US federal authorities on Wednesday announced the arrests of 11 people from a group of 14 indicted for tricking Apple into accepting about almost 10,000 fake iPhones and iPads and replacing them with genuine iDevices.
The US Attorney’s Office for the Southern District of California said it had served 11 search warrants covering two businesses and several homes and vehicles in the San Diego, California, area and come up with $250,000 in cash and 90 iPhones that will be tested for authenticity.
Three individuals said to be involved in the scheme remain at large including Xiamon Zhong, believed to be in China, Charley Hsu of San Diego and Hyo Weon Yang of San Francisco.
The raids stem from the indictments related to an alleged scheme to import fake iPhones and iPads from China, marked with IMEI and serial numbers copied from authentic devices, in order to return them to Apple for genuine replacements, which were then shipped back to China to be sold there.
The US Attorney’s Office says three brothers, naturalized US citizens born in China, ran the operation – Liao Zhiwei, Liao Zhimin and Liao Zhiting – which led to losses Apple puts at more than $6m. The other defendants are said to be mostly naturalized citizens from China, Russia, and Vietnam.
In a statement, US Attorney Robert Brewer said this prosecution is about more than just monetary losses. "The manufacture of counterfeit goods – and their use to defraud US companies – seeks to fundamentally undermine the marketplace and harms innocent people whose identities were stolen in furtherance of these activities," said Brewer.
According to the indictment [PDF], Apple provides a one-year warranty on its iDevices, and runs a program to exchange defective products under warranty for new genuine Apple kit.
Between October, 2011 and August 2019, the 14 defendants allegedly participated in a scheme to exchange fake Apple iPhones and iPods, altered with actual IMEI and serial numbers, in order to resell the goods for a profit in China. They're said to have attempted to return more than 10,000 fake Apple products at more than 40 stores around the US and to have succeeded in getting Apple to accept about 9,550 of them.
The indictment describes how the alleged co-conspirators sent lists of fake identifiers to scheme participants in China, presumably so they could be etched into the fake phones and tablets. It doesn't specify how those identifiers were obtained, but one of the accused ringleaders is said to have controlled two cell phone repair businesses, which could have been a source for the data.
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The Department of Justice spokesperson did not immediately respond to a request to clarify how the IMEI and serial numbers were obtained. Assistant US Attorney Tim Salel told The San Diego Tribune that the source of the identifiers was still under investigation.
The indictment includes 76 felony charges, including fraud, money laundering, and theft.
Trafficking in fake iGoods appears to be fairly commonplace. In July, Jianhua “Jeff” Li, a Chinese national living in the US, was sentenced to 37 months in prison for bringing more than 40,000 fake Apple gizmos into the country.
In October, an engineering student from China, Quan Jiang, was sentenced to more than three years in prison for his role in a iPhone warranty return scam. ®