Imitation Nation

Imitation Nation Episode 39 is now available! In this episode, we explore two major cases of fraud and counterfeiting—one involving fake postage labels that cost the US Postal Service over a hundred million dollars, and another involving an international scheme of counterfeit Apple devices. These stories reveal the complexities of brand protection, the importance of robust security systems, and the ongoing battle against counterfeiters.

Transcript: 

 

Shabbir (00:02)
All right, welcome to Imitation Nation number thirty nine. It is a federal holiday today, which means that Sven and I don't have hair and makeup support. Which, you know usually with

Sven (00:14)
Hair and makeup support

for me would be very short lived. It's just or or or it takes a long

Shabbir (00:24)
Usually we look better than this, but you know, the hair and makeup talent is not in the office today.

Sven (00:30)
A as I said before, I have a face made for radio and you know, so here we go. Anyways, good to see you, my friend.

Shabbir (00:37)
Good to see you traveling for the rest of the week.

Sven (00:40)
I'm traveling for the rest of week. My daughter qualified for national championships with her sport and so we're gonna be heading to Pennsylvania and Maryland, and I'm quite excited to see her compete. So it'll be great.

Shabbir (00:54)
That's great. She's a equestrian,

is that right?

Sven (00:57)
She

is an equestrian, yes. So it's hunter jumper and she qualified for indoors nationals and super proud of her. In her first national, she placed fourth in nation. And so we'll see how the other indoors goes. And she's she's very in talented and very proud of her.

Shabbir (01:14)
Good dad moment.

Sven (01:15)
Thank you.

Shabbir (01:18)
so I wanted to start with the big story that happened this week. You know how I love a good

Sven (01:23)
All right.

Shabbir (01:24)
fake stamp story. I love fake stamps.

Sven (01:26)
It does That's true.

Shabbir (01:30)
this past within the past two weeks, the Department of Justice charged a Pakistani national with selling five million postage labels, shipping labels.

Sven (01:40)
Wow.

Shabbir (01:40)
That caused,

by their calculation, the Postal Service to lose over a hundred million dollars in revenue. So you know

Sven (01:47)
Wow, that's crazy.

Shabbir (01:50)
you know how you take your package to the post office and maybe you already printed out the shipping label or they print it out and they weigh it and they figure out where it's going and they figure out what it's supposed to cost?

Sven (02:00)
Wow. Yeah.

Shabbir (02:02)
So these guys basically figured out a way to generate counterfeit labels, which were worth two dollars, regardless of where you were shipping your package and regardless of how big it was or how much it cost. And then they sold them online basically in batches, through this website, labelsbank dot com, to over five thousand people. And you can't look at the website except through the Internet Archive Wayback Machine anymore, because the government seized the domain name and took it over.

as part of their as part of their indictment.

Sven (02:33)
Incredible. Incredible. yeah the case the case is the case is amazing and the the screenshots you have and I hope you put them with show notes. But like what are all the charges that there were were were charged with that are levied against them and like who brought the case ultimately?

Shabbir (02:49)
So the charges actually use the word forged and counterfeit stamps, but a stamp can really be just anything that is an official record, official like postage produced by the post office. they have conspiracy to defraud the US, can the conspiracy to make and sell forged and counterfeit stamps, and of course, because the whole thing was done primarily electronically, wire fraud.

And it was the postal

Sven (03:13)
Course.

Shabbir (03:13)
inspectors of Miami who brought the case. although, you know, the the defendants in one of the defendants, there's there's a number of co conspirators at once in Pakistan, so nobody appeared in court.

Sven (03:26)
Yeah,

wire wire fraud is interesting. So is is the wire fraud a charge that that you need to commit the predicate crime, or is is a is it a predicate for other crimes? Like which one comes first?

Shabbir (03:39)
So it is a standalone charge. You can get charged with wire

Sven (03:41)
Okay.

Shabbir (03:42)
fraud on its own. But yeah, in in the world of prosecutors, and I'm not a lawyer, so don't take my advice if you're charging somebody. sometimes you need to prove one case to prove one charge to have access to another charge. And the most famous of those are RICO and money laundering. So wire fraud

Sven (03:59)
Right.

