Acting attorney general Matthew G. Whitaker received early warnings that customers were complaining that an invention-marketing company he advised might be a fraud, according to several people familiar with his role, but Whitaker vigorously defended the company and remained on its board until joining the Justice Department in 2017.
Since his appointment by President Trump last week, Whitaker has said through a Justice Department spokeswoman that he was unaware of allegedly fraudulent activities at Miami-based World Patent Marketing. The company shut down in May and agreed to pay a settlement of nearly $26 million to resolve a wide-ranging Federal Trade Commission complaint that it bilked customers.
As a member of the company’s advisory board, Whitaker had been told of complaints about the company’s practices, according to two people familiar with the FTC investigation. He did not appear to take any action in response, they said.
In addition, shortly after joining the board in late 2014, Whitaker, a former U.S. attorney in Iowa, personally intervened when a for-profit consumer complaint website posted comments critical of the company.
Ed Magedson, the founder of the Arizona-based Ripoff Report, said he received a phone call from Whitaker in early 2015 after the website posted complaints about World Patent Marketing.
“He threatened me, using foul language,” said Magedson, whose website sells companies a program to improve their reputation among consumers. “He threatened to sue and to ruin my business if I did not remove the ‘false reports.’ ”
At one point, Whitaker said he would refer Ripoff Report to the Department of Homeland Security, Magedson said.
Justice Department officials have said Whitaker served in a limited capacity as an outside legal adviser to World Patent Marketing and was not involved in the company’s day-to-day operations.
Kerri Kupec, a spokeswoman for the department, declined to comment on Whitaker’s interactions with Magedson.
“Acting attorney general Matt Whitaker has said he was not aware of any fraudulent activity. Any stories suggesting otherwise are false,” Kupec said.
Whitaker joined the board of World Patent Marketing in October 2014 after a failed U.S. Senate run, eventually collecting about $10,000 in fees, according to court documents. “As a former U.S. Attorney, I would only align myself with a first class organization,” Whitaker said in a company news release at the time.
Complaints about the company, which was founded by Miami businessman Scott J. Cooper, had already begun surfacing.
In a September 2014 posting on the Ripoff Report, one person wrote that World Patent Marketing had offered to help market that person’s idea for a fried chicken and waffle sandwich, according to an archived version of the site.
Another complaint posted in January 2015 came from a person who claimed to have worked as an employee at the company.
“Let me explain [to] you exactly how this scam works,” the person wrote, describing in detail the tactics the company used to reel in consumers.
The person said the company would accept any invention idea, no matter how improbable, building excitement in customers by promising that their proposals were being analyzed by a review team. “The whole step by step process was simply created to get you excited about your idea,” the person wrote.
Magedson said he received the phone call from Whitaker around that time.
Magedson said it is not uncommon for Ripoff Report to receive complaints from businesses when they are reviewed negatively on the site. Ripoff Report’s business model — which encourages companies to pay for a program that can yield better reviews — has been criticized. A federal judge in Utah found in 2015 that the website encouraged negative reviews and that it accepted online postings from competitors of businesses reviewed on the site as well as from consumers. The finding came in a defamation suit in which Ripoff Report ultimately prevailed.
Magedson said that Whitaker’s complaints were particularly memorable.
“He did not threaten me physically, but said he would shut us down and threatened to refer us to a federal agency, Homeland Security,” he said. “He was yelling.”
After their conversation, Magedson posted a note on Ripoff Report noting that Whitaker, whom he described as a former U.S. attorney and GOP Senate candidate, had touted World Patent Marketing as “the top patent, idea protection and inventor services company for helping inventors and entrepreneurs succeed,” according to an archived page of the website. The posting did not describe Whitaker’s alleged threats.
That year, World Patent Marketing joined Ripoff Report’s Corporate Advocacy program, a way for companies to improve their reputations by submitting to a review by Ripoff Report.
Separately, FTC investigators found that Whitaker received complaints about the company in his role as an advisory board member, two people familiar with the probe said.
In one incident, a customer asked Whitaker to take action because World Patent Marketing was allegedly cheating customers out of their money. Whitaker forwarded the complaint to Cooper, the chief executive, according to the people.
FTC investigators did not find evidence that Whitaker sought to learn more about the allegations or expressed concerns about the accusations, the people said.
FTC officials did not immediately respond to a request for comment.
The FTC considered Whitaker a material witness when the agency began probing rampant customer complaints about World Patent Marketing. Investigators were examining whether Whitaker played a role in helping the company silence critics by threatening them with legal action, according to people with knowledge of the case.
But when the FTC subpoenaed Whitaker for his records related to the company in October 2017, he failed to provide any information, telling investigators that he was busy at that time moving from Iowa to Washington for a new job, the people said.
At the time, Whitaker was preparing to assume his post as chief of staff to then-Attorney General Jeff Sessions.
The FTC did not further pursue Whitaker’s records because World Patent Marketing began negotiating a settlement with the agency, the people said.
In its investigation, the agency concluded that World Patent Marketing falsely promised clients that it would patent and market their ideas in exchange for hefty fees — and then pocketed the money, court records show.
“For the last three years, Defendants have operated an invention-promotion scam that has bilked thousands of consumers out of millions of dollars,” the FTC alleged in a recently unsealed court filing.
In 2017, people who said they were victimized were notified that the FBI had opened a criminal investigation of the company, although several of the people said they have not seen any recent interest from the bureau. The FBI has declined to comment.
Since Whitaker’s appointment as acting attorney general, people who say they were victimized by World Patent Marketing have been comparing notes about their experiences, said Crystal Carlson, an inventor from Arizona who said she lost $36,000 when the company failed to market her idea for a product to prevent parents from forgetting infants in cars.
Carlson, whose extensive research into the company’s practices helped spur the FTC investigation, maintains a Facebook group for victims. She said some people who lost money have been incensed at Whitaker’s appointment.
Others, like her, think that Whitaker was probably fooled by Cooper about the company’s practices.
“I think, in hindsight, he would probably kick himself in the butt just like every other victim of World Patent Marketing has,” she said. “When you realize you’ve been victimized in that way, you question yourself. How could you have been so stupid as to have fallen for something like this?”
Others are less forgiving.
Nancy Torres, 60, said she lost more than $30,000 when World Patent Marketing failed to bring to market her newly designed nursing pillow. Torres said she is now deeply in debt and struggles to make home payments and provide for three grandchildren who live with her in Allentown, Pa.
Torres, who generally opposes Trump, said she has been upset by Whitaker’s appointment, especially the fact that the new acting attorney general never returned the money he was paid by World Patent Marketing. “It’s appalling,” she said. “Shame on him.”
Alice Crites contributed to this report.