A Chinese man in Oregon risk a 10 years prison sentence and a $2 million fine for defrauding Apple of 1,500 iPhones worth $895,000.
The accused, Quan Jiang, 30, a former engineering student at a community college in Albany, Oregon is said to have been sending fake iPhones to Apple, saying that they wouldn't turn on and should be replaced under warranty.
Whats hilarious here is that Jiang didn't just submit a few couple of devices to Apple, he delivered in person or shipped to Apple around 3,000 of the fake iPhones. In return, Apple sent almost 1,500 iPhones replacement. each of the iPhones that Apple sent to Jiang had a resale value of $600.
Jiang was having a good time. In fact, the makers of the fake iPhones were so busy making the fake iPhones that they didn't even bother having working operating systems on the fake devices which made it difficult for Apple's technicians to ascertain the counterfeit devices.
Homeland Security Investigations Special Agent Thomas Duffy, presented a court document that exposed the vulnerability that jiang exploited.
"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 iPhone replacement process as part of its product warranty policy," the document said, quoting Apple's brand protection representative Adrian Punderson.
According to the US Attorney's office in Portland, Jiang is said to import the counterfeit devices from Hong Kong and then submit them to Apple using various names. When Apple replaces the counterfeit devices, Jiang would then forward them to China to be sold.
Jiang associates would then pay Jiang's mother who lives in China, who then deposits the money into Jiang's bank account.
Apple, however, realized that something was wrong in June 30, 20017 and then through its legal counsel sent Jiang a "cease and desist" letter to an address in Corvallis where about 150 warranty claims came from. The lawyers told Jiang that he was importing counterfeit Apple products and that the company knew about that. Jiang didn't respond until the lawyers sent a second letter.
Duffy said Apple rejected 1,576 warranty claims emanating from Jiang. However, the 1,493 claims which Apple honoured cost the company about $895,000 loss.
The US Attorney's office in Portland said Jiang pleaded guilty in a federal court on Wednesday to trafficking in counterfeit goods.
The sentencing will commence on August 28. That time, Jiang faces a maximum sentence of 10 years in prison, a $2 million fine or twice his process. However, under a plea agreement, the US Attorney's office will recommend a prison sentence of three years and at least $200,000 in restitution to Apple.