Zadeh Kicks: The Scandal of The Sneaker Resale World

Zadeh Kicks, the sneaker reseller, is being charged with wire fraud, conspiracy to commit bank fraud, and money laundering.

Zadeh Kicks: The Scandal of The Sneaker Resale World

A few months ago, the famous sneaker reseller ‘Zadeh Kicks’ came crashing down. Zadeh Kicks was started by Michael Malekzadeh in 2013, who is now being called, by some, “The Bernie Madoff of Sneakers.” By 2020, Zadeh Kicks had reached the top 1% of all Shopify merchants but is now being charged by criminal information with wire fraud, conspiracy to commit bank fraud, and money laundering. Earlier this year, around April and May, Zadeh Kicks stopped accepting payments. The website disappeared and social media got deleted. The exact numbers will soon be revealed in the lawsuit, but it’s estimated that there are around $70 Million worth of undelivered sneakers for hundreds or potentially thousands of buyers.

Zadeh Kicks

The Zadeh Kicks story gives us a chance to understand the sneaker resale value chain. People, often sneaker resellers themselves, would go to Zadeh Kicks to buy sneakers, usually months and months in advance of the shoes actually being released. These pre-orders would be sold on Zadeh Kicks at retail price or below retail price. The buyers would be fine waiting months to receive the sneakers because the price at which they bought the sneakers would normally guarantee some kind of profit.

Many buyers assumed that Zadeh Kicks had some kind of special backdoor connection to the brands like Nike, that granted them access to these shoes. In reality, Zadeh Kicks was buying sneakers from independent retailers and suppliers, including at one point becoming one of the single biggest sneaker buyers on the online marketplace StockX. Towards the end, Zadeh Kicks was taking in preorders far beyond what they were able to fulfill.

Anatomy of a Scheme: The ‘Cool Grey’ Jordan 11s

In 2020, Zadeh Kicks started selling preorders. It’s unclear whether the shady business practices were happening much before the introduction of preordering in 2020, but Zadeh Kicks seemed to drift closer to collapse due to excessive preorders. For example, in 2021 Zadeh Kicks took in around 600,000 pre-orders for the Cool Grey Jordan 11s, which amounted to around $70 Million worth of orders. The preorders on Zadeh Kicks were priced at $115-$120 and the expected retail price of the shoe was expected to be $225 when released months later. So buyers preordered 600,000 Cool Grey Jordan 11s from the Zadeh Kicks website. The problem was, Zadeh Kicks never had access to 600,000 pairs of the shoe and so was doomed to fail in delivering these sneakers. This is just one of the many shoes Zadeh Kicks sold. It’s reported that in 2021, Zadeh Kicks received over $100 Million in pre-orders.

During Covid, the demand for sneakers increased as physical retail stores were closed during lockdowns. The shift to e-commerce grew the number of buyers and the subsequent number of pre-orders, making the Zadeh Kicks scheme more difficult to maintain. As time went on, Zadeh Kicks started making it more difficult for people to request refunds and often pushed customers into receiving gift cards instead. The entire time, Michael Malekzadeh and his fiance/CFO Bethany Mockerman were known to post extravagant cars and luxury fashion on their social media accounts. As more details of the impending lawsuit are revealed, it’s clear that Malekzadeh also took out millions of dollars worth of loans to fund his now insolvent business.

Industry and What’s Next

The fact that brands like Nike and Adidas heavily restrict the supply of certain sneakers is what creates this massive demand on the resale market, but this isn’t unique to sneakers. Luxury fashion operates with a similar model, where an intentionally limited supply can jack up demand and create a dynamic secondary market.

As a refresher, there are a lot of people called ‘sneaker plugs,’ who are essentially your personal suppliers who directly sell you hard-to-find shoes. Particularly for the hottest sneakers, many people (including celebrities) often rely on this informal network of 'plugs' to get the sneakers they want. Many plugs seemed to have been getting their shoes from Zadeh Kicks. So not only are large numbers of plugs/sneaker resellers owed money by Zadeh Kicks, but their actual customers will not be reselling shoes they were expecting to receive. Founded in 2013, Zadeh Kicks became one of the biggest sneaker resellers in the world. The sneaker reselling industry is large but also informal, which makes it hard to assess the overall damage caused by Zadeh Kicks.

The trial date for Zadeh Kicks has been set for June 6, 2023 and victims can still fill out their information related to the case at http://www.fbi.gov/zadehkicks. Federal prosecutors are also selling off sneaker stock that has been confiscated as part of the investigation.

Industry implications

Cowen & Partners estimates that the global sneaker resale market could reach $30 Billion by 2030. Does Zadeh Kicks affect this? The first issue the Zadeh Kicks story highlights is trust. Will schemes like this deter people from getting involved in sneaker reselling? Potentially. As a result, companies like StockX and eBay and other independent resellers will likely be more encouraged to promote their authenticity and brand trust. While we all have personal responsibility for verifying and checking who and where we buy from, it’s also now even more important for sneaker resellers to demonstrate their trustworthiness.

Are there other sneaker resellers who operate like Zadeh Kicks? Possibly. There’s serious money at stake in the sneaker game. The more money involved, the higher the risks for people to lose their money. If we discover more schemes like Zadeh Kicks, this could encourage more government regulation of the sneaker resale industry, in order to promote more consumer protections.

Zadeh Kicks is the one of the biggest sneaker resale scandals of the last decade, and the one most directly financially damaging to buyers. While this won’t stop the growth of sneakers, it should remind us to be vigilant and do our research with regards to where we buy our sneakers!