“Matthew Shaer’s piece in the current issue of Wired about the Secret World of Stolen Smartphones covers all kinds of theft — from subway ‘Apple picking’ to warehouse smash-and-grabs,” Philip Elmer-DeWitt reports for Fortune. “But he leads with a provocative anecdote…”
“The story starts with a FedEx package that broke open in Rancho Cordova, Calif., revealing 37 shrink-wrapped iPhones. Police took the serial numbers, taped the package back up, and waited to see where it went,” P.E.D. reports. “It led them, according to Shaer, to a middleman named Wasif Shamshad, a pair of Chinese-Americans — Shou Lin Wen, and his wife, Yuting Tan — and a larger shipment of 190 iPhones addressed to an apartment in Hong Kong.”
A picture slowly emerged of a so-called credit-mule scheme, ingenious in its simplicity and impressive in its reach. Middlemen such as Shamshad were dispatched to seemingly random American cities, where they trolled homeless shelters and halfway houses, offering $100 to anyone who would buy, on their behalf, a few on-contract phones from a local electronics store.
Back in California, the contraband was handed off to Wen and Tan, who arranged to have the phones shipped to their contacts in Asia. The profit margin was enormous: In North America, wireless carriers typically subsidize the cost of our smartphones in order to lure us into multiyear voice and data contracts. To obtain a phone, in other words, we fork over a small fraction of the device’s actual market worth. Wen and Tan took advantage of the system by obtaining iPhones — through middlemen and mules — for $200 a pop, then selling them in China for close to $1,000. – Matthew Shaer
“I’d always assumed that the long lines of Asians camped outside New York’s Apple stores were involved in some kind of arbitrage, making a bit of spending money on the difference between the U.S. price of an iPhone and what rich buyers in China are willing to pay. That’s a legitimate business,” P.E.D. reports. “What Shaer describes is fraud.”
Read more in the full article here.
MacDailyNews Take: As we asked back in September:
Perhaps the lottery system that Apple employs in China to discourage scalpers should to be placed in effect worldwide?
And, how are people in homeless shelters and halfway houses able to pass the credit checks? Perhaps the checks are far too lax (if they even actually exist at all)? The carriers, we assume, are ultimately responsible for approving people’s credit here, not Apple. If so, the carriers have work to do. And, if these mules do have acceptable credit scores at the outset, what do their scores look like after they default on their iPhone contract? Can they get in line next year, too, and ruin yet another launch day for Apple’s loyal customers who actually want an iPhone instead of dumping it into some guy’s shopping bag around the corner for a quick, fraudulent profit?
Did those grandmothers who only spoke Chinese, knitting for hours in a group near the front of the Apple Store line on launch day, really understand what they were buying, doing and signing? We only ask because they had zero understanding of English insofar as us asking them which iPhone model they wanted, how long they’d been in line, etc. and stared blankly at Apple Store employees and security staff instructing them to “move back,” “stay within the ropes,” and such.
How, exactly, did Apple Store staffers explain to these people what they were signing/agreeing to before they let them waltz out of the store with their max allotment of iPhones bound directly for the black market? Obviously, those carrier-subsidized sales should have never been made – and, furthermore, those fraudulent sales should be subtracted from Apple’s “10 million unit launch weekend” (or at least asterisked).
Apple, your “system” is broken. Your stated mission is to delight your customers. As our email inbox can attest, your most loyal customers were most certainly not delighted as they made special effort to stand in your queues for hours, even days, only to watch you serve thousands of credit-mule fraudsters ahead of them, leaving them empty-handed while funneling millions of dollars to criminals.
[Thanks to MacDailyNews Reader “Dan K.” for the heads up.]
