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Apple Becomes Victim of Scamming of about $900K

Apple Becomes Victim of Scamming of about $900K
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Data privacy has become a myth now with identity thefts, data breach and scams becoming the norm. Fake businesses rip people off of their money and hackers are using an app to spy on iPhone to get access to all of your personal and confidential data. With cybercrimes at large, looks like a tech giant like Apple isn’t safe either. The company recently became victim to a massive scam of about $900K.

Two engineering students in Oregon are now facing criminal charges for scamming the tech giant Apple. The Chinese students Yangyang Zhou and Quan Jiang duped the company out of hundreds of thousands of dollars in iPhone replacements and now face criminal charges in the federal court. The culprits were able to do so by using counterfeit devices and then misusing the return policy of the manufacturing company.

A collaborator in China would ship packets of 20-30 fake iPhones to Zhou and Jiang who were currently residing and studying in Oregon on student visas. They would then send these fake devices to Apple for repair claiming they won’t switch on. If the company was able to determine that a fake device was eligible under warranty, then it would repair it. In most cases, it even replaced it with a genuine model which is a new phone usually.

Hundreds of counterfeit phones were sent back

The Oregonian was the first to report the scam. Federal prosecutors filed a detailed criminal complaint last month. The federal agents got to know about the scam in April 2017. The agents were got hold of five suspicious packages en route from Hong Kong containing phone with likely counterfeit markings.

Yangyang Zhou, who has just gotten out of Oregon State University with an engineering degree was allegedly the person who got the fake iPhones into the U.S. Then he shipped the original iPhones, which they got from Apple, back to China.

His partner, Quan Jiang is also an engineering student at Linn Benton Community College. He shared an address with Zhou. The complaint explains that they would bring in the counterfeit phones to Apple sometimes in person to request replacements or even online. When the real iPhones were shipped to China for resale, another associate would then wire the money to Jiang’s mother. The mother would then deposit the amount into an account Jiang used in the US.

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During their exchanges with Apple, both Zhou and Jiang used their own contact information. Not only that, they used the addresses of their friends in the nearby states claiming that their iPhones wouldn’t turn on.

Prosecutors revealed that Jiang was involved in 3,069 repair requests. He submitted 3,069 warranty claims. According to Apple, the company completed a total of 1,493 of them. If you take an estimated value of each phone, it amounts for about $600 per iPhone. As a result, Apple lost a whopping sum of about $900,000. Apple rejected the remaining repair requests which they normally are for those iPhones which the company finds tampered with or fake.

In June and July of 2017, the manufacturing company sent cease-and-desist orders to Jiang on Zhou’s listed address. The notice informed them that Apple knew of the import of fake iPhones. Jiang did not pay much heed to it nor did he respond to the notices.

Jiang is facing charges for illegal trafficking in counterfeit goods as well as wire fraud, the federal prosecutors report. On the other hand, Zhou is facing charges for illegally exporting goods and submitting fake information on the export documentation. Interestingly, both Zhou and Jiang claim that they were not aware of the fact that iPhones were counterfeit in the court documents.  Presently, both remain out of custody. Jiang is under GPS monitoring and was accused last year.

Federal agents search Jiang’s residence in Oregon and found 300 counterfeit iPhones complete with their shipping records as well as the documents for warranty claim submissions. Several boxes addressed to Zhou were also found.

How did Apple fall for it?

How the company fell for such a scam is surprising. According to a Homeland security agent, the reason the accused was able to pull off such a scheme was that the Apple store employees were unable to verify the authenticity of the devices as they wouldn’t switch on. Apple’s phone replacement process began in the meantime because of the culprits claiming to have their devices under product warranty.

Also, Apple did not ask for proof of purchase for the process of phone replacement. The company’s records reveal that they received more than 200 iPhone warranty claims in Zhou’s name. The government explained this in the complaint filed in March 2019 which accused Zhou of submitting misleading and false information on an export declaration. He faces 5 years in prison and fines up to $10,000. On the other hand, Jiang, who is accused of wire fraud and trafficking in counterfeit goods faces fine up to $2 million and 10 years in prison for the trafficking accusation also, another 20 years in prison for wire fraud possibly.

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The rise of counterfeit products

This duo isn’t the only one who attempted to profit off tech giants such as Apple. A Chinese national living in New Jersey on a student visa was charged for selling fake iPads and iPhones to customers. He made about $1.1 million in sales revenue. The student pled guilty. Another man pled guilty last month for scamming Facebook and Google and pocketing $100 million by sending them fake invoices through email impersonating as a Taiwanese hardware company.

Counterfeit products are getting better with the passage of time. They have come to a lot closer to resemble the actual product. The devices seemed so real that even the technicians from Apple were unable to differentiate between the real and fake iPhones. With data breaches and data security issues on the rise now, Apple has taken a vigilant approach now. The company has gradually brought changes in its repair policies in order to keep safe from scammers. Some states have rules regarding organized retail theft, but no federal law exists for this.

The company is actively trying to provide a safer digital experience because of the bombardment of various apps to spy on iPhone in the market. But the scams are increasing day by day.

A survey by the National Retail Federation found that last year companies suffered a huge amount of $17 billion in scams in the U.S. Most of these scammers take advantage of a company’s generous return policies and warranties with Amazon at the center of it. As companies are trying to better their return policies and making an effort to make them scam-proof, it is likely that the regular consumers would have to face its impact.