The unnamed "associate" would then pay a portion of the profits to the mother of Jiang in China, who would deposit the funds into a bank account that Jiang would be able to access from the United States. Apple would then replace the knockoffs with genuine models - in most cases, new phones - that the pair would ship back to China to be resold for a profit, of which they received a cut.
Jiang allegedly shipped non-working phones for fix or replacement both in person as well as shipped while making the claim online through the company's online support. Quan Jiang and Yangyangg Zhou were staying in the U.S. with a student visa in Oregon. Apple's return policy replaces any iPhone in warranty if found to be faulty, which turned out to be an opportunity for making some quick cash for two engineering students.
Meanwhile, Zhou has been accused of illegally exporting products, which could mean fines up to $10,000, or five years in prison, or both.
According to federal complaints, both Jiang and Zhou claim they didn't know the original phones were counterfeits. He was put in federal custody but was later released on Global Positioning System monitoring.
While Zhou is being accused of illegally exporting goods, Jiang is facing charges on illegally trafficking in copied goods and committing wire fraud, the report noted.
A Homeland Security agent explained in the complaints that the scheme worked primarily because Apple Store employees couldn't verify the authenticity of the devices since they would not power on.
They were apparently rumbled when customs officers seized suspicious shipments bearing the Apple logo, the documents noted. Estimating each phone's price to be $600, Apple incurred losses of almost $900,000 from the iPhone replacement scam.
According to Apple's business records, Jiang submitted 3,069 warranty claims, out of which Apple granted 1,493. Jiang was allegedly paying friends and relatives to receive iPhone replacements and phone shipments from China using their addresses in Springfield, Portland, Eugene, Corvallis, and in Washington State. They also discovered several boxes that had been addressed to Zhou, who has been named as the accomplice of Jiang. When the situation was raised with Apple's fraud department in the summer of 2017, they sent Jiang two cease-and-desist orders to stop the scheme but got no response, presumably since the notices were sent to Zhou's listed address.