By Chris Chang, posted Jun 4, 2011 at 10:00 PM, 3,765 views,

500 iPad 2 Seized and Multiple Suspects Arrested For Bribery (video)

This is what happened when store employees get secret rebates from line waiters for revealing the arrival time and date of the next batch of stock for the iPad 2 and iPhone 4. Check out the inside story and videos after the break.

UPDATE: 24 people were arrested. Apple is notably concerned, and Fortress is on the brink of losing their license to sell Apple products.

In the above video report from Apple Daily (Hong-Kong-based newspaper), reporters managed to follow a man in black who purchased 40 units of Apple’s iPad 2 from Hong Kong-based electronics-chain Fortress, without the need to queue up. Since there is a notice outside the store saying the iPad 2 has been sold out, and no queuing is allowed, reporters were curious to know why this man in black could get the iPads while others could not. Moreover, Apple Daily has previously received inside info on employees of Fortress were always seen to be handing large quantities of stock to customers who did not queue up, suspecting that something fishy is going on here. So, Apple Daily reporters secretly followed the man in black.

Here’s what they found out. The man in black, walked into a Fortress store along with 19 people including foreign domestic helpers, housewives, middle-aged men, and head towards the iPad 2 display section for purchasing. Surprisingly, the M.I.B. purchased 40 iPad 2 units, while the others were standing aside. The M.I.B. paid the bill after the store employees counted and handed over the goods to him. Then, the M.I.B. put five cartons of iPad 2 on his hand trolley, said goodbye to his 19 teammates, and made his way to Mong Kok Sin Tat Plaza, the biggest grey market for mobile phones in Hong Kong, selling newest import phones and iPhone 4 trading at ridiculous price. On his way to the grey market, the M.I.B. made a stop at a subway station to meet a housewife and traded some invoices. Then, when the M.I.B. arrived the grey market, he handed over the 40 units of iPad 2s to a vendor. After the vendor counted and checked the iPads, he gave a stack of money (3 inches thick) to the M.I.B., and that’s almost HKD 200,000 (about $25,700). The M.I.B. kept the money, and leave the place by taking a cab.

On the other side, when the M.I.B. walked out of the Fortress store, the Apple Daily reporter called up the store immediately to ask if there is new stock for the iPad 2, the store employee said yes, but telling the reporter that a customer bought all 40 of them, the iPad 2 has been sold out, once again. Since Fortress has set a rule of limiting two iPads per customer, the reporter further asked why one could purchase 40 units, the employee then said:

“The customer brought a group of people along for purchase”

The reporter kept on asking when is the next batch of stock coming, the employee said he’s not sure and pre-order is not accepted.

What’s more, the Apple Daily reporters found out that there is a team of 10 people doing the same thing as them during the investigation. The team of 10 people who looked like law enforcement officers was following the M.I.B. and taking spy shots while some of them were wearing earphones to feed information between each other and changing positions.

On the next day, the Apple Daily reporters continued to follow the M.I.B. And interestingly, the M.I.B. walked into the Fortress store again, along with 8 friends, to purchase 40 iPhone 4 units. So the reporter walked in the store, pretending as a customer, and told the store employee that he wants to purchase an iPhone 4, but the employee said,

“A customer purchased all of them. He brought 8 friends along, each person could purchase 5 units.”

Here’s the question, how does the M.I.B. know that the new stock has arrived? And why is he always clearing all the available stock of iPhones and iPads? Well, according to industry sources, there have been rumors saying that employees of electronics-chain were revealing the arrival time and date of the next batch of stock for the products to line waiters. This allows the line waiters to arrange a large group of people to get ready to visit the store and clear stocks, neglecting their duty to queue up. In return, the line waiters will provide secret rebates to the employees, for an amount of HKD 50-100 ($6-12) per unit. So, this may involve bribery.

Just in case you are wondering why people in Hong Kong have to queue up to purchase an iPad 2, well, these people are earning easy profits for it. If you have a brand new, sealed, 3G version of iPad 2, you can sell the device at a premium with prices going up to HKD 5,388 ($693) for the 16GB 3G version, and to say it simple, you get a profit of HKD 500 ($64) for selling a 3G version of iPad 2 (all 16GB, 32GB and 64GB models). Since the 3G version is not yet available in mainland China, the Hong Kong grey market vendors are offering high prices to accept the units from the locals, and distribute to the dealers in China. But things get difficult when electronics-chain know what the line waiters are planning.

Fortress has sufficient stocks of the iPad 2 3G but will only sell them as part of a “loyalty program” that involves customers’ purchasing a second product – price tag needs to be at least HKD 2,000 ($257). This means that a customer is forced to spend more money if he/she is desperate to purchase an iPad 2 3G from Fortress. However, the M.I.B. did not purchase any second products when he was purchasing 40 units of iPad 2 3G. Weird. So, let’s calculate the total profit the M.I.B. got for his great scalping plan.

Cost： HKD 259,520 ($33,368) — 40 units of iPad 2 3G 64GB

Expense 1: HKD 4,000 ($514) — secret rebates for Fortress employee, HKD 100 ($12) per unit

Expense 2: HKD 380 ($49) — reward for 19 teammates, HKD 20 ($2.60) per person

Selling Price: HKD 282,000 ($36,258) — each iPad was sold for HKD 7,050 ($906)

Profit: $36,258 – $33,368 – $514 – $49 =$2327

Cool huh? But guess what, the M.I.B. got arrested on the day when Apple Daily reported the news. Video report below.

What happened? ICAC, the anti-graft agency in Hong Kong, launched a large-scale operation on June 3, Wednesday, starting from 9am. First, a store employee from the Fortress store and the M.I.B. were arrested. Secondly, ten or more people were taken away for investigation, including line waiters and Fortress employees. Third, a search warrant was served and 500 units iPad 2 were seized from the grey market. OMG.

At 10am in the morning, about 10 ICAC agents arrived the Fortress store for investigation. The store was not closed, but securities were seen standing guard in front of the Apple products display section. They even asked the Apple Daily reporters to stop filming. Then, they put up a notice outside the store saying,

“iPad 2 has been sold out, no queuing is allowed”

At 12:30pm, a young man in white shirt was taken away by two ICAC agents from the Fortress store.

At 5pm, about 20 ICAC agents appeared at the grey market with a search warrant, and some stores were suspected of accepting iPad 2 units which were brought from the electronics-chain Fortress. The agents then revealed their identity cards and requested the store vendors to hand over their iPad 2 inventories and relevant invoices. What’s more, the serial number on each iPad 2 was checked and documented. After everything is done, up to 500 of iPad 2s were seized and the agents arranged a van to take away at least 7 cartons of iPad 2-related exhibits.

There’s one more thing. Mr Lo, the master of the grey market, was also taken away by the agents for investigation. Apple Daily reporters somehow managed to contact Mr Lo, and here’s Mr Lo’s ‘last words’,

“I’m still with the ICAC, not free to talk now. For the past two days I’ve got 55 iPad 2s, but now, they were all seized by ICAC.”

As the ICAC agents continue with their investigation, we are wondering, what makes the anti-graft agency to carry out such a large scale operation to seize 500 iPads? And who is requesting the agency to take legal actions? Well, maybe A-P-P-L-E ?

Source: Apple Daily (1), (2), click here and here for the URL of the articles

p.s. you may want to check out the rules of parallel importation in Hong Kong.