Grant Cardone

Sudden Death for an Empire of Debt? What is at Stake for Grant Cardone in the “Pino v. Cardone” Class Action Lawsuit

In the advert above, Grant Cardone tells people that they have been lied to their entire life. This raises a few questions. First, how do we know that Grant Cardone is not lying to all of us?

For example, he infamously lied to the entire world in April 2020 when he posted a video on YouTube in which he claimed he had gone bankrupt. This happened early in the pandemic when death rates were skyrocketing. Cardone later stated he did the fake bankruptcy video to “get above the noise.” In other words, the huge global death toll being reported was just noise that got in the way of Cardone getting attention and raising money. Cardone literally walked over the backs of the dead to promote himself. As a Scientologist he has no concern about dead wogs (wogs = Scientology’s derogatory term for non-Scientologists).

The second problem is that Grant Cardone borrowed enormous sums of money when interest rates were cheap. However, according to Cardone himself, his loans are 10-year interest only or variable rate loans. With interest rates soaring, Cardone may be unable to raise his rents fast enough to keep up with his debt payments, operating expenses, payroll, and the monthly distribution payments he owes his investors. If something has to give, the first thing Cardone will stop will be the distributions to investors. This is permitted per the contracts investors signed with Cardone Capital. Cardone has stopped distributions before.

The ongoing collapse of Jay Gajavelli’s 7,000 unit Applesway multifamily syndicate is a serious warning of perilous times ahead for Cardone and multifamily syndicators in general to the extent these companies bought based the belief that cheap interest rates would continue on for a long time horizon.

The Wall Journal has reported on the collapse of Gajavelli’s empire which, like Cardone Capital, was financed by small investors and cheap interest rates. A Bisnow article of August 8, 2023 details yet another Applesway apartment complex falling to foreclosure in earlier this month. This complex was sold at auction for a steep discount off the purchase price:

The same forces that are tearing apart Gajavelli and Applesway are at work on Cardone Capital and other syndicators. Mathews Real Estate Investment Services wrote of the overall multifamily market in its report of July 19, 2023:

According to Multihousing News, multifamily investment activity has experienced a substantial decrease due to the rate increases implemented by the Fed. Multifamily sales volume was down by 64 percent at the end of Q1 2023 compared to Q1 2022. The primary factor for this fall – rising cap rates. The rise in cap rates has resulted in a loss of value ranging from 12 percent to 18 percent, prompting sellers to hold onto their assets until the value recovers. It’s not only the sales volume affected by increasing interest rates. The development activity has also been significantly impacted, making it harder to secure funding for projects.

While the multifamily market is a strong and desirable asset class, the success of any particular investment depends on its ability to turn a profit. The collapse of Applesway happened simply because there was not enough rental income on 7100 units to service the debt.

Grant Cardone loves to boast that he “manages a real estate portfolio comprised 11,903 apartment units” but this appeal to numbers is a logical fallacy. One instructive case to consider is the Peter Cooper Village and Stuyvesant Town apartment complex financial collapse in 2010. Tishman Speyer Properties and BlackRock Realty paid $5.4 billion for that deal in 2006 at the height of the 00’s real estate boom. Stuy Town, as the complex is called, contains 11,000 units. In the 2010 crash, Stuy Town was valued at less than $2.0 billion and the owners filed bankruptcy.

Grant Cardone made a disastrous prediction on his YouTube channel in February 2022 in which he unequivocally declared that the Fed would not raise interest rates (emphasis ours):

“So to be clear ladies and gentlemen, I predict that a year from now interest rates will be at or below where we are today, National mortgage rate today is 4.24. Feds fed expects to hire to raise 25 bps [basis points], or a quarter of a point at the next nine meetings, I suggest somewhere between now and the next nine meetings they’re unable to raise interest rates as they want to.

August 2023: National interest rates shown below demonstrate show how badly Cardone was off in his prediction. If Cardone proceeded to purchase real estate based on his prediction then he could be in serious trouble on his variable rate loans.

