Apple agrees to settle lawsuit over iTunes gift card scam

© Reuters. FILE PHOTO: Customers enter the Apple store on 5th Avenue beneath an Apple logo in the Manhattan borough of New York City, July 21, 2015. REUTERS/Mike Segar/File Photo

By Jonathan Stempel

(Reuters) – Apple has agreed to settle a lawsuit accusing the company of knowingly letting scammers exploit its gift cards, and keep stolen funds for itself.

According to a filing on Wednesday in federal court in San Jose, California, Apple and the plaintiffs have agreed on material settlement terms after working with a mediator.

They are drafting a formal settlement to be presented to U.S. District Judge Edward Davila for preliminary approval.

Apple and lawyers for the plaintiffs did not immediately respond to requests for comment.

The scam involves fraudsters who instill panic or urgency by insisting by phone that victims buy App Store and iTunes gift cards or Apple Store gift cards in order to pay for taxes, hospital and utility bills, bail and debt collection.

Victims are then told to share the codes on the backs of the cards, despite a warning on the cards that reads: “Do not share your code with anyone you do not know.”

According to the complaint, Apple would typically deposit only 70% of the stolen funds into fraudsters’ bank accounts, and keep 30% for itself as a “commission” for knowingly converting stolen codes into dollars.

Victims likely lost “hundreds of millions of dollars” in the scam, the complaint said.

The lawsuit covered anyone in the United States who from 2015 through July 31, 2020 bought gift cards redeemable on iTunes or the App Store, provided codes to fraudsters, and did not receive refunds from Apple.

In June 2022, Davila rejected Apple’s bid to dismiss the lawsuit.

He said the plaintiffs sufficiently alleged that the Cupertino, California-based company’s effort to disclaim liability, even after victims claimed they were scammed, was unconscionable.

The case is Barrett et al v Apple Inc (NASDAQ:AAPL) et al, U.S. District Court, Northern District of California, No. 20-04812.

(This story has been refiled to correct the day to Wednesday, instead of Tuesday, in paragraph 2)