Pumped Up Kicks
Enochian Biosciences
Successful tech con artists of the last ten years tend to share a story - charismatic, attractive founders with big ideas to change the world. Think Adam Neumann, Elizabeth Holmes, Trevor Milton, and their ilk. So, when presented with an introduction like this:
Even as a teenager back in Turkey, Serhat Gumrukcu dazzled audiences.
In a 2002 video, he opened one of his magic shows dancing with a cane that appeared to be levitating. He was introduced as a medical student and went by the stage name “Dr. No.”
A little more than a decade later, not long after Mr. Gumrukcu arrived in the U.S., he had his hand in multimillion-dollar oil and real-estate deals. Yet his best-known venture was in medicine. For a time, he thrilled investors with ideas for groundbreaking treatments and drew special notice from the government’s top infectious-disease official, Anthony Fauci.
We have an idea where this is going. Gumrukcu created a company called Enochian Biosciences which raised large amounts of money claiming its founder was developing groundbreaking drugs:
Enochian has several drugs in development for diseases including HIV and cancer, and it has cited Mr. Gumrukcu as the company’s sole inventor. So far, none of the drugs has entered clinical testing, a step required to demonstrate that a medicine’s promise is strong enough to merit approval.
There are the same red flags we saw with Nikola and Theranos - supposedly brilliant founders creating new technology or medicine making big promises but, critically, no independent verification.
Before trying his hand at curing disease, Gumrukcu swindled wealthy investors in real estate:
Mr. Gumrukcu told him a house nearby was for sale and suggested they buy it to renovate and sell. Mr. Akyuz agreed to invest $500,000 in a joint-venture to flip the property and signed escrow documents to close the deal.
In the next months, Mr. Gumrukcu requested money for renovations. Mr. Akyuz wired $430,000. Mr. Gumrukcu eventually told Mr. Akyuz that they had a buyer, and the sale was completed.
Mr. Akyuz never received his expected share of the profits. He hired a private investigator and learned the escrow documents had been forged. The house wasn’t purchased by Mr. Gumrukcu and hadn’t been on the market.
Oil products:
Mr. Davis had arranged to broker a deal to buy refined oil products and resell them at a profit, said a person familiar with the matter. The Gumrukcu brothers agreed to put up the cash in exchange for a percentage of the profit, the person said, in a deal valued between $20 million and $30 million.
Mr. Davis had threatened to expose fraudulent bank documentation by Mr. Gumrukcu and his brother to the FBI, according to a court filing by prosecutors. At the time, the Enochian deal was undergoing its final stages of due diligence, according to court papers.
And, finally, biosciences:
In April 2017, Mr. Gumrukcu registered Gumrukcu Health LLC, and he had no trouble attracting interest. Within weeks, he was consulting with DanDrit Biotech USA Inc., a drug developer backed by Mr. Sindlev, a Danish businessman, according to securities filings.
[…]
By the end of 2018, Enochian was listed on the Nasdaq, giving the company access to a larger pool of public investors.
His promises were so compelling Dr Fauci took notice:
In 2020, the hepatitis B treatment envisioned by Mr. Gumrukcu and licensed by Enochian was brought to the attention of Dr. Fauci, director of the National Institute of Allergy and Infectious Diseases.
Dr. Fauci wrote a Feb. 2, 2020, email to T. Jake Liang, chief of liver diseases at the National Institute of Diabetes and Digestive and Kidney Diseases, asking him to meet with Mr. Gumrukcu and Dr. Dybul, who had once worked for Dr. Fauci at NIH.
But, like all big cons, things hit a tipping point and fell apart all at once. Gumrukcu was arrested for having a former business partner murdered:
Prosecutors allege that Mr. Gumrukcu orchestrated Mr. Davis’s murder, using at least two intermediaries to hire an assassin, according to court papers.
While the plot took shape, Mr. Gumrukcu wired more than $150,000 from Turkish accounts to a longtime family friend named Berk Eratay, a computer programmer in Las Vegas, court papers said.
In April, Aron Lee Ethridge told investigators he had been hired by Mr. Eratay to find someone to kill Mr. Davis, court papers said.
And his false credentials unraveled:
Dr. Leire, the company’s former chief executive, said he began to suspect that Mr. Gumrukcu had fabricated his résumé and held neither a medical degree nor a doctoral degree.
