Just as the Church of Scientology requires its members to sign contracts of adhesion in which they agree to binding arbitration, waive their rights to a jury trial, and waive many other legal rights, so too does Scientologist Grant Cardone. Investors considering a ten-year illiquid investment in Cardone Capital should understand they are waiving their legal rights in a contract of adhesion which wholly favors Cardone Capital:
1. Investors waive their legal right to sue Cardone Capital in a jury trial conducted a court of law.
2. Investors waive their legal right to form or join a class action lawsuit against Cardone Capital.
3. Investors agree to binding arbitration in Delaware in the event of a dispute. Statistically, arbitrations generally go against investors. Cardone is not selling securities and so Cardone Capital is not subject to FINRA arbitration. What Cardone is selling are shares with an arbitrary value. As Cardone’s Form 1-A states:
Our offering price is arbitrary with no relation to value of the company. This offering is a self-underwritten offering, which means that it does not involve the participation of an underwriter to market, distribute or sell the shares offered under this offering.
Scroll down to read a portion of Cardone Capital’s Form 1-A on Cardone Equity Fund IX, LLC in which investors waive their fundamental legal protections.
We consider most Reg A funds to be high-risk deals targeted at inexperienced investors. In our view, only a fool would invest their hard-earned cash for ten years in any Reg A investment which requires them to sign away their legal rights to sue in the event that there is a material breach of contract or any other litigious matter. Cardone does not stand by what he is selling. Instead, Cardone demands that his investors give up their money for ten years and surrender their legal rights to sue him in a court. Only an inexperienced investor would sign away their rights and their money for ten years.
What does that say about Grant Cardone and Cardone Capital? We view it as bad faith at a minimum. Cardone is only interested in protecting himself and his money at the expense of the legal rights of his investors. Cardone therefore assumes an adversarial relationship at the outset in which he has all the power and his investors have none. Cardone explicitly says this in the Form 1-A:
Mr. Cardone is the sole decision maker of Cardone Capital, LLC which is the Manager of the Company. All business and affairs of the Company shall be managed by the Manager. The Manager shall direct, manage, and control the Company to the best of its ability and shall have full and complete authority, power, and discretion to make any and all decisions and to do any and all things that the Manager shall deem to be reasonably required to accomplish the business and objectives of the Company. The rights and duties of the Manager is described in the Operating Agreement.
Potential investors are advised to take a long hard look at Grant Cardone’s written contracts and not what he says or claims in social media. One example: Cardone discloses in Form 1-A for Equity Fund IX that he does not have to spend his time exclusively managing the $50 million in investor dollars in the fund:
6.12 Manager Has No Exclusive Duty to Company
The Manager shall not be required to manage the Company as its sole and exclusive function and may have other business interests and may engage in other activities in addition to those relating to the Company. Neither the Company nor any Member shall have any right, by virtue of this Agreement, to share or participate in such investments or activities of the Manager or to the income or proceeds derived therefrom.
While investors may have invested their life savings into this fund, Grant Cardone has absolutely no obligation whatsoever to spend his time managing any of the Cardone funds. Although he has investor money under his control for ten years and these people cannot sue him, Grant Cardone is free to do whatever he wants with his time. Cardone’s social media activity; continual self-promotion; time spent at the gun range; and his several hours a day set aside for mandatory Scientology requirements as an OT VIII can and will take priority over managing investor money.
This piece Cardone made and posted online makes an extremely bad statement on many levels:
“Don’t aim, just shoot” is an incredibly dangerous and irresponsible piece of advice to offer. Grant Cardone is holding an AR-15 while making the recommendation to just indiscriminately open fire. The magazine for his AR-15 holds thirty .223 rounds that have a muzzle velocity of 3,200 feet per second. Why did Cardone post something so stupid and violent?
The Lincoln Lawyer made two videos in which he discusses Grant Cardone’s business methods. Specifically, Grant Cardone purchases his properties using his own funds as the down payments. He then sells these properties to Cardone Capital’s funds. This allows Cardone to recoup all, or some, of his down payment while also charging Cardone Capital 6% interest for his personal money he used for the down payment. The net effect of this is to allow Grant Cardone to reduce his personal financial investment risk by shifting the debt onto Cardone Capital’s funds and the investors.
As the manager and owner of Cardone Capital, Grant Cardone takes a 1% acquisition fee on the Cardone Capital side when one of its funds purchase an apartment building from Grant Cardone the individual. Grant Cardone also takes management fees on the properties and owns the property management company that manages the properties owned by Cardone Capital.
