Two Students Charged With Cheating Apple Out of $900K in Wild iPhone Counterfeit Scam

Photo: Alex Cranz (Gizmodo)

In a grift for the ages, two engineering students allegedly scammed Apple out of hundreds of thousands of dollars. It’s hard to say if the students were very clever or if Apple is just really bad at preventing this kind of thing.

Yangyang Zhou and Quan Jiang, two engineering students in Oregon, allegedly brought thousands of fake iPhones into the U.S., filed warranty complaints with Apple that they wouldn’t turn on, and then received real smartphones as replacements. The students then sent the genuine phones back to friends and relatives overseas to flip for profit, of which they collected a percentage. Fun tidbit: The filing against Jiang alleges that an “associate” paid Jiang’s mother, who then deposited his cut into his bank account. Both Zhou and Jiang are Chinese nationals with valid F-1 student visas.

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Prosecutors claim that 3,069 iPhones were submitted to Apple under warranty claims, of which 1,493 resulted in Apple providing replacement phones. Given that Apple calculates its loss for this type of fraud at a standard rate of $600 per iPhone, that results in a whopping $895,800 loss. The rest of the 1,576 claims were rejected for tampering, and Apple reportedly sent back the counterfeit phones along with letters explaining why the warranty claims had been declined.

That sort of puts a dent in both students’ defense that, allegedly, neither knew the phones in question were counterfeits. Federal agents began investigating this particular counterfeit scam in 2017, and Customs and Border Protection have seized more than five shipments of counterfeit from China addressed to Zhou and Jiang. Additionally, the documents show that law enforcement found over 300 fake iPhones, shipping records, and warranty submission records at Jiang’s residence. Officials also found at least four different mailboxes associated with Zhou, one of which was found with a package containing 25 fake iPhones. Investigators also cited Apple’s own records, which detailed 16 warranty returns addressed to Zhou, with his mailing address. Oops.

Apple did not immediately respond to a request for comment, neither have Zhou and Jiang’s attorneys.

Jiang is facing charges of trafficking in counterfeit goods and wire fraud. That means he could face fines of up to $2,000,000 or 10 years in prison, or both, on the counterfeit charge. He could also face an unspecified fine and additional 20 years for wire fraud. Meanwhile, Zhou is being charged with “submitting false or misleading information on export declaration.” That also comes with a fine of up to $10,000, or five years in prison, or both.

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One does have to appreciate the chutzpah required for a grift on this scale. Perhaps both Zhou and Jiang should’ve switched majors toward a law degree. At least then, court experience might’ve counted for some credits.

[United States District Court via CNet]

Update, 04/05/2019, 4:21pm:

Yangyang Zhou’s attorneys replied to Gizmodo with the following statement:
“Our only comment is that, with respect to Mr. Zhou, the government has the case completely wrong. Mr. Zhou had no knowledge of any alleged counterfeiting scheme, and when the actual facts come out, we are confident he will be vindicated.”

Quan Jiang’s attorneys declined to comment. 

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Victoria Song

Consumer tech reporter by day, danger noodle by night. No, I'm not the K-Pop star.