Fake iPhone scam: 2 Chinese students in US, USD 900,000 loss for Apple

Two college students in the United States were detained for a fake iPhone scheme that amounted to a whopping $900,000 loss for Apple. The two students were Chinese nationals that were on a legal study visa in the US. The report from The New York Times stated that the two kids robbed Apple of more than 1,500 iPhones that were claimed under warranty.

The scam was pretty simple. Oregon college students would raise a claim with Apple that their iPhones would not turn on or charge at all. Then they would ship the phones to the Apple service centre and in return, Apple would send them a brand new iPhone as a replacement.

Apple’s replacement service is pretty well-known to be quick and efficient. They would immediately send out a replacement for a dead phone as part of their warranty terms. However, by the time the faulty handset would reach the iPhone office for inspection/repairs, it would be too late as the replacement units would already reach the customer.

The two students, identified as Quan Jiang and Yangyang Zhou, would then sell off the replaced original iPhones to customers out of the country and get a cut from the profit. This money would then be sent to their parents, who would deposit the amount in a bank account that can be accessed from the US.

The issue was noted by Apple around two years ago after customs officers seized a few too many shipments coming in from Hong Kong that contained counterfeit iPhones, reported NYT. The consignments contained Apple products with the logos and design features of an iPhone. However, the shipping methods and packaging raised the suspicions that the phones were counterfeit.

Investigations into the matter revealed that the shipment was headed to Zhou’s mailing address, and also involved one neighbour and another friend in Corvallis. With leads from Apple about the warranty claims, the investigators zeroed in on 3,069 phones that Jiang claimed on warranty, citing no power and charging issues. While around 1,500 claims were rejected, the other 1,500+ claims were approved by Apple. And each claim was honoured with a new Apple iPhone as a replacement. Since Apple’s process involved honouring an immediate replacement for every phone that is returned dead or has charging issues, the new iPhones were shipped to the customer. However, technicians at Apple figured out that the phones were fake only when it was too late.

Jiang told the investigators that he had submitted around 2,000 iPhones in 2017 alone and that he had involved his family, friends and relatives in the process.

Each of the iPhones that were replaced would cost Apple around $600, which amounted to a whopping $895,800 in the entire scam, reports NYT.

Jiang is presently accused of trafficking in counterfeit goods and is detained under GPS monitoring, while Zhou is accused of submitting false and misleading information on export declarations. In 2018, Jiang’s house was searched by federal agents and around 300 fake iPhones, along with shipping and warranty submission records were found.

In August last year, Zhou was detained at San Francisco airport when he was about to leave for China. He was spotted with a new iPhone unit still inside a factory box. Investigators could tell from the box that it was a replacement unit box and not a retail box, but Zhou told them that it was given to him by Jiang as part of a debt payment.

The first court hearing was held last week and Jiang was told not to interact with Apple while the case continues.