Authorities in America have unearthed a counterfeit iPhone scam that has cost Apple nearly $9 million, in the “biggest fraud of its kind”.
A federal grand jury indictment was unsealed last week, revealing that 14 people had been charged with being alleged members of an international criminal organisation.
The group is facing charges of fraud, conspiracy, identity theft and money laundering charges after allegedly conducting an international counterfeit iPhone operation.
According to the Federal Bureau of Investigation (FBI), the group had imported more than 10,000 fake iPhones and iPads from China and then damaged these devices.
They would then either take them to an Apple store or send them off to the tech giant claiming they were genuine products that were no longer working, and were covered by a warranty.
In many cases, Apple would then unknowingly exchange the counterfeit devices for real ones. According to the authorities, the criminal organisation would then send the real devices back to China and other countries to sell at a premium price.
Apple has “conservatively” estimated that the scam has cost it more than $8.9 million ($US6.1 million).
US attorney Robert Brewer said these sort of crimes are about more than just money.
“While a significant amount of money in any circumstances, this prosecution is about more than monetary loss,” Brewer said in a statement.
“The manufacture of counterfeit goods - and their use to defraud US companies - seeks to fundamentally undermine the marketplace and harms innocent people whose identities were stolen in furtherance of these activities.
“The United States Attorney’s Office is fully committed to bringing to justice those who seek to damage American markets and consumers through the peddling of bogus products.”
Of the 14 people that have been indicted, 11 are now in federal custody, with three now being fugitives.
Last week, US authorities executed 11 search warrants, including at two businesses and several homes and vehicles in Mira Mesa (San Diago) and Mission Hills (Los Angeles).
They seized an estimated $250,000 in cash and 90 iPhones, which are now being tested to determine their authenticity.
The FBI will allege that the organisation was being led by three Liao brothers - Zhiwei, Zhimin and Zhiting - who have now been arrested, along with their wives.
The brothers are naturalised US citizens who were born in China.
The other defendants are mostly US citizens originating from China, Vietnam and Russia.
“This significant investigation and the indictment of these 14 individuals shows the FBI’s commitment to working with the US Attorney’s Office and our law enforcement partners to combat international fraud schemes that affect American citizens and American businesses against counterfeit goods originating in China and those fraudsters who exploit American trademarked products for their personal financial gain,” FBI special agent in charge Scott Brunner said.
All real Apple products have an International Mobile Equipment Identity number and a serial number that are both unique to the device.
The group’s counterfeit versions had these numbers that were matched to genuine devices used by other people and covered by warranty in the US and Canada.
Because of these, the group will also be charged with identity theft as they “knowingly and without lawful authority, transferred, possessed and used a means of identification of another person, that is, telecommunication identifying information”.
It’s not the first time that a counterfeit iPhone scheme like this has been uncovered.
In April this year, two engineering students allegedly scammed Apple out of nearly $1 million using very similar tactics.
Last year a Chinese national living in New Jersey was accused of fleecing more than $1 million by importing fake iPhones and iPads into the country.
* The fakes are the phones on the right of each pair.