Federal prosecutors launched their criminal case against sneaker dealer Eugene Michael Malekzadeh on Friday, claiming that in April he owed customers more than $70 million for undelivered sneakers.

The government alleges that Malekzadeh’s company, Zadeh Kicks, defrauded thousands of customers. Prosecutors have also brought charges against Bethany Mockerman, Malekzadeh’s fiancée and Zadeh Kicks’ chief financial officer, alleging she conspired to commit bank fraud.

Prosecutors say Malekzadeh priced his sneakers below market price, which attracted many buyers. But his selling price was also often lower than what he was paying. He knew it would be “financially ruinous” to deliver the sneakers, prosecutors said.

He also delayed sending sneakers to his customers, sometimes for up to a year. He promised refunds or gift cards to customers he stiffened but often failed to deliver, prosecutors said.

Malekzadeh reportedly spent proceeds from pre-orders on high-end cars from Bentley, Ferrari and Lamborghini, and other luxury goods. He has spent over $3 million on Louis Vuitton bags, purses and other items alone.

Malekzadeh managed to pull off the charade for nearly a decade. He founded Zadeh Kicks in 2013.

Some thought he was one of the biggest companies in the shadowy world of sneaker retailers. In a 2021 credit application to American Express, Malekzadeh claimed that Zadeh Kicks made more than $17 million in profit in 2021 on total sales exceeding $340 million.

Countless customers and creditors are now trying to collect the money or sneakers that are owed to them. Federal criminal charges, creditor lawsuits and a new report filed by a court-appointed receiver offer new insight into the company’s dramatic collapse.

Malekzadeh mainly did pre-sales, meaning his customers paid months in advance for shoes that wouldn’t be available for weeks or even months.

At that time, it was up to Malekzadeh to get the shoes and ship them to the customer.

Malekzadeh claimed that the success of his business had made him wealthy. His personal net worth in 2021 was more than $7.7 million, he said in the American Express credit application.

But things got out of control for Malekzadeh in 2022. He was facing many more orders he could fulfill.

Prosecutors detailed a glaring example of the type of deals that got Malekzadeh into trouble. In the fall of 2021, it began selling pre-orders for the Nike Air Jordan 11 “Cool Greys”. He priced the shoes between $115 and $120 a pair, even though the retail price was expected to be around $225 when the shoe was released in December of that year.

The bargain price attracted thousands of people. Prosecutors say Malekzadeh received more than $70 million in orders for 600,000 pairs.

At the time of filling all those orders, Malekzadeh only managed to secure 6,000 pairs, according to the government.

In the spring, disgruntled customers would show up at Eugene and at Malekzadeh’s to demand the shoes they ordered or refunds.

David Stapleton, the receiver now in charge of what remains of the business, said several clients made “direct personal threats” against Malekzadeh, who went to court asking for help.

Malekzadeh has agreed to cede control of his business. He also agreed to cooperate with the FBI, court documents show.

In a report released earlier this week, the receiver said it found more than 60,000 pairs of sneakers in Zadeh Kicks’ warehouses and $6.1 million in a bank account.

Malekzadeh was charged with wire fraud, conspiracy to commit bank fraud and money laundering.

Joanna Perini-Abbott, the Portland attorney representing Malekzadeh, said he “is not hiding his conduct.

“He has always taken full responsibility for his actions and will continue to do so,” Perini-Abbott said in a written statement. “It has cooperated fully with the Federal Government and the Receiver from day one, as its primary objective is to minimize financial harm to its customers and other interested parties. “

Mockerman expressed similar sentiments. The criminal charges “do not alter Ms. Mockerman’s commitment to cooperate with the government in an effort to minimize financial harm to Zadeh Kicks clients and other interested parties,” her attorney Whitney Boise said in a written statement.

Thousands of card-carrying sneakerheads are watching the case closely. On May 26, Stapleton sent an email notification of its appointment as receiver to all known customers. He was inundated with 3,500 email responses in a single day.