Cisco rocked by £12m warranty fraud

Channel shocked at scale of scam as fraudsters are brought to book

Arrested development: Three men and a woman have so far been apprehended by police

Cisco Gold partners have expressed shock that a £12m fraud was perpetrated against the vendor and have urged the networking giant and its resellers to be extra wary of unauthorised kit.

Last month the police announced it had cracked "a global criminal network" responsible for stealing £12m of equipment. The fraudsters used fake customer identities to obtain replacements for products under warranty.

One Cisco Gold partner said he "had never seen a fraud like this on a hardware vendor".

"I am surprised that [the fraudsters] were able to sell this kit to anybody, " said the partner.

The source added that he has lobbied Cisco to take a tough stance on the unauthorised market.

"It affects customers' perceptions and makes us look expensive. They start to question us, but we are just doing things the right way."

About a year ago the Alliance for Grey Market and Counterfeit Abatement (AGMA) claimed warranty fraud is a "relatively unknown and growing problem". Vendors are typically losing 3-5 per cent of revenue to warranty and support abuse, according to an AGMA study.

Richard Eglon, marketing manager at Gold partner Comms-care, claimed the difficulty and risk involved in committing warranty fraud made instances such as this very rare.

"This reinforces the fact that resellers have to be very careful who they work with," he said.

As part of the scam, individual products worth up to £100,000 are suspected of being sold via eBay and front companies. ChannelWeb understands Manchester-based sub-distributor Xtop Systems is one such company. Phone calls to its offices went unanswered.

The warranty scam was first uncovered by Cisco's internal investigation team, who alerted the police. Three men and a woman have so far been arrested and 87 boxes, containing £1m-worth of kit, have already been seized.

Cisco issued a statement revealing it will continue to work alongside the police during the investigation.

"Counterfeiting and fraud are very serious issues that impact the entire high-tech industry on a global level. Cisco and other leading IT companies have been actively addressing these issues for several years," added the statement.

Detective chief inspector Paul Barnard of the City of London Police said: " We have together provided further evidence of what an effective force police and business can be when they come together to fight fraud.”