With Gumrukcu facing conspiracy and murder charges, and his brother having fled the country, it’s worth asking - why do supposedly sophisticated investors fall for these sorts of cons? It wasn’t as if Gumrukcu’s past was any secret:
Mr. Akyuz sued Mr. Gumrukcu and won damages in 2016.
[…]
Mr. Gumrukcu was arrested on Feb. 9, 2017, and charged with 14 felony counts related to the real-estate case, including impersonating a lawyer and writing fraudulent checks.
[…]
On Jan. 25, 2018—nearly three weeks after Mr. Davis was killed—Mr. Gumrukcu pleaded guilty in Los Angeles to a single felony count for passing bad checks and was sentenced to five years’ probation.
The guy was a convicted felon, and had multiple court judgements against him for fraud. And yet, he was able to take a company public on the NASDAQ, get meetings with scientists at the very top of US governmental agencies, and pose as a doctor and research scientist for years before an arrest for literal murder. If you’re going to purchase a stock, or send millions of dollars to someone you’ve just met who seems smart and charming, maybe spend thirty seconds Googling them beforehand. It could save you from getting dumped in a snowbank by a hired assassin, is all I’m saying.
Zadeh Kicks
Typically, when we discuss sneakers we’re talking ‘reps’ or counterfeits. Or shoe executives helping their kids out with their startups. But what if, instead of selling fake sneakers or using insider connections to get ‘drops’ before they happened, you simply sold shoes that didn’t exist?
Prosecutors say Malekzadeh, 39, and his Zadeh Kicks LLC swindled thousands of people across the nation in a multimillion-dollar scam involving nubuck and leather, rather than stocks and bonds.
[…]
Malekzadeh rode this resale market to improbable heights. From his warehouse in Oregon, birthplace of Nike Inc., he offered sought-after kicks at below-market prices even before manufacturers released them.
In truth, prosecutors now say, Malekzadeh was taking orders – and collecting money -- for thousands of sneakers he didn’t have and couldn’t get, at least for prices that made any sort of economic sense.
Again, there were pretty obvious warning signs - why would Zadeh sell valuable, pre-release sneakers for less than market rate? This makes no sense! According to prosecutors, Zadeh had been a fairly successful dropship shoe business until the pandemic, when demand for sneakers skyrocketed and its owner attempted to cash in:
Other than his fiancee, who’s also being charged for her part as chief financial officer of Zadeh Kicks, Malekzadeh ran alone. Prosecutors say he falsified over 15 loan applications for more than $15 million in bank financing.
The latest limited-edition Air Jordans, the 11 Cool Grey, appears to have been a step too far.
As Nike prepared to drop the new high-tops last December, Malekzadeh made a move, prosecutors say. Nike was pricing the 11 Cool Grey – nubuck upper, grey patent-leather mudguard – at $225.
But Malekzadeh’s company offered to sell them for as little as $115, before the December release date, with the understanding that buyers agreed to take delivery a few weeks after the official drop.
Zadeh Kicks sold 600,000 pairs. It only had 6,000.
Not great! Nor was what Malekzadeh did with the money:
According to court documents, Malekzadeh spent much of his profits on Bentleys, Ferraris and Lamborghinis. Some $3 million went to Louis Vuitton bags, jewelry, furs and watches as expensive as $600,000 a piece.
So far, the FBI has seized $6.1 million in cash from Malekzadeh, plus watches, as well as about 1,100 pairs of sneakers from his personal collection.
I mean, if you pocket $70 million dollars selling nonexistent sneakers, I guess you can spend the money on a Bentley, because the thousands of people you scammed will eventually contact the authorities, who will show up and confiscate your furs and watches. Whatever.
Also, please please don’t be like this guy:
Jeremy Rogers, 30, a clinical researcher in Fort Worth, Texas, rattles off his purchase history: 100 pairs of the Air Jordan 11 Cool Grey, 300 pairs Air Jordan 4 Retro Lightning, 225 pairs of the Jordan 4 Retro Military Black, 100 pairs of Jordan 4 Retro Shimmer, 20 pairs of Travis Scott Jordan 1 High Fragment.
In all, he figures he spent $143,000 in sneakers he didn’t receive, spread over 15 credit cards.
Whether it’s crypto lending, manuscripts, scooters, sneakers, whatever, the same rule applies - if investment returns seem too good to be true, it’s a scam!