Shabbir (04:00)
is a predicate crime. If you have been charged with wire fraud,

Then a prosecutor can justify also charging you with RICO or money laundering. Money laundering is a big one, you know. In the counterfeiting world, it is hard to get people for money laundering unless they defraud a federal health program. So you, as a prosecutor, you look for someone defrauding Medicaid or Medicare first. And then once you know they've done that, you can then charge them with money laundering in a pretty straightforward fashion. And so you see

Sven (04:30)
Yeah.

Shabbir (04:30)
Often prosecutors looking looking for federal health care fraud for that reason.

Sven (04:35)
Yeah, no, it's great. One of the things that wire fraud also does, it allows you to pull it into your jurisdiction because the wires literally

Shabbir (04:41)
Mm.

Sven (04:42)
cross into your jurisdiction. And so even if the crime was somewhere else, if there's wire fraud and the wires go through, we have done that before where it then allows you to pull it in. so how did they end up catching them ultimately?

Shabbir (04:55)
I think what happened to some extent is that they were such a large competitor to the Postal Service, it was impossible to ignore. In the same way as if there was somebody out there doing the exact same job as you, making a lot of money, but they were not authorized to do what you were doing, you might notice them in the marketplace. But I think they basically busted themselves by again selling over a hundred million dollars worth of fake postage.

Sven (05:21)
Crazy.

That's crazy. See the the the thing about the US Postal Service, and it comes back to with the stamps we have as well. It you know, the US Postal Service by statue is an amazing system, if you think about it. A place that guarantees to deliver your mail, even if you're the only person within, you know, 500 miles of anywhere, right? That's what the US Postal Service does. And so that's also when people criticize it for not making profit. It's not supposed to be.

a for-profit business. It's a service to US consumers. However, their technology is so antiquated. Like when I've been to international media centers and seen it, and like this, that you don't see that what a hundred million fake labels run through your system.

Like wow, you should see that faster. The same like the stamps we

Shabbir (06:11)
Yeah. It

Sven (06:12)
bought. You should see that.

Shabbir (06:14)
Yeah, it's they were good enough fakes that in the indictment, which we'll put in the show notes and you should read, they they said, you know, somebody asked one of the the conspirators about this and he said, You can take your package to the post office and at

Sven (06:30)
Mm-hmm.

Shabbir (06:31)
the self cert kiosk scan it and it will accept it. But

Sven (06:35)
Mm-hmm.

Shabbir (06:36)
You they'll they'll know if they check deep in their system. So I think basically

Sven (06:40)
I don't

Shabbir (06:40)
if you were going to the self service kiosk, it couldn't actually ask you, is this where it's going? It could only it would only take it. And then when they went to handle the package, they would see where it was going. If a if a postal worker looked at it and then said, Hey, that price doesn't look right, let me double check, they would they would have noticed. And so they were telling people not to interact with postal employees when taking their packages in.

Sven (07:04)
Right. That's crazy. So where where's the case now? Have people been arrested? Like what's the what's the status?

Shabbir (07:11)
So if you look in PACER, which is where federal court docs live, there is not yet there is one sealed file. So I don't know what that has in it, but there's no arrest warrant. usually when you have a case like this and somebody gets arrested, you see an arrest warrant and then it goes off and they get arrested. There's nothing like that here. The indictment names one Pakistani national who appears to be in Pakistan.

that's my guess. And a number it it mentions co-conspirators, but it doesn't actually mention the any of them by name. And the interesting thing is that the US and Pakistan don't have an extradition treaty.

Sven (07:49)
Right, I was just thinking that.

Shabbir (07:50)
so like they can't just pick up and grab him. It will have to be negotiated. There is for those who don't know, I'm half Pakistani. Pakistan split away from India in partition when the Hindus and Muslims decided that each needed their own country.

And of course, India itself before that broke off from Britain. The US and Britain actually have an extradition treaty in nineteen thirty-two that they signed.

Sven (08:11)
Hmm.

Shabbir (08:12)
And there's this there's this convoluted argument that people try to make that that treaty applies to India and Pakistan now. in truth, what happens is that they get politically negotiated when you have people like this.

Sven (08:23)
Right. Right.