We have the third problem of Grant being a Scientologist. The issue here is that Scientologists are trained to lie. L. Ron Hubbard used terms for lies such as “telling a shore story” and “learning how to effectively outflow false data.” Hubbard wrote:

So when Grant Cardone tells us we have been lied to our entire lives how do we know Grant Cardone is not lying to us? Which brings us to the Pino v. Cardone class action lawsuit:

In Pino v. Cardone, the US Ninth Circuit Court recently ruled that Grant Cardone’s internet videos and postings to raise money for Cardone Capital made him a statutory seller of securities and therefore subjected him to SEC rules. Cardone’s lawyers argued that his online solicitations did not make him an online seller. The Ninth Circuit overturned the lower court and disagreed.

Indeed, Cardone has praised himself online as a hustler and encouraged his “young hustlers” to go forth and hustle to make money and invest it in Cardone Capital. And yet inflation has destroyed the 4-6% distributions Cardone Capital pays those who invested with him. Moreover, Cardone has had to periodically suspend distributions on his various properties.

What Cardone claimed in his braggadocio-filled online solicitations and what has actually happened are two different things and that is why Luis Pino sued Grant Cardone.

In his internet videos and postings to raise money which gave rise to the Pino lawsuit, Cardone often made wild and reckless claims for distributions and returns on investments which SEC rules forbid statutory sellers to make. One example:

Cardone and Cardone Capital posted on Instagram about internal rates of return, distributions, and long-term appreciation. For example, on February 5, 2019, on Cardone’s personal Instagram account, he asks, “Want to double your money[?]” and then states an investor could receive $480,000 in cash flow after investing $1,000,000, achieve “north of 15% returns after fees,” and obtain a “118% return amounting to 19.6% per year.”

There is a great deal at stake for Cardone in the Pino lawsuit. One specific possible outcome is that the SEC finds Grant Cardone is a bad actor. If Cardone is classified as a bad actor then he could become disqualified from raising any new money. If he is cut off from raising money then we think Cardone Capital is headed for serious troubles. On a side note, GPB Capital ran into its first major trouble when it violated SEC rules and was banned from raising new money. The parallel here is striking.

From the SEC’s website on the bad actor disqualification:

6. Bad Actor Disqualification

The “bad actor” disqualification provisions contained in Rule 262 of Regulation A disqualify securities offerings from reliance on Regulation A if the issuer or other relevant persons (such as underwriters, placement agents, and the directors, officers and significant shareholders of the issuer) (collectively, “covered persons”) have experienced a disqualifying event, such as being convicted of, or subject to court or administrative sanctions for, securities fraud or other violations of specified laws.

a. Covered Persons

Understanding the categories of persons that are covered by Rule 262 is important because issuers are required to conduct a factual inquiry to determine whether any covered person has had a disqualifying event, and the existence of such an event will generally disqualify the offering from reliance on Regulation A.

“Covered persons” include:

  • the issuer, including its predecessors and affiliated issuers
  • directors, general partners, and managing members of the issuer
  • executive officers of the issuer, and other officers of the issuers that participate in the offering
  • 20 percent beneficial owners of the issuer, calculated on the basis of voting power
  • promoters connected with the issuer in any capacity
  • persons compensated for soliciting investors, including their directors, executive officers or other officers participating in the offerings, general partners and managing members

b. Disqualifying Events

Under the final rule, disqualifying events include:

  • Certain criminal convictions
  • Certain court injunctions and restraining orders
  • Certain final orders of certain state and federal regulators
  • Certain SEC disciplinary orders
  • Certain SEC cease-and-desist orders
  • Suspension or expulsion from membership in a self-regulatory organization (SRO), such as FINRA, or from association with an SRO member
  • SEC stop orders and orders suspending the Regulation A exemption
  • U.S. Postal Service false representation orders

Many disqualifying events include a look-back period (for example, a court injunction that was issued within the last five years or a regulatory order that was issued within the last ten years). The look-back period is measured from the date of the disqualifying event—for example, the issuance of the injunction or regulatory order and not the date of the underlying conduct that led to the disqualifying event—to the date of the filing of an offering statement.

Pino  v. Cardone represents a sudden death risk for Grant Cardone’s heavily leveraged Empire of Debt. Cardone needs to keep bringing in new money to feed a voracious debt load.

For this reason, Grant Cardone had his attorneys file a Writ of Certiorari to be heard in the Pino class action case:

2 replies »

  1. No wonder he looks more like a wizened haggard 80+ year old man lately. Everything I’ve read about him leads to the simple conclusion that he’s just a sleazy crook and conman and now it’s all catching up with him.

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