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2 Oregon students returned thousands of fake iPhones, costing Apple $900,000, feds say

Two Oregon college students are accused of scamming Apple out of hundreds of thousands of dollars by returning fake Chinese iPhones — claiming they were real but broken — to get new, working iPhones in return, according to federal investigators.

Associates paid the pair of students — Chinese nationals Yangyang Zhou and Quan Jiang — to send the working iPhones back to China, a criminal complaint filed last year against Jiang said.

Jiang faces federal charges of wire fraud and trafficking in counterfeit goods, and Zhou is charged with submitting false or misleading information on an export declaration, according to court records. Zhou appeared in U.S. District Court in Portland on Friday, the Oregonian reports, while Jiang is out of custody with a GPS monitor since he was accused of the crime last year.

In a statement, defense lawyer Jamie S. Kilberg said “Mr. Zhou was not aware of any alleged counterfeiting, and we believe Mr. Zhou will be vindicated,” KOIN reports. Jiang told federal investigators he didn’t know the phones were counterfeit, according to court records. Jiang’s defense lawyer declined to comment, the Oregonian reports.

During the alleged scheme, Zhou and Jiang were living in Corvallis, Oregon, on student visas to study engineering — Zhou at Oregon Sciences University, Jiang at Linn Benton Community College, court documents said.

Federal authorities started investigating the scam in April 2017 after U.S. Customs and Border Protection intercepted shipments of phones that featured Apple logos and features, “but which appeared to be counterfeit based on shipping methods and packaging,” court records said.

Investigators said CBP officials in Portland tied more than five shipments from China to Jiang.

During an interview at a Portland CBP office in December 2017, Jiang said a Chinese associate routinely shipped him packages of up to 30 iPhones that wouldn’t power on, and Jiang would then send them to Apple — one by one — to be fixed under the warranty, court records said.

Jiang told authorities he had the Chinese phones sent to him at varying addresses “to avoid the packages being detained by CBP,” court records said. Jiang said he sent in roughly 2,000 phones to Apple in 2017, claiming they needed to be fixed. After Apple sent Jiang working phones he shipped them to China, where an associate paid his mother and his mother put the money in a bank account Jiang could access, according to court records.

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Investigators said they found this photo on one of the suspect’s phones, showing “approximately seven cardboard shipping boxes with the labels and markings used by Apple to return phones that have been submitted for warranty claims but rejected for being counterfeit or otherwise out of warranty.” U.S. District Court for the District of Oregon

Months before the CBP interview, Apple sent Jiang a cease-and-desist letter, but he denied having received notice from Apple that what he was doing was illegal, according to court records. CBP had also sent him letters in April and October telling him authorities had seized counterfeit phones destined for him.

Apple did not immediately respond to a request for comment on the case Tuesday night.

Apple records showed Jiang was associated (by name, email, address or computer) to 3,069 iPhone warranty claims — and 100 percent of those alleged the phone being returned wouldn’t power on, according to court records.

An Apple representative explained that “submission of an iPhone that will not power on is critical to perpetuating iPhone warranty fraud, as the phone will not be able to be immediately examined or repaired by Apple technicians, triggering the Apple phone replacement process as part of its product warranty policy,” court records said

The tech company’s records showed that 1,493 of Jiang’s more than 3,000 warranty claims ended with Apple sending him a replacement phone. If each of those phones were worth $600, that resulted in a $895,800 loss for the company, court records said.

Investigators discovered more than “300 counterfeit iPhones, shipping records, and warranty submission records” when they searched Jiang’s home in March 2018, the criminal complaint filed last month against Zhou said.

Apple records tied Zhou to more than 200 iPhone warranty claims, and CBP seized three shipments of a total of 95 phones headed for Zhou, according to the complaint.

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