As part of the highly sophisticated fraud scheme run by organised teams, rings of thieves were buying or stealing iPhones and removing valuable components like CPUs, screens and logic boards, replacing them with fake components, said the report on Monday citing more than a half-dozen former employees familiar with the fraud.
The thieves would then walk into an Apple Store and return the iPhones, claiming they were broken. After receiving the replacements, the thieves then resold the valuable parts.
At its peak, Apple estimated that 60 per cent of warranty repairs in China and Hong Kong was fraudulent.
In the 2013 financial year, Apple had set aside $1.6 billion for warranty repair costs, 9to5mac.com reported citing The Information.
But thanks largely to the fraudulent scheme in China, Apple ended up spending $3.7 billion in that period, the report said.
Apple gradually tightened the norms surrounding its repair practices to check the fraud, leading to a drop in the fraudulent repairs in the region from a peak of 60 per cent to about 20 per cent.
However, Cupertino, a California-headquartered tech giant, is now facing similar issues in other markets like Turkey and the United Arab Emirates, the report said.