A Twin Cities family directed thieves to steal tens of thousands of smartphones nationwide and then sold them to buyers in the black markets of the Middle East and China, federal authorities said Tuesday following the indictments of 20 people involved in the organized crime ring.
Authorities say that the "Mustafa Organization" used runners to fly across the country to steal phones outright or to buy them from retailers with false identities under bogus server contracts. The phones would then be resold overseas under the cover of the wireless phone stores the family owned, federal authorities say.
Authorities estimate that the family made upward of $4 million selling stolen phones over the past eight years. They say the profit on the resale of each stolen phone was $500 to $1,000. One defendant who cooperated with federal agents said that he had sold more than 9,000 stolen phones since 2006, most of them ending up in the hands of the Mustafa family crime ring, according to search warrant affidavits filed in federal court by a U.S. Secret Service agent.
"Identity theft rings are the modern face of organized crime," said U.S. Attorney Andy Luger. "Identity thieves often use fraudulent identities to obtain goods, which they can sell for cash. These defendants are charged with obtaining stolen cellphones through identity theft and fraud, and then selling them for exorbitant profits.
"We are able to stand here today having taken out one of the largest criminal enterprises in the Twin Cities," Luger said. "We put everything we had into this."
Measures to fight thefts
Smartphone thefts have become so endemic nationwide that in the past year law enforcement has been pressuring manufacturers to help them thwart thieves who focus specifically on ripping off phones.
The Federal Communications Commission estimates that 40 percent of thefts in major U.S. cities now involve cellphones. Luger said that an estimated 3 million mobile devices were stolen in the United States last year. He issued a strong warning to consumers to "be on the lookout" for persons seeking personal information. "Don't give out any of your information to anyone who you can't verify," Luger said.
Earlier this year, Minnesota became the first state to require smartphone manufacturers to include a "kill switch" that would allow users to disable their phones if lost or stolen. A similar bill is awaiting the signature of California Gov. Jerry Brown.
Providers banded together
To head off such measures, the nation's four major wireless providers — Verizon Wireless, AT&T, T-Mobile and Sprint — agreed to begin sharing a database of serial numbers tied to stolen phones. By the end of this year, a phone reported stolen will, theoretically, no longer function on any of the provider networks.
But that doesn't address the overseas black market because foreign wireless carriers are not participating in the anti-theft campaign. The current price for a new iPhone 5 in the Middle East is between $1,000 and $1,200, according to authorities. Domestically, the iPhone sells for about $648 retail, or less if the buyer signs a contract with a service provider.
At least seven of those indicted are members of the Mustafa family with ties to the ownership of 13 phone stores in the metro area. Eleven people indicted were reportedly hired as runners to steal the phones, and two associates were responsible for moving money from the operation, authorities say.
About 300 law enforcement personnel from various agencies were involved, including 100 U.S. Secret Service analysts and agents who came in from across the country to aid local law enforcement in a coordinated series of arrests that took place starting at 3 a.m. Tuesday. Arrests and searches were carried out in 23 different locations. Eighteen of the 20 people indicted are in custody pending a bond hearing, one is overseas and one remains a fugitive at large.
The Mustafa family members are Jamal, Kanan, Edwan, Talal, Bilal, Naser and Nizar, according to the affidavit. The family members own wireless stores in Minneapolis, St. Paul and Robbinsdale, records show. Authorities say that the family operates these stores, ostensibly as a single unit — transferring cellphone inventory and allegedly commingling illicit profits with legitimate sales.
Jamal Mustafa, who operates six cellular phone stores in the metro, is considered the patriarch of the family and the "apparent leader of the conspiracy," according to authorities. An unidentified co-defendant told law enforcement that Jamal Mustafa paid runners for their travel, provided stolen and counterfeit identification used to obtain phones by contract fraud.
When the defendant was arrested last year in Utah, he was carrying more than 80 counterfeit identification documents used to open lines of credit at various retail stores, according to the affidavit.
Scope began to grow
The runners, most of whom were kept isolated from the Mustafa leadership in order to ensure security, worked primarily in 10 states. After successfully buying a phone server contract using a fake identity, Luger said that the runners were able to obtain up to 30 phones under a single user account.
The stolen phones were then moved quickly into the family stores or to international shippers based in Texas, New York and Florida, federal agents said.
In May 2013, St. Paul police began investigating a group tied to stealing phones by theft, fraudulent identification and check schemes. Those officers, part of the Organized Retail Crimes Unit, soon realized the scope of the identification-phone fraud and began working with various state and federal law enforcement across Minnesota and Wisconsin, investigating a shoplifting ring — known as the "Sunrise Group" — that specifically targeted Wal-Mart stores. They found that the Sunrise Group got its name from the Mustafa family's stores, many of which are under the same name.
The investigation widened last fall when University of Minnesota campus police were confronted with more than two dozen reports on thieves who were bent on stealing cellphones, campus Chief of Police Greg Hestness said.
His officers soon hooked up to coordinate leads with other agencies — among them the Minnesota Bureau of Criminal Apprehension's Financial Crimes Task Force, the Internal Revenue Service and the FBI.