Related articles:
Chinese scalpers and publicity seekers replace Apple fans in iPhone 6 queues – September 20, 2014
Cupertino, we have a problem: iPhone 6 lines and the Chinese mafia – September 20, 2014
Apple controls Chinese scalpers with lottery; online iPhone 4S sales resume – February 3, 2012
Apple combats Hong Kong scalpers with new iPhone reservations lottery system – January 30, 2012
Apple suspends iPhone 4S sales in mainland China retail stores – January 13, 2012
Beijing’s iPhone 4S turmoil a lesson to Apple, say analysts – January 13, 2012
Beijing Apple Store pelted with eggs after iPhone 4S sales canceled due to scalper fights – January 12, 2012
Huge throng of red cap scalpers crushes Shanghai Apple Store for iPhone 4S launch (with photo) – January 12, 2012
Hong Kong scalpers buy up iPhone 4S and resell them for big profit outside Apple Store (with video) – November 12, 2011
Police, scalpers, and customers clash in iPhone 4S queues at Hong Kong Apple Store – November 10, 2011
iPad 2, white iPhone 4 sparks scuffle outside Beijing Apple Store – May 9, 2011
Apple takes steps to curb rampant iPhone 4 scalping in China – October 11, 2010
Apple shuts flagship Beijing store as scalpers sap store’s iPhone 4 supply – September 30, 2010
Limit supplies to a max of 2 per customer as has been done in the past for the first few weeks
Solves nothing, increases the problem. That limit was in effect this year. They just get X number more mules to stand in line to snap up however many iPhones they can.
Apple had that 2 per limit this year. The criminals just hired more busses to ferry mules from Chinatown to Apple Stores far and wide. Apple needs to fix this problem. Launch days used to be fun. If I want to go to Chinatown, I’ll go to Chinatown.
Maybe another solution would be to sell new model iPhones that are only tied to a carrier contract, at least for the first month, or till the end of October anyway. After that they can start unlocked iPhones.
That was also in effect – carrier contracts only. As the article states, these people were committing fraud. They signed up for 2-year carrier contracts, somehow got their credit approved (what a joke!), and Apple handed over iPhones to them that would NEVER be paid for – while real customers watched and then were told “sorry, we’re out of phones.”
Ahrendts needs to FIX THIS PROBLEM!
Nice to finally see some dialog…
The purchases were all legal for 30 days , until the contract was faulted. You are asking them ton read minds.
I can’t forseea solution without making the rest of us suffer. Maybe preorder only.
The only thing the per customer iPhone limits seem to accomplish is to increase the number of obvious indigents in line to buy expensive hardware.
Apple Store employees knew it. They quietly apologized to their real customers – the people they know and see in their store frequently – for the 400 Chinamen and women babbling in line ahead of them.
Apple corporate needs to get a clue when it comes to launch days and who gets served and how. Screwing your loyal customers in favor of criminals seems like a rather poor strategy to me.
Stupid story… if the carriers are indeed allowing less credit worthy folks to purchase thats their prob. Why should they be subtracted from sales?!? There are real buyers behind each one. Lastly.. all you complaining bout ‘chinatown’.. ORDER ONLINE! At least these grannies are being paid something for doing nothing. They arent hurting anyone and aint being disruptive to society.
Read carefully:
1. The grannies put $199 down for a $649 iPhone.
2. The grannies get $50-$100 for their trouble.
3. The fraudsters sell the iPhone in China for $1000.
4. The fraudster pockets all of the profits.
5. Apple didn’t sell that iPhone in full, so it shouldn’t be counted as a sale.
But how did the grannies not get arrested/fined for breaking their telco contract?
They signed the contract? Right?
Who’s signature is on the two year contract and why are there no consequences for them?
Because this is Obama’s America in 2014 and there are no consequences for much of anything.
Everyone’s a “victim” and the extent of “taking personal responsibility” is saying that you “take ownership for your actions” while actually doing nothing and suffering no ill consequences.
The Oprahization of America is complete. There will be actual consequences for this. Enjoy.
Oh jeez. Please give it a rest.
Truth hurts, huh?
Not as much as stupid hurts.
Good god, there’s no end to stupidity by morons such as you. Get a brain.
Yes, Apple did sell it at full price to the carrier. Carrier paid Apple the balance for the full price, then ended up stuck with the rest of the bill when the thieves failed to pay their monthly payment under contract. Apple loses nothing; carrier assumes the whole risk.
Your wrong that Apple loses nothing. Let’s make the assumption that the contract between Apple and the carriers does not make Apple responsible for this. Then this will eat into Apple’s long term “good will” with carriers who will see iPhones as more of a liability than they would without this sort of incident. This will effect future contract negotiations, and what not.
