Judge Sneed’s ruling highlights the extensive groundwork laid by the SEC in its complaint. “The amended complaint frequently answers the ‘who, what, when, where, and how’ questions concerning the alleged scheme,” she wrote, noting that the SEC’s detailed account of the scheme was more than enough to deny the defendants’ motion to dismiss.
Mufarehs’ Defense Falls Short in Court
Ashraf and Asmahan Mufareh, along with OnPassive, argued that the SEC failed to prove their business model was illegal, pointing to disclaimers and other legal defenses. However, Judge Sneed disagreed, pointing to the complaint’s thorough depiction of how the alleged fraud unfolded. She specifically highlighted how Ashraf Mufareh, as CEO of OnPassive, withheld crucial information about the program while making public claims that misled investors.
The Mufarehs’ argument that their statements were merely “puffery” – exaggerated, non-actionable marketing claims – was dismissed by the court. The judge ruled that their statements, which promised “outlandish passive returns” and lifelong earnings, could not be swept aside so easily.
OnPassive $108M Pyramid Scheme : Scienter and Material Omissions at Play
In addition to misleading statements, the court found that the SEC had sufficiently alleged scienter, meaning that the defendants had knowingly engaged in fraudulent behavior. Mufareh was accused of using investor funds to not only keep the scheme alive but also to fund personal expenses for himself and his wife. The judge determined that this misuse of funds, paired with the false advertising of investment returns, provided ample grounds to move the case forward.
