All, first thing first WELCOME TO THE CLUB
This happened to me and all my colleagues in office. Two hindi speaking men (their slang indicates that they are somewhere from the delhi, haryana area), duped close to 50 IT professionals (super techies infact). No kidding, it is true. They sold us 32GB Kingston Traveler pen drive, for just Rs.500/- a piece. Some fool in my office, saw them selling outside our campus and the news spread like fire and all the other fools stormed out to get cheated (that includes me as well). We infact tried to strike a deal with them for Rs.400/ a piece since we are buying in bulk. They did not agree to it, for them it was selling like hot cakes. We could not believe it and felt something fishy. We immediately send some of them back into the office with the pendrives to check if it worked, our guys smartly formatted it and even copied a 1GB file into the pendrive and confirmed that it works. All of us were glad to get 32GB for Rs.500/, we all were under the impression that these folks would have flicked a carton of these pendrives from somewhere in the port when the shipment arrived and thought that these men did not know the actual value for it. They sold all the pieces, they had something about 200 pieces. That's quite some money for a one hour business.
A little while later we realized that we were able to only copy a max of 1GB file into the pendrive and as soon as you unplug and plug it back into someother pc, there is only few MBs of the file felt in the drive. A disk dump of '0' also did not help, it always showed 32GB when queried through fdisk. The PCB board was definitely not damaged as someone mentioned here, but yes it just had a 512MB chip.
1) Is Kingston responsible for this?
Absolutely no, there are 1000 fakes in the market and they cannot stop all.
2) What can you do?
Every time you buy something, ensure that you buy from a genuine dealer/vendor who can give company 'warranty' on the product (not just his verbal one).
3) What else can you do?
Pass on the message to others, so that they atleast don't get fooled.