Actually Apple did sell these phones. They sold them to carriers. The carriers (through Apple) then sold them to customers on contract. If the carriers approved contracts for people with little or no credit, then it’s the carriers fault. Apple doesn’t decide if someone will be approved for a carrier contract. As soon as a carrier phone is selected, The Apple Store becomes merely the location this business deal between the customer and carrier is taking place. Perhaps the carriers (the ones actually being defrauded here) should institute some sort of preapproval process for the first month or so?
It’s legit to sell at full price to anyone, as long as they can pay the $650, even if it is for export/resell. That’s just worldwide demand where rich folks around the world demand the product. And it is the responsibility of the carriers, not Apple, to approve or disapprove the two-year installment contracts or subsidies. Apple will get fully paid by the carrier, whether the customer defaults or not.
There are still mules in line in Washington State and I have seen single agents buying 50-60 units last weekend at Southcenter Mall’s Apple Store, right on the sales’ floor.
No.
They did not pay $649. That’s the whole point. No unlocked iPhone sales on launch day.
The mules signed up for contracts, paid a fraction of the price, and committed fraud by not paying a dime of the contract. They defaulted on the contract. The stolen iPhones were then sold on the black market.
Apple might get paid, but the carriers certainly were stolen from. This sort of thing just gets passed back to the real customers in higher rates. Apple and the carriers need to get a handle on this.
The statement about “no unlocked iPhones” on launch day 2014 is false. I purchased an unsubsidized AT&T 6 (64GB) on launch day in VA for full price and the phone displayed the “Unlocked” message upon first connection to iTunes. These new models (6/6+) have a unified baseband for all regions/carriers/nations and Apple stores did not have to go through the process of pinging AT&T’s server with the IMEI if you were paying full price. I’ll agree that the Asian (not all were Chinese) line-sitters were out of control this year. The 6/6+ being fully compatible with China’s LTE bands made it exponentially worse.
The fact remains that the Chinese credit fraud mules were NOT buying iPhones at fill price. That would defeat their masters’ intent of defrauding the carriers to maximize their profit.
Only sell phones on contract who can produce 2 items of identity and a utility bill or tax bill that links the purchaser to the address on the bill or tax return.
It’s not perfect, but you wouldn’t be given a credit card without it.
Or I guess linkd to a previous history of smartphone ownership and repayment – most legit iPhone buyers probably have owned a similar product before and have a repayment history.
Ain’t that like having to show proper ID’s to vote?
As if it isn’t logical that only LEGAL citizens should be able to vote in their country’s elections.
The reason the Democrat party opposes such things is because they rely on votes from the dead, multiple voters, and votes from illegal aliens to whom they hand out American taxpayers’ money like churros.
Oh God…
It is clear that the credit history check failed miserably; otherwise, vast majority of those ‘mules’ wouldn’t have been approved. It shouldn’t be enough for approval to just not have any derogatory information on the credit history; nor should it be enough not to have any history at all; in order to get approved for a $450 two-year interest-free loan (which is essentially what the 2-year subsidised phone deal is), the creditors should really require some legitimate credit history, with live revolving lines of credit and payment history without delinquencies. Obviously, this is unlikely to happen, as creditors don’t like losing potential business from people who never owned a credit card and are finally, for the first time, taking out a loan (to buy a phone).
And obviously, in the case of the iPhone launch, this is bad thinking.
How about they just sell the phone at full price and let the consumers pick their carrier afterwards. This way Apple is out of the mix and the carrier is the one who refunds the difference. Granted, it probably doesn’t solve the problem but would make it harder for them to commit fraud if say Verizon or AT&T made them keep the phone active for “X” amount of time before the refund was issued.
That would completely defeat the purpose of the carrier subsidy. Under the existing model, the consumer has no clue what is the actual price of the phone. When you look at all the advertising out there for the iPhone, everyone is talking about the $200 price (even though it actually costs $650). Ask around and I’m sure, 19 out of 20 people will tell you that’s how much it costs (and won’t have a clue that it isn’t the full price of the phone).
