Lawyers for the Federal Trade Commission and a Miami Beach company accused of running a $26 million patent-promotion scam are facing off in federal court Thursday. The company’s founder is asking the judge to give him back control of millions of dollars in assets the court froze last month.
Scott Jason Cooper, 43, claims the FTC used “misstatements and innuendo” when it persuaded a federal judge to shut down the business and freeze the assets while the FTC pursues a permanent injunction that would shut down Cooper’s business, World Patent Marketing, or WPM.
But a court-appointed receiver is for now siding with the government, saying “it is unlikely that WPM can be operated profitably, while also lawfully.”
The receiver, Jonathan Perlman, found WPM had gross revenues of $26 million from November 2014 through January 2017, but has only about $350,000 left in the bank.
“It is undisputed, and Mr. Cooper agrees, that no WPM inventor has ever realized a profit from their invention using WPM’s services. Nor has any customer, through WPM, sold a meaningful number of units,” Perlman wrote in a report filed Wednesday with the court.
U.S. District Judge Darrin Gayles last month granted the FTC’s request for a temporary restraining order, freezing all assets connected to Cooper and his company after the FTC claimed it had evidence Cooper “moved ill-gotten gains offshore.”
That order was signed without Cooper getting a chance to dispute the FTC allegations. The FTC says it's something judges allow when the government claims advance notice of a pending injunction could lead subjects of investigations to hide or transfer assets before any freeze is ordered.
In court pleadings filed this week, Cooper claims the FTC is wrong on several points.
He says inventors were not misled about the likelihood of success of their inventions – noting his website states “there are no guarantees; most inventions fail” -- and denied engaging in deceptive and unfair practices.
A key issue at Thursday’s hearing: should the judge lift the freeze placed on Cooper’s assets, including a Miami Beach waterfront mansion Cooper purchased in April 2016 for $3.2 million and a 70-foot yacht worth more than $1 million?
The FTC claimed Cooper “is slowly and methodically transferring ill-gotten gains” away from WPM – something Cooper calls “a total falsehood.”
For example, Cooper said the FTC misinterpreted nearly $1 million in money transfers from WPM to a company called TGK Associates. While the FTC assumed Cooper controlled both companies, TGK Associates is in fact an unrelated customer service and call center operation incorporated in California and has no connection to Cooper and WPM, the court filings claim.
WPM was simply paying TGK Associates for services rendered, Cooper argues.
Cooper’s attorneys suggest the FTC falsely assumed the two entities were related because Cooper provided the same address for both on a wire transfer form. But Cooper says he listed WPM’s address for TGK because he did not know its correct address and it was irrelevant for sending a wire transfer of funds.
In response the FTC said it was relying on Cooper’s “own choice to provide false information to his bank (an action which may constitute a federal crime),” but based on Cooper’s explanation it is no longer relying on those transfers to support its call for a continued asset freeze.
Instead, FTC lawyers in court documents indicated they will raise other evidence of what it calls Cooper’s “financial chicanery”: a Swiss bank account in the name of a trust with a connection to the Cook Islands; access to at least 68 bank accounts; and a history of “routinely moving millions of dollars around between his self-described ‘holding companies.’”
For his part, Cooper’s attorneys note he was “wealthy before WPM even began conducting business” in June 2014, noting he had set up a family trust of more than $1 million in February 2014.
Unless the government can show the assets were related to the alleged illegal conduct, they cannot be frozen, Cooper attorneys Daniel Rashbaum and Michael Pineiro argue in their pleadings.
The FTC is arguing that is not true because, if Cooper and WPM are ultimately found liable, he can be held personally responsible for paying back what may be as many as 5,000 victims.
Cooper’s attorney notes that, rather than take money out of the companies and hide it, Cooper in March put $250,000 cash back into the business from his own funds and personally guaranteed a line of credit of up to $400,000 for business purposes.
In making its case Thursday that a preliminary injunction should be issued, the FTC planned to call as witnesses an FTC investigator and several clients who say they received very little if anything of value after paying WPM tens of thousands of dollars.
One slated to testify, a 25-year-old farmer from the Finger Lakes region of New York, said he paid WPM $75,000 to secure a patent and to license and market a social networking website called for people who, like him, have disabilities.
Rather than pay back student loans, he took out another loan for $19,000 and, months later, a WPM employee persuaded his father to remove $50,000 from of his 401(k) to build the website and application, according to the court record.
Nearly two years after first contacting WPM, he wrote, “ I received a press release, logo, and a low-budget splash page that does not have my name anywhere on it and it says it was developed and created by World Patent Marketing.”
The court-appointed receiver, who the judge gave control over the company’s operations and assets while the lawsuit progresses, has been trying to determine if assets have been fraudulently transferred out of the company by Cooper.
But, he wrote to the court, Cooper has not been cooperating on that front.
“Cooper has failed to provide numerous documents required by the receiver despite repeated requests,” Perlman wrote, citing credit card statements that would reveal if Cooper was paying personal expenses with WPM assets.
Cooper has also failed to produce financial information about WPM, a family trust and two limited partnerships, which handled millions of dollars in income, the receiver reported. Without the requested records, the receiver said, he cannot determine whether transfers from WPM to those affiliated entities or Cooper constitute “fraudulent transfers,” which he could then seek to seize, the receiver stated.
After seizing property and shutting down operations in Miami, Miami Gardens and Chicago, federal investigators spoke to employees who the FTC claims confirm the operation was a scam.
The head of the recently-opened Chicago sales office admitted customers were first told their ideas must be approved by a nonexistent “board” of experts at WPM, then were called back days later and congratulated that the nonexistent board had approved their idea, according to court filings. After telling one superior he had concluded one product was “completely fraudulent,” he complained directly to Cooper, who he said responded by calling him a “f---ing idiot.”
Among those on the advisory board that WPM claimed existed, newly elected Congressman Brian Mast (R-Palm City). But he has filed a sworn declaration with the court saying he met Cooper for less than 20 minutes at his offices last year and again in January at a celebration of his swearing-in to Congress. He said after Cooper sent him a press release announcing Mast was on the board, he called him and told him he would not be a member. He said he never attended a meeting or was consulted about any patent ideas. His campaign said it is returning more than $5,000 in contributions Cooper made to Mast’s campaign.