Inside Apple’s War on iPhone Fraud in China

Five years ago, Apple was forced to temporarily close what was then its only retail store in Shenzhen, China, after it was besieged by lines of hundreds of customers waiting to swap broken iPhones for new devices, according to two former Apple employees who were briefed about the matter. In May 2013, the Shenzhen store logged more than 2,000 warranty claims a week, more than any other Apple retail store in the world, one of those people said.

After some investigation, Apple discovered the skyrocketing requests for replacements was due to a highly sophisticated fraud scheme run by organized teams. Rings of thieves were buying or stealing iPhones and removing valuable components like CPUs, screens and logic boards, replacing them with fake components or even chewing gum wrappers, more than a half-dozen former employees familiar with the fraud said. The thieves would then return the iPhones, claiming they were broken, and receive replacements they could then resell, according to three of those people. The stolen components, meanwhile, were used in refurbished iPhones sold in smaller cities across China, two of the people said.