An elaborate scheme to dupe U.S. tech giant Apple into exchanging authentic iPhones and iPads for fake ones has been uncovered, after a recent federal indictment against fourteen individuals was unsealed.
The scheme was allegedly run by an international crime organization headed by three ringleaders who were brothers surnamed Liao—Zhiwei, 31; Zhimin, 33; and Zhiting, 30, according to a Nov. 13 press release from the U.S. Department of Justice. The three are all naturalized U.S. citizens born in China.
The three imported more than 10,000 counterfeit iPhones and iPads from China, intentionally damaged them, and had co-conspirators exchange them at Apple Stores in more than 40 states throughout the United States and Canada, according to the indictment.
To make their scam possible, the alleged defendants obtained fake iPhones and iPads with cellular connectivity that had an IMEI (International Mobile Equipment Identify) number and a serial number. These numbers matched the IMEI and serial numbers of genuine iPhones and iPads that were purchased and used by people, and whose products were covered by an Apple warranty in the United States or Canada.
Apple provides a one-year warranty for new devices wherein customers can return a defective device and receive a replacement.
It is not known how the defendants were able to get their hands on authentic IMEI and serial numbers. Their scheme began as far back as 2014, according to the indictment.
The exchanged authentic Apple devices were then shipped back to China and other foreign countries to sell at a premium. According to the indictment, 33 year-old defendant Xiaomin Zhong, a Chinese national residing in China, wired $48,148 from an account in China to Zhiwei’s Bank of America account on Dec. 18, 2014.
Apple estimated that the total loss associated with the exchanges exceeded $6.1 million, according to the indictment.
The FBI (Federal Bureau of Investigation) arrested 11 of the 14 defendants in the United States, including the three Liao brothers. Agents also seized an estimated $250,000 in cash and over 90 iPhones, including from the defendants’ businesses, homes, and vehicles, whose authenticity have yet to be determined.
Other defendants included two Vietnamese, one naturalized U.S. citizen and the other a permanent resident; a U.S. citizen named Danny Tran Chan; and a naturalized U.S. citizen named Dmitri Pigarov who was born in Russia.
There were three fugitives: Xiaomin Zhong, believed to be in China; Charley Hsu, 39, a Chinese national; and Hyo Weon Yang, 31, a naturalized U.S. citizen born in South Korea, and believed to be in San Francisco.
In January 2015, Zhiting sent a text message to Chan, asking that he make 120 email accounts under both male and female names. The emails were to be used for making appointments at Apple stores to exchange the fake products.
In July 2015, Hyo sent a text message from Kansas to Charley with a list of “good” Apple stores and a list of stores to avoid, for attempting to exchange counterfeit iPhones.
In November 2015, Charley sent a text message to another defendant, saying he had successfully exchanged 85 fake iPhones, while six counterfeit iPhones were rejected. It is not known the reason for the rejection.
“The manufacture of counterfeit goods—and their use to defraud U.S. companies—seeks to fundamentally undermine the marketplace and harms innocent people whose identities were stolen in furtherance of these activities,” said U.S. Attorney Robert Brewer in the press release.
All defendants face multiple charges, including conspiracy to commit wire fraud and mail fraud, conspiracy to traffic in counterfeit goods, conspiracy to launder money, and aggravated identity theft. All—except aggravated identity theft, which has a maximum penalty of two years imprisonment—carry a maximum penalty of 20 years in prison.