Judge: Apple Did Not Assist Gift Card Fraud Schemes

Apple did not abet gift card fraud schemes that have cost consumers billions in the past several years, a federal judge said Thursday in throwing out a lawsuit against the tech giant. 

A man leaves an Apple store in Beijing, Jan. 3, 2019. (AP Photo/Andy Wong)

(CN) — A federal judge tossed a case against Apple Thursday where several plaintiffs argued the company aided scammers in ripping them off by using the company’s gift cards. 

U.S. District Judge Ed Davila said the plaintiffs failed to establish that Apple gave support to the scammers in any degree that would warrant holding the company responsible for the fraudulent schemes perpetrated on the seven named plaintiffs who were attempting to establish a nationwide class of plaintiffs. 

“Plaintiffs failed to establish that Apple gave “substantial assistance or encouragement” to the alleged perpetrators of the gift card scam,” Davila wrote in a 40-page ruling granting Apple’s motion to dismiss.  

Gift card scams are an increasing problem, an issue that is not in dispute in the present case. The Federal Trade Commission estimates criminals stole $30 million through gift card scams in 2020 alone. The previous year, it was an estimated $24 million. 

Scammers typically target an individual and then give an urgent reason they need to turn over sums of money, to rescue a relative, stave off collections or even secure a place in line to get the Covid-19 vaccine. 

They encourage the person to purchase gift cards and then provide the unique codes on the back of the card. The scammer gains access to the funds and either sells it to a third-party or spends the money in an application that the scammer owns or has a financial stake in. 

The seven plaintiffs were defrauded in such a manner. Two of them contacted Apple seeking refunds after they were defrauded and were told by company representatives that Apple does not reimburse victims of gift card fraud. 

Plaintiffs in the case said Apple should have and could have done more to seek and identify third-party apps that were making use of these fraudulent schemes to extract money from individuals. 

But Davila said the argument is insufficient to make Apple responsible for the fraud. 

“Plaintiffs do not allege that Apple gave any specific authorization to the Apple Developers or Apple IDs that were associated with unlawful activity other than the authorization granted to all Apple Developers and Apple IDs after standard initial reviews,” Davila said. 

The plaintiffs also attempted to argue Apple knew its cards were being frequently used for fraudulent purposes and began issuing gift cards in higher denominations in an effort to cash in on the prevalence of the schemes. 

Davila, again, disagreed with the plaintiffs. 

“The court finds this connection too attenuated to establish Apple’s substantial assistance or encouragement of the scam, given the many possible reasons Apple might have had for introducing this higher denomination of gift card,” he wrote. 

The judge further noted Apple introduced the higher denominations of gift cards three years prior to the class period identified in the lawsuit. 

Davila also said the plaintiffs failed to prove that Apple ever gave personal assurance to any scammers that the company would support their schemes. 

Instead, the judge noted that Apple placed a warning on the cards not to divulge the unique codes to any third party and established a website warning about the schemes. 

The seven plaintiffs tried to allege those warnings omitted important information, but Davila said the plaintiffs admit they did not personally see the warnings meaning they don’t have standing to complain about omissions. 

“Because Plaintiffs were unaware of the existing information on the webpage, disclaimer, or in the news report, they cannot argue that the alleged omissions, if available, would have changed Plaintiffs’ behavior such that they would have been more encouraged to seek a remedy,” the judge wrote. 

Davila did give the plaintiffs leave to amend, meaning they can change their complaint to address the shortcomings identified by the judge.

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