Police have dismantled a major gift card fraud operation out of Sonoma County targeting CVS drug stores throughout the state, and arrested two suspects from Los Angeles County, authorities said.

On Tuesday, the Santa Rosa Police Department said in a press release that officers arrested two people on Aug. 7 who were responsible for gift card draining scams throughout California, and seized some 25,000 compromised gift cards, in was called one of the largest known seizures of its kind in the state.  

The suspects were identified as 29-year-old Yongsheng Zhao of El Monte and 33-year-old Zhipeng Li of Monterey Park, who the department said were linked to an international criminal network that was operating the fraud scheme. The operation involves removing gift cards from retail displays, recording or altering the activation information, and then resealing the altered cards in their original packaging and returning them to the display.

People who then purchase the tampered gift cards have the funds drained upon activation, and since they are purchased as gifts, the recipients often do not report the loss to the retailer or the person who gifted them the card, police said. It's estimated that losses from gift card fraud are in the hundreds of millions of dollars nationwide each year, according to the Federal Trade Commission.

Police said investigators using automated license plate readers to identify a vehicle in Sonoma County associated with prior fraud incidents, and observed it stopping at multiple CVS locations in the county. When it stopped at a CVS in Santa Rosa, an undercover detective followed a suspect, later identified as Zhao, into the store and saw him manipulating gift cards at a display while concealing a stack of gift cards in his possession, police said.

The vehicle was later stopped a few miles south in Glen Ellen, and both Zhao and Li were detained without incident. According to police, a search of the vehicle yielded about 10,000 gift cards bundled by store location, along with notes and ledgers documenting an operation that spanned more than 200 CVS locations in California, along with $7,000 in cash.  

Detectives and CVS asset protection personnel identified altered gift cards as coming from CVS stores in Petaluma, Rohnert Park,  Sebastopol and Santa Rosa that the suspects had visited on the day of their arrest, police said. The investigation also led detectives to a hotel in Hayward in Alameda County, where the suspects had rented a room, and on August 14, a search of the hotel room yielded nine boxes containing about 15,000 gift cards, police said. 

It's believed the suspects were conducting the gift card draining operations across the state for several months, police said. Investigators were working with state and federal law enforcement to trace the full scope of the fraud operation. 

Zhao and Li were booked into the Sonoma County Main Jail on charges of burglary, grand theft, theft/forgery of access card information, forgery and conspiracy.

Bail was set at $100,000 for each suspect, and as of Tuesday afternoon, Li remained in custody while Zhao was released on bail.  

Members of the public were reminded to visually inspect gift card packaging for any signs of tampering before purchasing, although many of the tampered cards seized appeared legitimate, and could only be determined to be compromised after opening the packaging and accessing the card and/or PIN numbers, police said.