The rise and fall of iPhone warranty fraud in China

In 2015, Xinmin Evening News reports, a local resident stumbled on a business opportunity. Two years later, he recruited three others and even managed to get a round of investment, allowing him to expand the scope of his growing company. There was just one problem: his business was based on iPhone warranty fraud.

A recent verdict by a Shanghai court has landed the main culprit, identified only by the surname Wei, with 10.5 years of jail time and an RMB 100,000 fine. His three partners received similar sentences of 10 years’ imprisonment and RMB 80,000 each in fines, while 20 others received lesser punishments for being accessories to the crime.

The fines may not seem like much, however, considering that in a 1.5-month span from September through October last year, Wei’s company managed to exchange 154 modified used iPhones for new models in Shanghai and Jiangsu, making over 640,000 yuan in sales by undercutting Apple prices.

Wei’s business depended on buying up used phones, modifying them, and falsifying documents in order to qualify for Apple’s warranty exchange policy. Other Chinese warranty fraud operations, based on an October report by The Information, are known to have stolen phones or hired passersby outside Apple stores to pretend to be customers.

The volume of falsified warranty claims from China created a huge headache for Apple five years ago. In May 2013, Shenzhen’s Apple Store alone reported 2,000 weekly warranty claims, the highest rate of any store in the world. That year, a company employee discovered that over 60% of newly replaced phones in China switched Apple IDs afterward – seemingly indicating they’d been resold.

Local fraudsters weren’t only making money from reselling new devices. Phone parts from used devices were also harvested and resold, with original processors, screens, and logic boards replaced by fakes (or in at least one case, a gum wrapper).

After Apple began investing significant sums to prevent warranty fraud around the world, the industry appears to have declined in China, with occasional cases like Wei’s also getting called out by authorities.

The fall of fraud cases may also have something to do with the ascent of Chinese smartphone brands in recent years. Ironically, though, at least one of the country’s biggest brands built its business up by mimicking Apple, highlighting the mix of entrepreneurial ingenuity with the not-so-flattering imitation that is seemingly a trademark of local tech.