PORTLAND — A former Oregon engineering student from China pleaded guilty Wednesday to importing counterfeit Apple iPhones and then exchanging them for new phones under a warranty scheme that cost the company at least $900,000.
Quan Jiang, 30, agreed as part of a plea deal to pay $200,000 in restitution before his Aug. 28 sentencing and forfeit a 2015 Mercedes-Benz that investigators seized in March.
Prosecutors will seek a prison term of three years and one month for Jiang, but he and his lawyer are expected to argue for probation.
Jiang is one of two students charged in the alleged fraud.
Jiang was studying engineering last spring at Linn Benton Community College on a student visa but no longer is allowed to attend school because a change in his visa status, according to defense lawyer Celia Howes.
As a result of the felony conviction, Jiang also may face deportation, Assistant U.S. Attorney Ryan Bounds told the court.
From January 2016 through at least February 2018, Jiang imported thousands of counterfeit iPhones from Hong Kong. He and others sent each phone back to Apple, complaining it wouldn’t power on, in exchange for a new phone under Apple’s warranty process, prosecutors said.
They then had the new phones shipped back to China for someone else to sell for hundreds of dollars and got a cut of the profit, prosecutors said.
Jiang, through a Mandarin interpreter, said, “I”m guilty” to the single counterfeit trafficking charge before U.S. District Judge Anna J. Brown.
Federal agents in Portland began investigating in April 2017 after U.S. Customs and Border Protection seized at least five suspicious shipments from Hong Kong of cellphones with Apple Inc. markings and design features that appeared to be counterfeit.
By that December, Homeland Security Investigations agent Thomas Duffy interviewed Jiang at the Customs and Border Protection office at the Port of Portland’s Terminal 6 after identifying him as one of the alleged importers of counterfeit phones, according to court records.
Jiang told investigators that he regularly received packages containing 20 to 30 iPhones from an associate in China. He said he submitted the iPhones, which didn’t power on, individually to Apple for repair under Apple’s warranty program. Once he received replacement phones, he shipped them back to an associate in China.
“In exchange for his labor and efforts,” the associate paid Jiang’s mother, who lives in China, who then deposited the proceeds into a bank account that Jiang accessed from the United States, Duffy wrote in an affidavit.
“Jiang estimated that during 2017, he submitted 2,000 telephones to Apple for warranty repairs,” the affidavit said.
Jiang used dozens of identities, some real and others fake, to submit the warranty claims and numerous shipping addresses in three states to cover up the fraud, Bounds said.
Jiang was associated by either name, email, mailing address or IP address to 3,069 iPhone warranty claims, all saying the iPhone wouldn’t power on, according to business records provided by Apple, investigators said in court documents. For one of the claims, Jiang is accused of using his Linn Benton Community College email.
Apple replaced 1,493 of those phones and rejected the rest, the business records indicated. Each of the phones replaced had a resale value of $600, Bounds said.
The company estimated its loss from all the fraudulent phone warranties at $895,800.
Investigators said the alleged fraud was possible because Apple can’t immediately examine or repair phones that won’t power on.
Trafficking of counterfeit goods carries a maximum sentence of 10 years in prison and a $2 million fine or twice the amount of proceeds from the fraudulent behavior, whichever is greater.
Jiang’s co-defendant and Corvallis neighbor, Yangyang Zhou, has pleaded not guilty to submitting false or misleading information on an export declaration. He was also in the United States on a student visa and completed his engineering studies at Oregon State University this past winter.
“Individuals who deal in counterfeit goods would have you believe that these are victimless crimes,” said Brad Bench, special agent in charge of the Homeland Security Investigations’ office in Seattle. “Do not be fooled, they’re not. Not only do they hurt the economy and legitimate businesses, but they also impact consumers directly.”