Shabbir (08:25)
I think there's some possibility that one of the people involved, one of the co conspirators that's unnamed, may be involved. But I think they would have called them a confidential informant in the indictment, not a co conspirator. And so that's

Sven (08:36)
Yeah.

Shabbir (08:37)
why I'm not really sure I I I I'm not sure we're gonna see anybody for a little while in in court.

Sven (08:44)
Well, good good good for good for the US Postal Inspector Service to take it take it out and take it down. that's a good get, but man, hundred and twenty million, that's crazy big.

Shabbir (08:56)
It is a lot of money. I you know, it you have to be kind of a big jerk to defraud the postal service. I feel like

I feel like

Sven (09:02)
Yeah.

Shabbir (09:02)
there are less moral, e ethically easier targets than our our hardworking postal employees and the system that they that they run every day.

Sven (09:12)
Yeah. Well let let's move on to story two and find the next e larger target. also a massive case, that one against Apple, right? So this just for time frame, okay, we're gonna cover here basically the indictment and the sentencing memo that just came out. Sentencing memo now came out, was issued in twenty twenty four, and the case started in twenty fourteen. So just four.

perspective how long these things take, right?

Shabbir (09:37)
And Sven, we

we covered this before, but can you tell everybody what the crime is?

Sven (09:43)
Yes, will do. So it's it's remarkable. And you're right, we covered it at the time, we wondered how it was, and this court case laid out a lot of it. So it is a counterfeit case out of California, and basically federal prosecutors had charged five individuals back in 2014 with running an elaborate scheme against Apple that stretched back, you know, at least a decade. And what the indictment says is they took counterfeit iPhones, iPads, other Apple devices from China.

But instead of just selling counterfeit devices, they took those counterfeit devices and gave them to Apple stores and submitted them for warranty. Like this device doesn't work, I would like a new device, and got warranty replacements. They did this by putting counterfeit serial numbers of genuine devices that they had in the US onto the product, was covered under warranty, and then they got the associates to basically give them or ship them a new product and that

happened mainly in China and what the prosecutors alleged, the size of it, that there were 16,000 different counterfeit items basically handed in and genuine products come back and twelve point three million dollars in losses were incurred.

Shabbir (11:00)
my god. So I remember when we covered this, and there was an arrest because we covered the indictment. I think

there was somebody

Sven (11:06)
Mm-hmm.

Shabbir (11:07)
arrested around May in 2024, and we were wondering how this is going to turn out. I'm actually surprised that this is a very similar story to the fake Rolexes being serviced by the Rolex dealer. We you had somebody cap carrying in a f a counterfeit Apple device to an Apple store, and the Apple store did not recognize it and

gave them a giant pile of money and they did it sixteen thousand times.

Sven (11:34)
That's basically it. And the indictment is is really detailed and folks should read it. Where it describes the the extent to this went through. They they did counterfeit iPads and the iPads, because they returned them as like, hey, this device isn't working, they didn't even try to always produce working devices. They may filled them with metal weights, made them look and feel authentic. But the trick was that the serial number was genuine. So they got genuine serial numbers.

From the United States, so there was probably also a benefit of it from coming from another country. And that allowed them to then exchange these worthless counterfeits for genuine products. So slightly different than the Rolex, because the fake, super fake Rolexes, they work, they look super real. People report that they still very nice watches, they're just not Rolex. Because these were basically iPad bricks that are not even iPads, but the identification number.

allowed it to then be exchanged. And so that's a good example when oftentimes we talk about a serial number or security feature, you name it. Will that solve it? Well it doesn't always solve it because you gotta make sure that you have it built in a system where you can really authenticate it. And clearly here, it wasn't able to be authenticated sixteen thousand times.

Shabbir (12:54)
okay, so I I gotta ask how let's say you come up with a scheme where you have a partner in China that managed to find manages to find under warranty serial numbers and then produce perfect, nearly perfect looking iPads with weights that don't turn on, right? So you walk

in and say,

Sven (13:11)
Uh-huh.

