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According to The Oregonian, the scheme started in 2017 when Chinese nationals Yangyang Zhou and Quan Jiang, who were studying in Oregon, smuggled thousands of counterfeit iPhones into the US from China. The devices cost around $30 each.
The students sent the knockoff phones to Apple, claiming they wouldn’t power on. In many cases, the company sent out replacements. In total, the pair have been accused of stealing $895,000 worth of handsets from the company.
It was Jiang’s job to take the fake iPhones to an Apple store for a replacement, or use the online repair program. Zhao, who smuggled the counterfeits into the US, would then mail the replacements back to China, where they were sold for a profit. This money was wired to Jiang’s mother, who deposited it into her son's US account.
Jiang sent in over 3,000 warranty complaints to Apple, who replaced the phone in 1,493 cases. The company says that as they could not be switched on, they couldn’t be “immediately examined or repaired by Apple technicians, triggering the Apple phone replacement process as part of its product warranty."
The students claim they didn’t know the iPhones they were sending for repairs were counterfeits. Apple sent Jiang cease-and-desist orders in June and July of 2017, but he did not respond. He denies receiving the letters.
The men are facing charges that include trafficking in counterfeit goods, wire fraud, and submitting false or misleading information on an export declaration.
Apple has seen its warranty replacement programs abused in the past. Similar schemes in China had cost the company billions of dollars.