Naturalized U.S. citizens charged in international fake iPhone scam

San Diego brothers charged in international fake iPhone scam

https://ca-times.brightspotcdn.com/d...one-arrest.jpg[An FBI special agent escorts a suspect during a series of morning arrests Wednesday. Fourteen people are charged with operating a scam that exchanged fake iPhones from China for real ones at Apple stores in the U.S. and Canada. (Courtesy of FBI)


The Liao brothers and 11 others are accused of exchanging counterfeit Apple devices for real ones at stores across the country and Canada

By KRISTINA DAVIS
NOV. 13, 2019 5:54 PM

SAN DIEGO — A criminal syndicate run by three brothers in San Diego bilked Apple out of an estimated $6.1 million in a scheme that exchanged more than 10,000 fake iPhones and iPads from China for real ones at stores across the U.S. and Canada, according to a federal indictment unsealed Wednesday.

The real Apple products were then sent to China and other foreign countries, where they can be sold at higher prices than in the U.S., prosecutors said.

The 76-count felony indictment charges 14 people with various crimes — from fraud and conspiracy to money laundering and identity theft. Eleven defendants — including the alleged ringleaders Zhiwei “Allen” Loop Liao, Zhimin “Jimmy” Liao and Zhiting “Tim” Liao, and their wives — were arrested in morning raids Wednesday.

The FBI was continuing to search for another believed to be in San Diego, Chia “Charley” Ming, and one believed to be in San Francisco, Hyo “Will” Weon Yang. A third, Xiaomin Zhong, is the scheme’s alleged connection in China and is likely still there.

Investigators also served seven search warrants: five at San Diego-area homes and two at businesses run by two of the brothers, Freedom Restoration in Miramar and Mission Nails & Spa in Mission Hills.

Housed in both businesses were also cellphone repair services called Minutes Repair, according to the indictment. It was from these locations that the Liao brothers operated their alleged scheme, said Assistant U.S. Attorney Tim Salel in a news conference at FBI San Diego headquarters.

The brothers, all in their early 30s, are naturalized U.S. citizens from China, and most of the other defendants are also naturalized U.S. citizens born in China, Vietnam and Russia, authorities said.

The counterfeit phones and tablets were manufactured in China and shipped to San Diego via DHL and FedEX with help of co-defendant Zhong, beginning as early as 2011, according to the indictment.


The devices matched the serial numbers and International Mobile Equipment Identity — or IMEI — numbers of genuine phones and tablets owned by real users that were under Apple warranty, the indictment states.

Once in San Diego, the defendants would intentionally break the devices. Then they’d travel around the country, hitting Apple stories in 40 states, as well as Canada, to exchange the fake devices for brand new, real iPhones and iPads, according to prosecutors.

In at least some instances, the mules would make appointments at various Apple stores through fake email accounts, the indictment alleges.

Not all phones were exchanged. Evidence shows some of the fakes were rejected at the stores, according to messages allegedly sent by the defendants. In 2015, Hsu allegedly sent a text message from North Carolina to Zhiwei Liao in San Diego complaining that the iPhones he’d been given to turn in “look so fake,” the indictment states.

While the roughly 10,000 devices involved corresponded to those owned by actual customers, authorities said that no personally identifying information or data was compromised in the scheme and that customers did not experience lapses in Apple service.

The source of the IMEI and serial numbers remains under investigation, said Salel.

The government is seeking forfeiture of four homes in Mira Mesa and one in Valencia Park that are suspected of being purchased with profits from the scheme.

During Wednesday’s search warrants, investigators also seized $250,000 and 120 iPhones. The devices are being analyzed by Apple to determine their authenticity; at least eight have already determined to be counterfeit, said Salel.

The scam is not necessarily a new one.
In Oregon, a college student from China was part of a similar operation run out of his homeland. He admitted to exchanging some 2,000 fake iPhones, costing Apple $1.2 million in losses. He was sentenced to three years in prison.

“His role was to receive, send in and return” the phones, the student’s attorney Celia Howes told the court during the sentencing last month, according to the Oregonian.

“There’s a lot of students who are being duped by these employees in China, many of whom are still operating,” Howes told the court.

The FBI said it is investigating whether the San Diego and Oregon operations share any ties.

U.S. Attorney Robert Brewer said the prosecution is more about the financial loss.

“The manufacture of counterfeit goods — and their use to defraud U.S. companies — seeks to fundamentally undermine the marketplace and harms innocent people whose identities were stolen in furtherance of these activities,” Brewer said.

The defendants who were arrested are expected to make their first court appearances on the charges in San Diego on Thursday.

https://www.sandiegouniontribune.com...eit-indictment