2.4 million from PayPal to Zadeh Kicks’ bank account.  

“In total, Malekzadeh and Mockerman submitted over 15 fraudulent loan applications, all of which contained false and altered financial information,” the plea agreement reads. “They received over $15 million in funds from these loan applications.”

Both Malekzadeh and Mockerman have agreed to pay restitution in full and, if needed, to forfeit any “criminally-derived proceeds and property” used to facilitate the fraud, according to the Thursday announcement.

Both Malekzadeh and Mockerman’s sentencing hearings are set for August. Malekzadeh faces a potential 20-year prison sentence and a $250,000 fine for the charge of wire fraud, as well as a potential 30-year prison sentence and a $1 million fine for conspiracy to commit bank fraud. Mockerman, meanwhile, also faces a maximum prison sentence of 30 years and a $1 million fine.

“Over the past three years, Michael Malekzadeh has done everything in his power to accept responsibility for his wrongdoing and make things right with the people who trusted him,” Michelle Kerin, principal with law firm Angeli & Calfo LLC representing Malekzadeh said in an emailed statement. Malekzadeh took the “extraordinary step” of turning himself in to the FBI in early 2022 before an investigation was begun and voluntarily filed for a civil receivership for Zadeh Kicks, Kerin said in the statement. “Yesterday’s guilty plea was the latest step in Mr. Malekzadeh’s three-year, single-minded mission to make amends for what he did wrong. Even after his criminal sentence is imposed, Mr. Malekzadeh will continue that effort.”

Mockerman has no comment, according to Whitney P. Boise, attorney with Boise Matthews Donegan. Attorneys for the District of Oregon did not respond to requests for comment.