December 21, 2022: The US 9th Circuit Court of Appeals has ruled against Grant Cardone and Cardone Capital in the class action complaint captioned LUIS PINO et. al. v. CARDONE CAPITAL, LLC; GRANT CARDONE; CARDONE EQUITY FUND V, LLC; CARDONE EQUITY FUND VI, LLC,

At issue in Luis Pino’s appeal was whether or not Grant Cardone and Cardone Capital acted as statutory sellers of of securities.

Cardone had argued in the lower court that because his widescale social media promotion of his funds did not target individuals this meant that neither himself nor his company acted as statutory sellers. The 9th Circuit disagreed and reversed the lower court.

The liability for Grant Cardone and Cardone Capital becomes enormous, particularly as the 9th Circuit noted that Cardone Capital received 35% of the Funds’ profits. The 9th Circuit applied the two prong test established by the US Supreme Court in its 1988 Pinter v. Dahl: decision:

In Pinter v. Dahl, 486 U.S. 622, 643, 647–48 (1988), the Supreme Court held that a person may be liable as a “seller” under the predecessor version of § 12(a) if the person either: (1) passes title to the securities to the plaintiff; or (2) “engages in solicitation,” i.e., “solicits the purchase [of the securities], motivated at least in part by a desire to serve his own financial interests or those of the securities owner.” The FAC does not allege that Cardone or Cardone Capital passed title to the securities in question, and accordingly, neither qualify as a “seller” under the first prong of Pinter.

As to the second prong, there is no question that Cardone and Cardone Capital had financial interests tied to the Funds. Cardone Capital received 35% of the Funds’ profits, ER 143, 141, 260, 268, and Cardone personally controlled Cardone Capital. ER 148, 265. The question, then, is whether Cardone and Cardone Capital “engaged in solicitation.”

The 9th Circuit next took up the question of whether or not Grant Cardone and Cardone Capital engaged in solicitation of investors:

In fact, if anything, the advertisements at issue in this case—Instagram posts and YouTube videos—are the types of potentially injurious solicitations that are intended to command attention and persuade potential purchasers to invest in the Funds during the “most critical” first stage of a selling transaction, when the buyer becomes involved. See Pinter, 486 U.S. at 646–47. Pino fairly alleges that the nature of social media presents dangers that investors will be persuaded to purchase securities without full and fair information.

In this case, Defendants allegedly relied significantly on social media to source investors for the Funds at issue here. Cardone posted on social media that Fund V was funded through “crowdfunding using social media,” and touted the use of social media as an intentional strategy to reduce promotional costs. FAC ¶¶ 38, 40.

Accordingly, through their social media engagement, Cardone and Cardone Capital were significant participants in the selling transaction because they disseminated material information to would-be investors. To conclude that their social media communications fall outside the Act’s protections would be at odds with Congress’s remedial goals. As observed by the Eleventh Circuit in Wildes, under Defendants’ interpretation of the Act, a seller liable “for recommending a security in a personal letter could not be held accountable for making the exact same pitch in an internet video.” 25 F.4th at 1346.

For the foregoing reasons, we conclude that § 12 contains no requirement that a solicitation be directed or targeted to a particular plaintiff, and accordingly, join the Eleventh Circuit in holding that a person can solicit a purchase, within the meaning of the Securities Act, by promoting the sale of a security in a mass communication.

Here, the FAC sufficiently alleges that Cardone and Cardone Capital were engaged in solicitation of investments in Funds V and VI. The FAC contends that Cardone and Cardone Capital engaged in extensive solicitation efforts, including through the “Breakthrough Wealth Summit,” a conference hosted by Cardone, and Defendants’ extensive social media posts. Moreover, the FAC alleges that both Cardone and Cardone Capital had a financial interest in the sale of the securities; the Fund V and VI offering statements describe compensation tethered to contributed capital and distributions received by the Funds’ manager, Cardone Capital, which is controlled by Cardone. FAC ¶ 84.