Shabbir (13:11)
My my i my brand new iPad is bricked. How do you get away with that for 10 years? How do you how do you operate at that kind of scale without being stopped? Because I would think

Within six months somebody would figure out that one of them is a complete and utter fake with just lead weights instead of circuitry in it,

Sven (13:28)
Agreed.

Shabbir (13:30)
and then put an alert out to every store that says, you know, you have to crack this open before you can give their money back.

Sven (13:37)
Well, but but probably worked in their advantage how massive Apple is and how giant China is, right? So they just did it by saying we're gonna go really, really big. So employees started there's some stores that reported that employees had suspicions, but the defendants basically did it by they used a aliases, so they used fake names, they rented mailboxes, they went out throughout different stores. there was one employee actually.

That rejected an iPad because the Apple logo reflected light differently. There's another employee that reported that he started to become suspicious of an individual because he noticed him multiple times in the store. That defendant then also reported that he visited 10 different Apple stores in a single day, attempting 14 exchanges. And so that was a coordinated effort to basically go to as many Apple stores as you can across Southern California. and

you just use the sheer size of Apple. Like in Columbus where I live, we have three Apple stores, right? In California, there's probably twenty, thirty Apple stores. So you can run it. You run it with fifty different people and you you just make it appear as random as possible. But yes, after a while they started to catch on and now came the purchases and the the test buys and starting to dismantle it.

Shabbir (14:53)
I mean, the few times I have walked into an Apple store, there is and if I look even the least bit puzzled, there is an Apple store employee right on me asking me if I need something. And

Sven (15:03)
Yeah.

Shabbir (15:04)
if I were to hand them a bricked iPad, I'm sure they would run off in the back and see what they could do to refund my money. my God. so

I still don't understand how it went on for ten years though. I feel like someone was asleep at the wheel at some point. not not checking return hardware to see if it was real. Something like that. It it may have also been hard to find, right? Like you get this return hardware.

Sven (15:25)
And again Right, and the entire the entire scheme

wasn't the entire scheme wasn't ten years because investigate further the conviction and prosecution, so there was time there. But yes, they ran it for a couple of years, one hundred percent.

Shabbir (15:38)
Wow. So I mean that's a lot of money. It's like sixteen million dollars now that we've got now

Sven (15:44)
Uh-huh.

Shabbir (15:45)
that we've got a plea bargain and there's a sentencing, what's happening to the defendants and do we is there any statement about recovering this money? Because that is a lot of money.

Sven (15:54)
Yeah.

So the amazing thing actually is the following. when the case was brought, the indictment said twelve point three million dollars in charges, but the case they they gave him sixteen point nine million restitution. So it was more restitution than they even claimed in the claimed in the indictment. So one individual, Lynn, pleaded guilty to conspiracy to commit wire fraud. There's wire fraud again and mail fraud, always a very good charge to have, and received a sentence of time served.

Followed by three years of supervised release, including 18 months, and the court ordered them to pay more than 16.2 million dollars to Apple. However, however, the judge specifically found that Lynn's financial circumstances, I'm quoting, didn't permit immediate or future payment of the full amount. The order requires an additional $100,000 payment within 90 days, followed by payments tied to income. So

We can run the math, but $100,000 to restitute $16.2 million might take a moment. so there's a there's a big difference between getting the the judgment and actually collecting on it. I I find it unlikely that Apple will collect all of it,

or

Shabbir (17:07)
Yeah.

Sven (17:07)
most of it, but it it certainly is a large degree for these cases that you do them A, you make them stop, plus it's intended as a deterrent to say, do not mess with my trademark.

Shabbir (17:19)
Yeah. I mean, interestingly, if it had been if they if they were to file a civil Lanham

Sven (17:23)
Five us.

Shabbir (17:24)
Act trademark infringement case, they would get an enormous number of additional penalties, right? I was just thinking about what does it mean to have to do the paperwork to prepare

Sven (17:34)
But

Shabbir (17:35)
and prove that you have been handed thousands of counterfeit devices with your trademark on them. That alone, if you were to compute that, like even at a hundred dollars an hour.

For sixteen million or twelve million dollars worth of fake devices, that would have taken a long time. That alone, plus the attorney's fees that you would need for the Lanham Act case, it's a lot of it would be a lot more money. But

Sven (17:57)
Yes.

Shabbir (17:57)
yes, money probably exited the initial conspirators and is not available to them anymore.

Sven (18:06)
Well it might sit in China, like it might still be technically available to them, but it's overseas and I can't just, you know, randomly seize a Chinese bank account. So yeah, no, I don't I don't think Apple will see all of it, but good win for them, good case, good investigation. crazy scheme, and crazy it ran as long as it did.

Shabbir (18:23)
Sven, what is a brand protection expert who is not someone who was defrauded for years and years and years by someone bringing in fake lead filled devices learned from this?

Sven (18:34)
a a lot of it what comes down to for me for is is your IT. It actually goes similar to the US Postal Service case. The fact that I can defraud a number, that I can f defraud a serial number on a postage label, or I can defraud a serial number on a on a on a Apple case, I can always make the number fake, look fake, look real, copy a real number, that exists. The systems need to be built in a way that you have

some.

form of two-factor authentication, something that allows you to check it against a real database and say, no, this really makes sense. This product, this this item number corresponds with this item number. it is it is making a multi-layer system of security features that allows that. And then lastly building good policies such as when you have returns, there can be a Apple has

pretty short return period at this point because I think they're trying to combat that as well. and then additional policies of is there a holding period, like I will not send you a replacement device until two weeks because I need to really test it. various other places stop taking returns for certain things. So you you can you can hedge against it. But I think the biggest piece is really making sure that as they saw these fake devices coming in.

'Cause they were coming probably into a repair center, and I open them up and I'm like, wait, that's that that's not a real thing. You gotta way faster work into the system. partially of what I think might might have happened there, this will sound horrible and I don't want to make make Apple feel bad. Apple is a how many billion dollar company, right?

Shabbir (20:11)
Yeah.

Sven (20:13)
Sixteen million is a lot, there's no doubt about it. sixteen million over ten years for Apple, it's probably not even what the fuel of their corporate jets.

Uses right. So it's just it's the scale, the scale of the size of how much resources do I put against it. Yes, for an individual who commits the crime, that's massive. For you as a company, it's 0.001% of your revenue. It's a it's a nuisance that probably really upset the brand protection director for a while to figure out how do I stop this. But do I make a company-wide massive investment to change it? That's all that's always the struggle. now, what always changes the

calculation in that, if there's human health involved. So like a lot of the folks

Shabbir (20:52)
Mm.

Sven (20:53)
you work with, yeah, the moment this would happen in a pharmaceutical space or something where no no people will get hurt. Yes, companies will act much larger. This is one of those where like it it's it's it's really annoying, but it's technically a rounding air for Apple. I it's not a short answer. Unfortunately there's not an easy answer, but more sophisticated layered systems and figuring out

Which company resource to deploy against?

Shabbir (21:19)
And I think what I learned from this is that the policies Apple has in three things. The policies Apple has in place for returns are not thorough enough in their vetting, that their return infrastructure is not studying the products well enough when they come

Sven (21:39)
Mm-hmm.

Shabbir (21:39)
back to see if they're being defrauded. And the third I would say is that.

At least at the time of the crime, there were no easy to understand secondary packaging or on device anti-counterfeiting marks that an Apple employee could check. Or

Sven (22:00)
I guess.

Shabbir (22:01)
if they were, if there are, they don't know about it or weren't checking. Right? If there's like some sort of hidden ink writing or a special series of dots or some steganography or anything else on the device.

besides a serial number that would tell you that it's valid, the Apple employees either didn't exist or the Apple employees didn't know it existed or didn't check it. and that that's actually quite disturbing to think about is that like all it takes is a serial number and and someone to walk in and you you've got yourself basically a a fake refund.

Sven (22:37)
No, and and to your point, it now always comes back down to having worked in that world, and I know this it it'll sound you're like, let's just put a mark on. You then as the brand protection director go through the corporation, you're like, hey, I need whatever the money is, five, ten million dollars to implement that system into the company. And the company will say, You're trying to spend ten million dollars to offset what? And he will say, I'm trying to spend ten million dollars to offset a two million dollar loss. And they're Yeah, we're not spending ten million dollars to offset a two million dollar loss, right? So

Shabbir (23:06)
Yeah.

