3 San Diego brothers behind international counterfeit scheme, indictment alleges

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SAN DIEGO -- A federal grand jury indictment unsealed Wednesday alleges that three San Diego brothers were the masterminds of an international criminal conspiracy in which thousands of counterfeit iPhones and iPads were imported from China and exchanged for genuine products in the United States and Canada.

Charges of fraud, conspiracy, identity theft and money laundering were filed against a total of 14 defendants -- 11 of whom reside in San Diego -- for their alleged roles in the scheme, according to the U.S. Attorney's Office.

The alleged ringleaders of the operation -- Zhiwei, Zhimin and Zhiting Liao, all San Diego residents who are naturalized U.S. citizens born in China -- were arrested by FBI agents Wednesday morning, along with their wives, prosecutors said.

Authorities seized $250,000 in cash and 90 iPhones during the operation conducted Wednesday, in which 11 search warrants were served at two businesses, several homes and vehicles in Mira Mesa and Mission Hills, according to the U.S. Attorney's Office.

The indictment alleges that the defendants intentionally damaged the counterfeit items to facilitate the exchanges at North American Apple stores.

“They would break the phones and take them in," said Tim Salel, an assistant U.S. attorney. "Since they were still under warranty, they would successfully exchange a large number of these iPhones and iPads."

Prosecutors allege that once the defendants got their hands on genuine goods, those items were sent to China and other countries to sell for profit.

The loss for the exchanged items exceeds $6.1 million, according to the U.S. Attorney's Office.

All but three of the 14 defendants are in custody: Xiamon Zhong, a 33-year-old Chinese national who is believed to be in China; Charley Hsu, 39, of San Diego; and Hyo Weon Yang, 31, of San Francisco.

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