To state a claim under § 12(a)(2), Pino need not have alleged that he specifically relied on any of the alleged misstatements identified in the FAC. See Smolen v. Deloitte, Haskins & Sells, 921 F.2d 959, 965 (9th Cir. 1990) (“[R]eliance is not an element of a section 12(2) claim.”). Accordingly, Pino plausibly alleged that Cardone and Cardone Capital were both statutory sellers under § 12(a)(2). Because the district court erred in dismissing Pino’s claim against Cardone and Cardone Capital under § 12(a)(2), it also erred in dismissing Pino’s § 15 claim for lack of a predicate primary violation of the Securities Act.

The lesson here for Grant Cardone: Live by social media; die by social media. All of Cardone’s incessant alpha male braggadocio he engaged on social media about how he would make his investors rich now becomes evidence. Private equity law firms will now use the evidence of Cardone’s incessant misrepresentations,; undisclosed self-dealing; and other incriminating acts and statements against him in what we predict will be a wave of upcoming class action lawsuits. The 9th Circuit put heavy cracks in the Cardone Capital dam.

Grant Cardone taunted those who were reluctant to invest in his get rich scheme as “little bitches” or “babies.” But watch now as Grant Cardone will become the whiny little bitch in court as he screams for forced arbitration; howls about haters; and screams that his legal rights are being violated as his fellow Scientologist David Gentile of GPB Capital is presently doing.

What we expect to see next is Grant Cardone appealing to the US Supreme Court. We do not think his case will be heard because previous case law has determined that mass solicitations on radio and television constitute solicitation. The 9th Circuit stated in its Pino v. Cardone ruling:

…we conclude that § 12 contains no requirement that a solicitation be directed or targeted to a particular plaintiff, and accordingly, join the Eleventh Circuit in holding that a person can solicit a purchase, within the meaning of the Securities Act, by promoting the sale of a security in a mass communication. Here, the FAC sufficiently alleges that Cardone and Cardone Capital were engaged in solicitation of investments in Funds V and VI. The FAC contends that Cardone and Cardone Capital engaged in extensive solicitation efforts, including through the “Breakthrough Wealth Summit,” a conference hosted by Cardone, and Defendants’ extensive social media posts.

Moreover, the FAC alleges that both Cardone and Cardone Capital had a financial interest in the sale of the securities; the Fund V and VI offering statements describe compensation tethered to contributed capital and distributions received by the Funds’ manager, Cardone Capital, which is controlled by Cardone. FAC ¶ 84. To state a claim under § 12(a)(2), Pino need not have alleged that he specifically relied on any of the alleged misstatements identified in the FAC. See Smolen v. Deloitte, Haskins & Sells, 921 F.2d 959, 965 (9th Cir. 1990) (“[R]eliance is not an element of a section 12(2) claim.”).

Accordingly, Pino plausibly alleged that Cardone and Cardone Capital were both statutory sellers under § 12(a)(2). Because the district court erred in dismissing Pino’s claim against Cardone and Cardone Capital under § 12(a)(2), it also erred in dismissing Pino’s § 15 claim for lack of a predicate primary violation of the Securities Act.

It appears that Grant Cardone wants it all ways:

1. He has spent, and continues to spend, millions of dollars to become a social media influencer and to maintain that status.

2. Cardone uses his status as a social media influencer to solicit his audience to invest in his Reg A “crowdfunding” deals and his REIT.

3 . In his many social media sales pitches and solicitations, Grant Cardone has made material misrepresentations; engaged in undisclosed self-dealing; and even encouraged people to buy his courses on a credit card if they are headed towards bankruptcy and have the debt discharged in bankruptcy.

4. Cardone wants to claim that because his many sales pitches and solicitations are not directed at anyone in particular that this absolves him from any legal liability for his solicitations which contain material misrepresentations, undisclosed self-dealing, and other actionable conduct.

The 9th Circuit said no.

A few examples of Grant Cardone engaging in fraud and encouraging others to engage in fraud.

The 9th Circuit Ruling:

The 9th Circuit Memorandum: