Mary Altaffer / AP
Two men allegedly scammed Apple out of nearly $ 900,000 would essentially trade the company fake iPhones for legitimate devices.
According to federal prosecutors, it was a elaborate scheme that involved roping in friends and family, while using nonsensical pseudonyms and a slew of mailing addresses
Court documents outline a scenario in which the two men imported thousands of counterfeit iPhones from China then filed warranty complaints with Apple, claiming the smartphones were broken and would not turn on. Apple would then replace the knock-offs with genuine models – in most cases, brand new phones – that the pair would ship those items back to China to be resold for a profit, of which they received a cut.
Yangyang Zhou and Quan Jiang, who were both engineering students in the U.S. on F-1 student visa at the time, attempted the switcharoo with 3,069 iPhones between April 2017 through March 2018, prosecutors said in a criminal complaint filed in Portland, Ore.
It turns out it was almost a 50-50 gamble whether Apple would be duped.
Apple told investigators, 1,493 warranty claims linked to Jiang and / or Zhou, were processed and issued replacement devices at a loss of $ 600 per iPhone, according to a "brand protection specialist" who spoke with a Homeland Security Special Agent.
In all, the company estimates the Apple bilked scheme out of $ 895,800.
The remaining claims – 1,576 of them – were rejected for tampering and returned to the sender, along with a letter explaining why the claim was denied . None has been identified as counterfeit, according to the documents.
That suggests that in order for the scam to work, Jiang and Zhou would have had access to the authentic iPhone serial or International Mobile Equipment Identity Numbers, also called IMEI numbers, which would indicate that the devices were still covered by the repair warranty. (The IMEI includes information on the origin, model, and serial number of the mobile device.)
The complaint does not specify how any of the men have obtained the information and Apple declined to clarify whether it required either of the numbers to process
Apple discontinued printing serial numbers on devices after the iPhone 6 Plus model.
According to court documents, Jiang laid out the entire operation in a December 2017 interview with Thomas Duffy, a special agent with Homeland Security Investigations. Jiang admitted he received the dummy phones from an "associate" in China, 20 to 30 at time. He said he used friends, relatives and name variations to receive the packages from China, as well as replacement phones from Apple.
It seems that at least in one instance, Jiang may have used the name "Apache Helicopter" to file a claim that resulted in a new phone, prosecutors say.
The complaint also says Jiang has deliberately coordinated the iPhone shipments to different addresses in the U.S. in order to avoid the detention of Customs and Border Protection.
Jiang's mother allegedly collected his share of the profits in China, then deposited the money into an account he can access in the U.S.
In some cases, Jiang said he paid his friends for their help, according to court documents.
But, the affidavit says, Jiang and Zhou denied that they knew the iPhones they were receiving and subsequently submitted to be repaired or exchanged, were either falsified or that they were notified that they were engaging in fraud.
Their claims contradict Apple's lawyers, according to the filings. Apple's legal counsel said the company sent two letters in 2017 to Jiang at Zhou's address, placing him "on notice that he was importing counterfeit Apple products."
Duffy's testimony states that Zhou and Jiang, now in their early 20s, came under investigation in 2017, after Customs and Border Protection seized more than five shipments of fake phones addressed to the pair. A search of Jiang's home in March 2018, produced more than 300 counterfeit devices, along with shipping and warranty submission records, Duffy said. Law enforcement also found several boxes associated with Zhou, one of which allegedly contained 25 fake iPhones.
Jiang is facing charges of trafficking in counterfeit goods and wire fraud. Zhou is charged with "submitting false or misleading information on export declaration."
The fake-iPhone-laundering scam has been around for several years and has become so widespread in China that "Apple has already developed a more rigid replacement plan to avoid" fraud.
In 2015, a Chinese-language online forum, called Chinese In LA, warned readers about a job posting seeking to recruit students to return inoperable iPhones from China to the U.S. Apples stores. The advertised non-English speakers without a Social Security number, promising a "rebate" of $ 30 per replacement, suggested that 8 to 10 devices a day could be returned.
The original ad has been deleted but the warning remains on the site.
Huo Jingnan contributed reporting.