T-Mobile comes closest to actually showing the full price by separating the “equipment installment plan (EIP) from the rest of the monthly bill. There you can always clearly see how much is the balance of that loan for your iPhone.
Can you not see the price of a fully unlocked phone in many different places including the Apple store?
You’d be surprised by how many people actually cannot (or do not) see that full price. When every single advertising (on TV, radio, online, everywhere!) tells you that you can buy the iPhone for $200, then the $650 number makes no sense and you don’t even make an effort to understand exactly what it represents; you just ignore it. Ask around an ordinary office (not an IT office; by the way) what is the price of the base model of iPhone, and 19 out of 20 people will say $200.
You’re not going to have a “10-million iPhone launch weekend” by not facilitating the purchase process as much as possible.
And it is extremely important, “for buzz” for Apple to have successful product launches. (After all, have you ever heard of a lineup at a carrier or Best Buy to buy a Galaxy phone?)
There are two separate types of “mules” and two separate issues going on here. One type of mule is the “agent” standing in line to buy her daily maximum of two unlocked phones at full price, who will turn around and deliver these phones to the “consolidator/exporter big boss” outside the store. This mule-agent is paid perhaps $50 or so. She is using a prepaid gift card for the exact purchase amount, including tax, from the “consolidator”. (This is a total market supply/demand function and Apple fully knows what is going on. In States like Oregon and New Hampshire where there is no sales tax, this is a rousing business. These phones are headed out of the country, fast, to end customers paying $1,000 for one phone.)
The second kind of mule is the patently unscrupulous buyer who is the homeless person. This alternate type of “mule” is qualified BY THE CARRIER for credit approval to “buy” the phone for either $200 or nothing down, walks out of the store, gives the phone valued at $650, and gets paid something for her time. In this case, the carrier, NOT Apple takes the hit, as Apple will be paid by the carrier for the wholesale cost. This probably works best during launch weekend when all stores have lines and there is mass confusion. But again, the CREDIT FACILITY is being offered by the 4 U.S. carriers and not by Apple. Notice that these Contracts themselves are between the buyer and the carriers and NOT Apple. This is why, if you noticed during launch day, there are representatives from the carriers physically present in the Apple Stores!!!
And even now after launch, that the two-phone-a-day limit is lifted, I have seen agents in Washington State (with Oregon driver’s licenses to avoid sales tax), buying bulk purchases of iPhones for export. I talked to one guy in Seattle who is a student at Portland State U who took the semester off just to buy up the inventory of iPhone 6’s from the Bellevue Square Apple Store on days in which they would arrive. (I’m not sure if they have a daily limit or not–I believe that they do.)
Subsidies are stupid.
Wow, what a big long list of whiners. “I couldn’t get my phone, boo hoo” If you wanted it that bad you could have hired your own bum to stand in line for you, then pay them off while getting into the store before slant eyes. Look at anything that’s in way high demand and you’ll find a black market not far behind while the “real” customers get shut out. Apple’s got to fix this my arse, everything that’s been suggested is just thinly veiled racism.
Dont sell Carrier locked phones at Apple stores. Let the Mobile companies take care of that, they will know who their customers are.
Apple should concentrate more on how their customers are treated instead of gloating over the billions they are making.
Un happy customers will be damaging in the long run. Well why will apple care they are set for the next ten years with their product lines any ways.
This could be easily solved by making unlocked iPhones available on launch day; by synchronizing launch day availability with China; by making price parity in China, or maybe even reducing the prices in China for over the counter availability.
Which wasn’t possible this year, as the Chinese government deliberately delayed certification of the iPhone’s, for their own reasons.
And now MDN jumps on the bandwagon of blaming Apple for others’ foul misdeeds! After the shots that MDN has taken on others who have blamed Apple for iPhone thefts, poor treatment of workers in Chinese factories, and other similar situations, this is just hypocrisy.
The international credit fraud is the responsibility of the FBI and the banks and the mobile phone vendors, not just Apple.
I am certainly in favor of Apple taking additional, reasonable steps to improve this situation. But the best plan for most people is to preorder or wait a few weeks. If you want to stand in line, then you are accepting the risk of no iPhone reward. The early fun days Apple lines full of true Apple fans is past.