Judge Extends Freeze on Accused Scammer’s Assets

They each had a vision.

One emotionally disabled 25-year-old New York farmer dreamed up Socially Accepted, a social networking site for people like him or others with Downs syndrome and autism to find friends.

Another North Carolina man thought he invented a device, Teddy’s Ballie Bumpers, to prevent toys from rolling too far under sofas and other furniture.

And a Broward County surgeon envisioned millions of people buying SmartNet, elastic netting snapped onto the backs of smart phones and tablets to secure objects that might otherwise drop or get lost.

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They had ideas and they all testified Thursday in federal court that they were scammed out of a total of nearly a half-million dollars by a Miami Beach company.

After hearing their testimony, a federal judge extended for at least two weeks a freeze on millions of dollars in assets amassed by the head of that $26 million Miami Beach patent promotion operation — one the federal government alleges was a scam.

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The assets were locked up and World Patent Marketing at-least temporarily shut down last month after the FTC sought a temporary restraining order against the company and its founder and CEO, Scott Jason Cooper.

Cooper, 43, is asking to regain control of the assets, including a waterfront mansion he bought for $32 million last April and a 70-foot yacht worth more than $1 million.

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But he has more basic needs, attorney Michael Pineiro told the court Thursday. “He can’t access his bank account to pay for food to feed his children,” he said, adding Cooper also can’t pay his lawyers, something Cooper’s mother is currently helping with.

After four hours of argument and testimony Thursday, U.S. District Judge Darrin Gayles was not yet persuaded to lift the freeze, giving the attorneys two more weeks to obtain more information about bank accounts, credit card histories, companies and trusts which may shed light on whether more assets exist.

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So far, a court-appointed receiver has found World Patent Marketing, or WPM, had gross revenues of $26 million from November 2014 through January 2017, but has only about $350,000 left in the bank.

Cooper is also seeking to restart the company, but the receiver, Jonathan Perlman, is for now siding with the government, saying “it is unlikely that WPM can be operated profitably, while also lawfully.”

“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.

Cooper claims the FTC used “misstatements and innuendo” when it persuaded Gayles to issue the restraining order while the FTC pursues a permanent injunction that would shut down WPM.

On Thursday, Pineiro told the judge the FTC’s actions amounted to “a legal ambush,” accusing the FTC of misrepresenting valid payments to a vendor by claiming Cooper was “moving ill-gotten gains offshore.”

That temporary restraining order was issued without Cooper getting a chance to dispute the FTC allegations, 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.

The FTC’s claim Cooper “is slowly and methodically transferring ill-gotten gains” away from WPM is “a total falsehood,” Pineiro and co-counsel Daniel Rashbaum argued.

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 in California and has no connection to Cooper and WPM, the court filings claim.

WPM was simply paying TGK Associates for services rendered, the evidence appears to show.

Cooper’s attorneys suggest the FTC falsely assumed the two entities were related because Cooper provided the same address for both on 62 wire transfer forms. 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 revealed, it will raise other evidence of what it calls Cooper’s “financial chicanery”: a Swiss bank account in the name of a family 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 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.

They also say Cooper — who previously worked in the mortgage and auto sales businesses — was “wealthy before WPM even began conducting business” in June 2014, noting he had set up that family trust of more than $1 million in February 2014 and has not deposited or withdrawn funds since.

Unless the government can show the assets were related to the alleged illegal conduct, they cannot be frozen, Cooper attorneys Rashbaum and Pineiro argue in their pleadings.

But the FTC countered — and the judge agreed — that those funds could wind up being seized and used to pay back victims, depending on how the case progresses.

If Cooper and WPM are ultimately found liable — and Pineiro conceded in court “there’s going to be some liability in this case” — he can be held personally responsible for paying back what may be as many as 5,000 victims.

“Even if I find … assets are untainted, unrelated to a crime, there are still restrictions I could place on those funds,” Judge Gayles said. Before ruling on whether to grant a preliminary injunction and order the receiver to wind down the companies and marshal all its assets, Gayles said he wanted the parties to have more time before closing arguments to gather facts.

For “Mr. Cooper to provide evidence of assets, in particular, prior untainted assets would be helpful,” the judge said, continuing the temporary restraining order until at least an April 20 hearing date.

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 also failed to produce financial information about WPM, the family trust in Switzerland, wire transfers to the Bank of New Zealand, 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.

In a sworn statement filed by the FTC, the head of the 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.

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.

Mast said after Cooper sent him a press release announcing he was on the board, he called Cooper 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.

In making its case Thursday that a preliminary injunction should be issued, the FTC called to the stand those three erstwhile inventors, including that disabled man, who testified he took out $19,000 in student loans and whose father removed $50,000 from his 401 (k) to pay WPM for a website that never launched.

He said he thought Cooper and WPM “were my friends,” and that when he was told his website was going to be a reality, “I was ecstatic. I felt really important. This is great, it can change the world and help the disabled.”