Sven (23:06)
It it it's those pieces. They're unfortunately not easier. In in a previous employer I had, our products were returned en masse as counterfeit to Costco. we couldn't fix it. We actually had a tech solution in place to fix it, which cost many, many, many millions. And our solution was we told Costco you're not allowed to accept returns anymore. So we fixed it through policy versus technology. Because that's always the trade-off, right? What's your ROI on

Yeah, put a twenty million dollar solution in place for a five million dollar problem.

Tricky.

Shabbir (23:38)
Yeah.

I mean, I think with if if you were to get a return for a brand new device still under warranty, there's a customer sub there's a customer happiness problem, right? This brand new

Sven (23:49)
Mm-hmm.

Shabbir (23:50)
thing I just bought. You want to make them happy. Maybe though you need to take a picture of the driver's license. Maybe there's a variety of ways you need to authenticate it if you can't check it on the spot that you need to know that you can find that person later. But yeah, this this was

This they they really found a hole and drove a truck through it.

Sven (24:10)
And and I and to to your to your point, again, because this case started ten years ago, the last Apple product I returned, it did seem tighter. Like it was and I was returning I think a phone case, it's something not significant. I had to have a the receipt of the store I had, it had to be tied to my Apple account. Like it was really the no, this is the product I bought, it's my product, you saw I bought it, all of all of so they might have put all of the policy solutions around in place where you now really

link no this device. I'm linking this to Sven. I know you bought it and so you can return it. Not hey, here's a random device I found I wanted to return. so a lot of this might have been fixed. But yes, certainly a large case. Good job by Apple for bringing it to to justice and stopping it. But certainly certainly a large case.

Shabbir (24:59)
Yeah. The last thing I want to talk about, and not in great detail, is that Health Canada has put out an alert advising med spas and medical practices in the country about avoiding counterfeit laser hair removal devices. And I I just want to say, in the world of health and safety,

Someone's like fake knockoff laser that might be used near my very, very sensitive skin is i it is actually is in some ways wor I mean it it's not worse for my health than counterfeit medicine, but it makes me more squeamish.

Sven (25:35)
i i yeah, i it was it was a very, very strange one. And and again for this one it was the the way it looked to me like they weren't actually counterfeiting the devices. They were just selling a product that wasn't even close to it, but where they're copying the credentials that the buyer relied

Shabbir (25:50)
Hell.

Sven (25:51)
on it to establish the trust, right? So it comes again, it was defrauding the actual check mechanism that was intended to check against counterfeits. So a a crazy one. And a a clinic might have had best intentions.

But if they didn't

Shabbir (26:04)
Yeah.

Sven (26:04)
really verify it, they ended up with something that they thought was genuine, but was not.

Shabbir (26:09)
Yeah, the alert says the manufacturer

has confirmed that they're counterfeit. And I don't think that the Canadian Med Spa and Aesthetic Physician Practice are big listeners to Imitation Nation.

Sven (26:18)
The teacher.

Shabbir (26:19)
So I don't know that we're actually gonna reach anyone who buys these things. But I'll just say it that it never ends. There are counterfeits of everything. And this is one that I don't want anywhere near my body.

Sven (26:32)
No. A and a the other piece is it kind of shows you that

Whoever thinks that my product would never be counterfeited, don't be sure. If it's a market that's large enough, it will get counterfeited, it will get defrauded. And I think every company is well advised, even if you're small, be aware if it exists, be aware of resellers. Like I run another company on the side as well. We always check for folks that all of that we have resellers pop up. We're like, I don't think I authorized you as a reseller. I don't think I ever sold anywhere. Like, where do you get your product from? So just

Be very aware of what goes on in the marketplace because people will try to take advantage of you.

Shabbir (27:13)
All right, well that's it for Invitation Nation on this holiday day. Hopefully our lack of makeup and hair staff did not affect your appreciation of the episode. Sven, I hope you have a

Sven (27:22)
Very good.

Shabbir (27:23)
good week traveling with your daughter and being the proud admiring dad that you I know you are.

Sven (27:29)
Well, thank you so much, and I will see you in a week. And with that, Shabbir read us out.