SEC Sues Alleged Perpetrators of Fraudulent Multi-Level Marketing Scheme and Unregistered Offering

The Securities and Exchange Commission (SEC) has officially announced charges against Ashraf Mufareh, hailing from Orlando, Florida, and his company, ONPASSIVE LLC (collectively referred to as the “defendants”), for orchestrating an unregistered and fraudulent offering.

According to the SEC’s complaint, the defendants have been engaged in fraudulent activities since 2018, raising more than $108 million from over 800,000 investors worldwide, including those within the United States. The defendants allegedly presented themselves as developers of a suite of computer applications utilizing artificial intelligence. The complaint details that the defendants sold investor positions within a multi-level marketing arrangement for $97, where investors were promised passive income generated from subscription fees paid by subsequent investors. These passive income payments were allegedly intended to commence upon the commercial launch of ONPASSIVE’s computer applications. However, as of June 2023, the defendants had purportedly not launched any commercial applications or initiated commission payments. The SEC’s complaint posits that ONPASSIVE’s program operates as a pyramid scheme.

In furtherance of this pyramid scheme, the defendants allegedly made false representations regarding the product launch timeline, potential profits, and the legality of their operations. Additionally, they are accused of fabricating websites and posting positive reviews about themselves to counteract negative reviews on established platforms that assess multi-level marketing programs. These counterfeit websites apparently imitated the names and logos of the existing platforms, deceiving readers into believing that these reviews were independent evaluations unrelated to the defendants.

The SEC’s complaint, submitted to federal court in the Middle District of Florida, charges Mufareh and ONPASSIVE with violating the registration prerequisites set by Sections 5(a) and 5(c) of the Securities Act of 1933. Furthermore, the complaint asserts violations of the antifraud provisions outlined in Section 17(a) of the Securities Act and Section 10(b) and Rule 10b-5 under the Securities Exchange Act of 1934. The legal action seeks various forms of relief, including injunctions, the disgorgement of unlawfully acquired gains along with prejudgment interest on a joint and several basis, financial penalties, and an officer and director prohibition against Mufareh. The complaint also lists Mufareh’s spouse, Asmahan Mufareh, as a relief defendant.

The SEC’s investigative efforts were led by John Crimmins, assisted by Benjamin Perlman, under the supervision of Nina B. Finston and Carolyn M. Welshhans. The litigation aspect will be managed by Gregory Miller and Michael Friedman, with oversight from David Nasse.

The SEC’s Office of Investor Education and Advocacy has taken measures to safeguard investors by issuing an Investor Alert, urging individuals to recognize signs that a pyramid scheme might masquerade as a multi-level marketing program.