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Two Oregon engineering students from China face federal charges in an alleged counterfeit Apple iPhone scheme that cost the company hundreds of thousands of dollars, according to court documents.

The men are accused of importing more than a thousand counterfeit iPhones, then sending each phone back to the company, complaining it wouldn’t power on, in exchange for a new phone under Apple’s warranty process.

They then had the new phones shipped overseas for someone else to sell for hundreds of dollars and got a cut of the profit, according to federal prosecutors.

Both Yangyang Zhou and Quan Jiang were in the United States lawfully on student visas, according to prosecutors. Zhou completed his engineering studies at Oregon Sciences University this past winter and Jiang was studying engineering last spring at Linn Benton Community College, according to court records.

Jiang and Zhou, who both live in Corvallis, contend they didn’t know the phones shipped to them were counterfeit Apple phones, according to court records.

Jiang, accused last March of trafficking in counterfeit goods and wire fraud, remains out of custody on GPS monitoring. Jiang’s defense lawyer, Celia Howes, declined comment.

Zhou, accused of submitting false or misleading information on an export declaration, made his first appearance Friday in U.S. District Court in Portland. He remains out of custody, ordered to have no contact with anyone from Apple while the case is pending.

Zhou’s lawyer, Jamie Kilberg, said Monday that Zhou “was not aware of any alleged counterfeiting.”

“We do believe that Mr. Zhou will be vindicated,” Kilberg told The Oregonian/OregonLive.

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 submitted some of the phones for repair or replacement in person. Other times, he submitted warranty claims using Apple’s online service support and then shipped the non-working phone to Apple.

Apple representative Adrian Punderson, who was interviewed by investigators, said once Apple receives a phone for repair, an Apple technician will examine the phone to ensure that it’s a genuine Apple product.

If a phone is determined to be counterfeit or altered in an unauthorized manner, Apple will reject the warranty and replacement claim. Once rejected, the submitted phone and a letter explaining the rejection will be shipped to the return address provided.

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 say 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. The company estimated its loss from Jiang’s the 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.

Jiang told Duffy he never received notification from Apple that any of the phones he submitted were counterfeit or that what he was doing was unlawful, according the affidavit.

Investigators said Jiang paid friends and relatives to use their addresses in Corvallis, Eugene, Portland, Springfield and in Washington state to receive shipments of phones from China and replacement phones from Apple, according to court records.

In June 2017 and again in July 2017, Apple’s legal counsel sent Jiang cease-and-desist orders to an address associated with Jiang in Corvallis, according to the affidavit.

Federal agents last year searched Jiang’s residence and found more than 300 counterfeit iPhones, shipping records and warranty submission documents, as well as multiple boxes that had been addressed to Zhou, his alleged accomplice, according to court records

Customs officials in Portland also intercepted three shipments originating from China that contained 95 counterfeit Apple iPhones addressed to Zhou, court records said.

Investigators determined more than 200 iPhone warranty claims were made in Zhou’s name or “other similar derivations from other mailing addresses associated with Zhou’s name” and that Zhou had been receiving warranty replacements phones from Apple, Duffy wrote in a separate affidavit.

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