PetSmart
If you bring your dog or cat to PetSmart for grooming, you can expect to pay forty to eighty dollars for the privilege. You’d expect some of that money to go to the person who washes, brushes, and trims your furry friend, right? Hahaha, of course not, you know which newsletter you’re reading. But, did you know PetSmart also charges its groomers thousands of dollars in training fees to do the job they’re not being paid extra to do?
Scally, 24, got a job in February 2021 as a “bather” at a PetSmart in Salinas, Calif., hoping to become eligible for “Grooming Academy.” PetSmart’s website touts the “free paid training” as a part of a “career glow up,” with 800 hours of hands-on, supervised training “valued up to $6,000!”
She didn’t realize until months later, she says, that the papers she’d signed to start Grooming Academy and receive grooming tools had locked her into an agreement to stay with the company for two years, or else repay the entire cost of the “free” training.
First of all, what is ‘free paid training’? This is not how language works! Also, when said training comes with work requirements, and is done while earning your employer three or four times your hourly wage, I’m not sure I see the value prop. Judging by PetSmart’s site:
You are expected to bathe 125 dogs (a $5,000 value, to PetSmart of course) and then you can sign two years of your life away to receive 160 hours’ worth of FREE, paid training for four weeks, which - doing the math - is a full time job with no lunch breaks?
Anyhow, the woman in question is suing PetSmart, alleging that it is charging employees for a cost of doing business, which, yeah. If you are charging your groomers money to train them to groom pets, as a requirement of their employment, that doesn’t seem like it should be legal:
With Grooming Academy, PetSmart is effectively charging its workers for training while making money off the grooming jobs they complete in the process, Dempsey argues.
Also, there is no training required to be a pet groomer in California:
Under California law, there is no regulatory requirement for grooming certification. In the absence of such requirement, the law says employers are responsible for the cost of required training that is incurred for the employer’s benefit, the complaint says.
And, as other labor lawyers point out, locking employees in for 2 years, in this market, is a very valuable arrangement, since they can’t use the threat of quitting to increase pay or improve hours. Which would come in handy if you were badly paid:
Many PetSmart groomers make barely above minimum wage, the complaint notes. Scally was making $15 an hour.
Of course they do! You may remember PetSmart’s grooming operation making headlines a few years ago for horrifying reasons:
A 2018 investigation by NJ Advance Media found that at least 32 dogs had died “during or within days” of grooming at PetSmart since 2015, when the company was purchased by the private equity firm BC Partners.
It’s not surprising that a company-run grooming program used to lock poorly-paid employees into two years of indentured servitude is not producing ideal results. PetSmart’s private equity owner also owns the Chewy brand of pet supplies, and has signed the UK’s modern slavery agreement which unfortunately does not apply to its Grooming Academy.
Robocalls
We have talked before about the unstoppable blight that is robocalling in the US. Well, good news! As a result of new STIR/SHAKEN rules being rolled out to smaller telecom carriers, robocalls are down by nearly half since 2021:
More than 1,900 carriers have installed the industry-standard STIR/SHAKEN technology, up from 536 companies last year.
Cool, right? Wellllll:
…experts say scammers are now relying more on spam text messages to steal consumers’ personal information and money. The group says spam texts have increased from 1 billion to 12 billion a month in the last year, with many of those riding on the wave of smishing scams.
Half as many robocalls, but twelve times as many spam texts. Great. The FCC is still playing whack-a-mole, but there is some optimism that they may go after “gateway” providers more aggressively, who are largely responsible for funneling calls and texts from overseas to our mobile devices.
Smishing, which is not a racy TikTok challenge, is simply phishing via SMS, and you should not answer texts from any unknown numbers, even innocuous ones that appear to be someone with a wrong number. Stay safe out there!
Short Cons
The Atlantic - “Separating children was not just a side effect, but the intent. Instead of working to reunify families after parents were prosecuted, officials worked to keep them apart for longer.”
The Intercept - “A Bank of America executive stated that “we hope” working Americans will lose leverage in the labor market in a recent private memo obtained by The Intercept.”
Defector - “Again, all of this was happening in a story because this recognizable and very busy young star had just been nominated for an Emmy. It’s a reminder of how thin and permeable this country’s social safety net is, and how few jobs in the arts in general pay enough for people without generational wealth to survive.”
WaPo - “In the world of audiophiles — where provenance is everything and the quest is to get as close to the sound of an album’s original recording as possible — digital is considered almost unholy.”
Tips, thoughts, or a cure for Ponzi Brain to scammerdarkly@gmail.com