Apple has allegedly been scammed out of nearly one million dollars in iPhone replacement scam by two Chinese engineering students in Oregon. According to a report by The Oregonian, the students are now facing criminal charges in federal court. Authorities claim the scheme, which is engineered to steal from Apple by exploiting iPhone return policy using fake iPhones, also involved others aside from the two students.
The duo allegedly started since the beginning of 2017 to smuggle thousands of fake iPhones into the US from China. They would send in the knockoffs for repairs or replacement, claiming they wouldn’t power on. Apple, in several cases, replaced the fake products with real iPhones, which accumulated to an estimated loss of $895,800.
According to prosecutors, both Yangyang Zhou and Quan Jiang were lawfully in the US on student visas. Zhou, who recently completed his engineering degree at Oregon State University, would receive the knockoffs as shipments in the United States and return the real iPhones back to China. Linn Benton Community College engineering graduate Jiang, who shared an address in Corvallis with his accomplice Zhou, was allegedly responsible for bringing the fake goods to Apple either in person or online to request replacements, explains the court records.
An associate in China would receive the real iPhones and wire the proceeds to Jiang’s mother, who then deposited the money into Jiang’s US account.
Both Zhou and Jiang are contending they have no idea the iPhones were counterfeits. They are both out of custody, but Zhou, who was accused of submitting false information on an export declaration last year, is being monitored by GPS. Jiang is accused of committing wire fraud and illegally trafficking goods, while Zhou is accused of exporting goods illegally.
The scheme worked mainly because Apple Store employees couldn’t verify if the devices were original or not since they wouldn’t power on. However, as the students claimed the product warranty covered them, it’s enough to trigger the Apple replacement process. And to replace iPhones, Apple doesn’t need to request for proof of purchase, a Homeland Security agent explained in the complaints.
According to Apple’s business records, Jiang submitted 3,069 warranty claims, out of which Apple granted 1,493. Estimating each phone’s price to be $600, Apple incurred losses of nearly $900,000 from the iPhone replacement scam.
According to the affidavit, Apple’s legal counsel sent cease-and-desist orders to Jiang in June and July of 2017, notifying him that Apple knew he was importing fake iPhone. Jiang was allegedly paying friends and relatives to receive iPhone replacements and phone shipments from China using their addresses in Springfield, Portland, Eugene, Corvallis, and in Washington State.
Last year, federal agents searched Jiang’s residence and found over 300 fake iPhones, warranty submission documents and shipping records, as well as several boxes, addressed to his alleged accomplice Zhou, explains the court records. Also, Customs in Portland intercepted three shipments containing 95 fake iPhones addressed to Zhou.
This is absolutely a big move to scam Apple. Producing each of these phones that can deceive Apple Store employees won’t be extremely cheap. However, the students are not the only ones working hard to scam tech giants. A Chinese national also on a student visa last year pleaded guilty to selling fake iPhones and iPad, a scheme that yielded around $1.1 million in sales. A man from Lithuania last month pleaded guilty to sending fake invoices to Facebook and Google and making over $100 million from the scheme.