It seems Apple has been scammed by a couple of students, but it doesn't look likely to end well for them.
As The Oregonian reports, Yangyang Zhou and Quan Jiang are Chinese students who were studying engineering at Oregon State University and Linn Benton Community College on student visas. However, outside of classes they were busy importing smartphones from Hong Kong, which turned out to be fake iPhones.
The duo then sent each fake iPhone back to Apple, either by mail or in person, stating they were faulty and wouldn't power on. Apple sent them a brand new, legitimate iPhone as part of its warranty process. Each of those new phones was then shipped overseas and sold for a healthy profit, with a share being sent to Jiang's mother who then transferred it to Jiang's bank account. According to The Verge, the two students were so successful at this scam, which they started back in 2017, it has cost Apple $895,800 in new iPhones.
What's unusual here is that Apple allowed the fake iPhones to be replaced so easily. Apparently not being able to power on the iPhone meant authenticity couldn't be verified. Combine that with no proof of purchase being required for the warranty claim and it looks like Apple employees were just following procedure and assuming they were being given real faulty handsets to process.
In total, Apple allowed 1,493 fake iPhones to be swapped for new ones by the students, but in total they attempted to swap 3,069 of them. Eventually, Apple realized and sent a cease and desist order to the address where Zhou and Jiang lived, but it was ignored.
Now the duo are facing criminal charges, but are out of custody. Jiang is facing charges of illegally trafficking counterfeit goods and fraud, while Zhou is accused of illegally exporting goods. Both deny knowing the phones they sent to Apple were counterfeit.