14 indicted in $6.1m counterfeit Apple scheme

14 people have been accused of a $6.1m scheme to defraud Apple by exchanging counterfeit iPhones and iPads for genuine devices through its returns warranty and repair process.

It’s the second large-scale example of this type of fraudulent activity this year, sharing similarities with an earlier case involving two students who made an estimated $1m from the scam.

Now, three naturalised US citizens originally from China – brothers Zhiwei, Zhimin and Zhiting Liao who live in San Diego – have been arrested by the FBI along with their wives and other associates ad indicted on charges of fraud, conspiracy, identity theft and money laundering.

Three suspects – Xiamon Zhong, who is believed to be in China, Charley Hsu of San Diego, and Hyo Weon Yang of San Francisco (pictured) – are currently fugitives. Other defendants include mostly US citizens, mostly naturalised, from China, Vietnam and Russia.

Raids at several properties in the Mira Mesa and Mission Hills areas of San Diego yielded $250,000 in cash and 90 iPhones.

According to the indictment, the gang imported more than 10,000 counterfeit iPhones and iPads from China, exchanged them for the real thing at Apple stores throughout the US and Canada, and then shipped the authentic devices back to China and other foreign countries to sell at a premium.

It’s an almost identical modus operandi to the fraud carried out against Apple by Chinese student Quan Jiang, who was sentenced to three years in prison last month after agreeing a plea deal, and his alleged conspirator Yangyang Zhou.

According to the US Attorney’s Office, the 14 defendants in the latest case “intentionally damaged the counterfeit iPhones and iPads and fraudulently represented the counterfeit devices to be genuine Apple devices that were covered by an Apple warranty knowing that Apple would exchange damaged devices under warranty.”

In an indication of the sophistication of the scam, the counterfeit devices had International Mobile Equipment Identity (IMEI) and serial numbers that matched the numbers on genuine iPhones and iPads purchased by others and covered by Apple warranty.