Bottom line: Grant Cardone’s model is to minimize his personal financial risks at all times; maximize his income through taking fees on the initial sale; acquisition; management; and the sale of the properties after ten years. Cardone does these things while remaining in complete control of Cardone Capital and its funds. This undisclosed self-dealing is one reason why Cardone Capital is being sued and Grant Cardone is being sued as an individual. As we have stated before, Grant Cardone will piss down your leg and tell you its raining.
We previously documented part of Grant Cardone’s “zero interest loans” strategy he shared on YouTube during what we called his “Meltdown in Clearwater” period. This happened at the beginning of the pandemic when Cardone publicly catastrophized about losing everything if the rents did not come in as planned. During this time Grant Cardone also made his video in which he fraudulently claimed he was going bankrupt.
Cardone made a joke in this video about needing a good bankruptcy lawyer to keep him from going to prison. We note here that Cardone’s fellow Scientologist David Gentile was just arrested by the FBI for financial fraud in his Reg D Ponzi scheme and, if convicted, is looking at 20 years in prison.
Cardone should never make jokes about prison — particularly as he is being sued in two class action lawsuits at present. Class action lawsuits were how the criminal charges began for David Gentile.
Pride cometh before a fall: David Gentile’s partner Jeffry Schneider reportedly scoffed at the lawsuit filed in 2019 against GPB Capital Holdings by the Commonwealth of Massachusetts. Schneider allegedly told one of his colleagues that it was no big deal if GPB was not able to sell its paper in Massachusetts. Schneider was arrested by the FBI in early February 2021 along with David Gentile and Jeff Lash.
The Commonwealth’s lawsuit was a harbinger of far worse things to come for the gluttonous fee-hogs Gentile, Schneider, and Lash. The trio’s gargantuan lust for self-serving, hidden, and exorbitant fees degenerated into criminal activity.
The GPB Capital gang created every possible way to pay themselves hidden fees at the expense of investors. These fees, in our view, amounted to nothing more than skimming off the top. As Joe Pesci’s character in Casino said of the wise guys in the count room, “God forbid they should make a mistake and forget to steal.”
Below is the excerpt from Form 1-A filed by Cardone Equity Fund IX LLC in which investors waive their legal rights. The full Form 1-A is in a PDF if you scroll down past this excerpt:
NOTICE REGARDING AGREEMENT TO ARBITRATE
THIS OFFERING MEMORANDUM REQUIRES THAT ALL INVESTORS ARBITRATE ANY DISPUTE, OTHER THAN THOSE CLAIMS UNDER FEDERAL SECURITIES LAWS AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER, ARISING OUT OF THEIR INVESTMENT IN THE COMPANY. ALL INVESTORS FURTHER AGREE THAT THE ARBITRATION WILL BE BINDING AND HELD IN THE STATE OF DELAWARE. EACH INVESTOR ALSO AGREES TO WAIVE ANY RIGHTS TO A JURY TRIAL. OUT OF STATE ARBITRATION MAY FORCE AN INVESTOR TO ACCEPT A LESS FAVORABLE SETTLEMENT FOR DISPUTES. OUT OF STATE ARBITRATION MAY ALSO COST AN INVESTOR MORE TO ARBITRATE A SETTLEMENT OF A DISPUTE.
ADDITIONAL RISK FACTOR ARBITRATION:
The Operating Agreement contains a mandatory dispute resolution process which may limit the rights of investors to some legal remedies and forums otherwise available. This Agreement contains a provision which requires that all claims arising from Member’s investment in the Company be resolved through arbitration.
For Members’ information:
(a) Arbitration is final and binding on the parties;
(b) The parties are waiving their right to seek remedies in court, including the right to jury trial;
(c) Pre-arbitration discovery is generally more limited than and potentially different in form and scope from court proceedings.
(d) The Arbitration Award is not required to include factual findings or legal reasoning and any party’s right to appeal or to seek modification of a ruling by the arbitrators is strictly limited;
(e) The panel of arbitrators may include a minority of persons engaged in the securities industry. Such arbitration provision limits the rights of an investor to some legal remedies and rights otherwise available.
The dispute resolution process provisions do not apply to claims under the federal securities laws. By agreeing to the dispute resolution process, including mandatory arbitration, investors will not be deemed to have waived the company’s compliance with the federal securities laws and the rules and regulations thereunder.
The complete 378 page Form 1-A for Cardone Equity Fund Ix, LLC:
Categories: The Scientology Money Project