Mary Altaffer / AP
Two men allegedly tricked Apple into about $ 900,000 by basically swapping the company's fake iPhones for legitimate devices.
According to federal prosecutors, it was an elaborate scheme that involved the participation of friends and family, while using nonsensical pseudonyms and a huge number of mailing addresses.
The court documents describe a scenario in which the two men imported thousands of counterfeit iPhones from China and filed claims against Apple claiming that smartphones were broken and did not call. Apple would then replace knock-offs with genuine models – in most cases, new phones – so that the pair would send those items back to China for resale for a profit, from which they received a cut.
Yangyang Zhou and Quan Jiang, who were engineering students in the United States with F-1 student visas at the time, attempted to switcharoo with 3,069 iPhones between April 2017 and March 2018, prosecutors said in a criminal complaint lodged in Portland, Oregon.
Turns out it was almost a 50 to 50 bet if Apple would be cheated.
Apple told investigators that 1,493 warranty claims linked to Jiang and / or Zhou were processed and issued at a loss of $ 600 per iPhone, according to a "brand protection expert" who spoke to a special agent of Homeland Security.
In total, the company estimates that the scheme has lost $ 895,800 from Apple.
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 were identified as counterfeit, according to the documents.
This suggests that for the fraud to work, Jiang and Zhou had to have access to authentic numbers of mobile phone identity numbers or international numbers, also called IMEI numbers, which would indicate that the devices were still covered by the repair guarantee. (The IMEI includes information about the origin, model, and serial number of the mobile device.)
The complaint does not specify how the two men obtained the information and Apple declined to clarify whether it was necessary for the numbers to process the allegations or how the alleged falsifications were passed on as real.
Apple discontinued the printing of serial numbers on devices after the iPhone 6 Plus model.
According to court documents, Jiang exposed the entire operation in a December 2017 interview with Thomas Duffy, a special agent for Homeland Security Investigations. Jiang admitted receiving the fictitious phones of an "associate" in China, from 20 to 30 at the time. He said he used friends, relatives and variations of names to receive packages from China as well as Apple's replacement phones.
It seems that at least in one case, Jiang may have used the name "Apache Helicopter" to register one that resulted in a new phone, prosecutors say.
The complaint also says that Jiang explained that he has deliberately coordinated iPhone shipments to different US addresses in order to prevent packages from being held by Customs and Border Protection.
Jiang's mother would have collected her share of the profits in China and deposited the money into an account he can access in the US.
In some cases, Jiang said he has paid the help of his friends, according to court documents.
But according to the statement, Jiang and Zhou deny that they knew that the iPhones they were receiving and subsequently sending to be repaired or exchanged, were falsified or that they were notified that they were involved in fraud.
Their claims contradict Apple's lawyers, according to the documents. Apple's legal counsel said the company sent two letters in 2017 to Jiang at Zhou's address, putting him "under notice that he was importing counterfeit Apple products."
Duffy's testimony claims that Zhou and Jiang, now in their late twenties, were investigated in 2017 after Customs and Border Protection seized more than five consignments of fake phones addressed to the pair. A survey at Jiang's home in March 2018 produced more than 300 counterfeit devices along with shipping and warranty records, Duffy said. Police also found several boxes associated with Zhou, one of which allegedly contained 25 fake iPhones.
Jiang is facing charges of counterfeiting and electronic fraud. Zhou is being accused of "sending false or misleading information about export declaration".
The fraud scouring scheme against the iPhone has been around for several years and has become so widespread in China that "Apple has already developed a more stringent replacement plan to prevent" fraud.
In 2015, a Chinese online forum called Chinese In LA alerted readers to a job advertisement that sought to recruit students to return dead iPhones from China to US apple stores. The ad targeted people who do not speak English without a Social Security number, promising a $ 30 "discount" for replacement, and suggested that 8-10 devices per day could be returned.
The original ad was deleted, but the ad remains on the site.
Huo Jingnan contributed reporting.