Fourteen Indicted in $6 Million Counterfeit iPhones Scheme; Biggest Fraud of its Kind in Southern District

SAN DIEGO – A federal grand jury indictment was unsealed today charging fourteen alleged members of an international criminal organization with dozens of fraud, conspiracy, identity theft and money laundering charges related to their multi-million-dollar counterfeit iPhone and iPad scheme.

During a coordinated takedown that began early this morning, investigators executed 11 search warrants - including at two businesses plus several homes and vehicles located in Mira Mesa and Mission Hills - and seized an estimated $250,000 in cash plus 90 iPhones which are being evaluated to determine authenticity. As of today at noon, 11 of 14 defendants are in federal custody. Three are fugitives, including Xiamon Zhong, who is believed to be in China; Charley Hsu of San Diego; and Hyo Weon Yang of San Francisco.

According to the indictment, the organization - led by three brothers - imported more than 10,000 counterfeit iPhones and iPads from China, exchanged them for the real thing at Apple stores throughout the United States and Canada, and then shipped the authentic devices back to China and other foreign countries to sell at a premium.

Apple conservatively estimates that the loss associated with the counterfeit items that were fraudulently exchanged at Apple Stores for genuine Apple productss exceeds $6.1 million.

“While a significant amount of money in any circumstance, this prosecution is about more than monetary losses,” said U.S. Attorney Robert Brewer. “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. 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.”

FBI Special Agent in Charge Scott Brunner said: “This significant investigation and the indictment of these 14 individuals shows the FBI’s commitment to working with the United States 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.”

The Liao brothers – alleged ringleaders Zhiwei, Zhimin and Zhiting – were arrested by FBI agents this morning along with their wives. The brothers are naturalized U.S. citizens born in China. Other defendants include mostly U.S. citizens, mostly naturalized, from China, Vietnam and Russia.

According to the indictment, the Liao brothers directed other alleged conspirators to exchange counterfeit iPhones and iPads for genuine iPhones and iPads at Apple stores throughout the United States and Canada.  Defendants intentionally damaged the counterfeit iPhones and iPads and fraudulently represented the counterfeit devices to be genuine Apple devices that were covered by an Apple warranty knowing that Apple would exchange damaged devices under warranty for new genuine Apple devices.

According to the indictment, all genuine Apple iPhones have an International Mobile Equipment Identity (IMEI) number, and a serial number, that are both unique numbers to each device. The counterfeit iPhones had IMEI and serial numbers that matched IMEI and serial numbers for genuine iPhones and iPads that were purchased and used by other persons and covered by an Apple warranty in the United States or Canada.

U.S. Attorney Brewer thanked lead prosecutor Tim Salel and agency partners, including the FBI, San Diego Police Department, U.S. Customs and Border Protection and Homeland Security Investigations, for their diligent pursuit of justice in this matter.

DEFENDANTS                                            Case Number             19cr4407-BAS                                              

Zhiwei Loop Liao                                           Age: 31                       San Diego, CA

(Naturalized U.S. citizen born in China)

 

Zhimin Liao                                                    Age: 33                       San Diego, CA

(Naturalized U.S. citizen born in China)

 

Zhiting Liao                                                    Age: 30                       San Diego, CA

(Naturalized U.S. citizen born in China)

 

*Xiamon Zhong                                              Age: 33                       China

(Chinese national residing in China)

 

Phillip Pak                                                      Age: 31                       Richmond, CA

(U.S. citizen)

 

Dao Trieu La                                                   Age: 29                       San Diego, CA                                   

(Naturalized U.S. citizen born in Vietnam)

                       

Mengmeng Zhang                                           Age: 28                       San Diego, CA

(Lawful permanent resident. Chinese national)

 

Tam Thi Minh Nguyen                                   Age: 36                       San Diego, CA

(Lawful permanent resident. Vietnamese national)

 

Deedee Zhu                                                     Age: 32                       San Diego, CA

(Naturalized U.S. citizen born in China)

 

Danny Tran Chan                                           Age: 29                       San Diego, CA

(U.S. citizen)

 

*Charley Hsu                                                  Age: 39                       San Diego, CA

(Chinese national)

 

Jiaye Jiang                                                       Age: 32                       San Diego, CA

(Naturalized U.S. citizen born in China)

 

*Hyo Weon Yang                                           Age: 31                       San Francisco, CA                             

(Naturalized U.S. citizen born in Korea)

                                               

Dmitri Pigarov                                                Age: 31                       San Diego, CA

(Naturalized U.S. citizen born in Russia)

 

SUMMARY OF CHARGES

 

Title 18, U.S.C., Sec. 1349 – Conspiracy to Commit Mail Fraud and Wire Fraud

Maximum penalty: Twenty years in prison and a $12.2 million fine (twice the value of the gross loss to the victim, Apple, Inc.)

 

Title 18, U.S.C., Sec. 1343 - Wire Fraud;

Maximum penalty: Twenty years in prison and a $12.2 million fine (twice the value of the gross loss to the victim, Apple, Inc.)

 

Title 18, U.S.C., Sec. 1341 – Mail Fraud;

Maximum penalty: Twenty years in prison and a $12.2 million fine (twice the value of the gross loss to the victim, Apple, Inc.)

 

Title 18, U.S.C., Sec. 2320 – Conspiracy to Traffic in Counterfeit Goods;

Maximum penalty: Twenty years in prison and $500,000 fine

 

Title 18, U.S.C., Sec. 1028A – Aggravated Identity Theft;

Maximum penalty: Two years in prison (to run consecutively to any other term of imprisonment)  

 

Title 18, U.S.C., Secs. 1956(a)(2)(A), and 1956(h) – Conspiracy To Launder Money;

Maximum penalty: Twenty years in prison and $500,000 fine

 

INVESTIGATING AGENCIES

 

FBI

San Diego Police Department

U.S. Customs and Border Protection

Homeland Security Investigations

San Diego County Sheriff’s Department

 

*The charges and allegations contained in an indictment or complaint are merely accusations, and the defendants are considered innocent unless and until proven guilty.