Pino v. Cardone Capital, LLC
FOR PUBLICATION (2025)
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Rule of Law:
A securities seller may be liable under § 12(a)(2) of the Securities Act of 1933 for misleading opinion statements if they subjectively disbelieved the opinion and it was objectively untrue, and for material omissions even if the omitted information was publicly available elsewhere. Control person liability under § 15 applies if underlying § 12 violations are plausibly alleged.
Facts:
- Grant Cardone, founder of Cardone Capital, LLC, offered real estate investments through Cardone Equity Fund V and VI (the "Funds") to unaccredited investors, marketing them on social media.
- Cardone made statements on platforms like Instagram and YouTube, projecting a "15% annualized return" and claiming investors could "double their money."
- Cardone also posted on Instagram stating that he, Grant Cardone, was "responsible for the debt" of the Funds.
- Luis Pino, an unaccredited investor, invested in the Funds in 2019.
- The Securities and Exchange Commission (SEC) reviewed Cardone's initial offering circular and sent a letter requesting that Cardone remove the projected internal rate of return (IRR) and distribution projections because they lacked backing.
- Cardone removed the projections from the official offering circular in response to the SEC letter but continued to repeat these projections in other communications to potential investors on social media.
- Christine Pino, Luis Pino’s successor-in-interest, filed a putative class action against Cardone alleging misstatements and omissions.
Procedural Posture:
- Luis Pino filed a putative class action against Grant Cardone, Cardone Capital, LLC, Cardone Equity Fund V, LLC, and Cardone Equity Fund VI, LLC (collectively "Cardone") in the United States District Court for the Central District of California in September 2020.
- Pino filed an amended complaint in February 2021.
- The district court (U.S. District Court for the Central District of California) granted Cardone’s Rule 12(b)(6) motion to dismiss the action with prejudice, ruling that Cardone and Cardone Capital were not "sellers" under § 12(a)(2) and the challenged statements were not actionable.
- Pino appealed to the United States Court of Appeals for the Ninth Circuit (appellant Christine Pino v. appellee Cardone Capital, LLC, et al., in Pino I).
- The Ninth Circuit in Pino I affirmed in part and reversed in part, concluding that Grant Cardone and Cardone Capital plausibly qualified as statutory sellers, and remanded the case.
- In an accompanying memorandum disposition (Pino Disposition), the Ninth Circuit also reversed the district court's dismissal of Pino’s claims based on Cardone’s statements regarding the Funds’ IRR/distributions and debt obligations, directing the district court to grant Pino leave to amend to replead these claims consistent with the Omnicare standard.
- Pino filed a second amended complaint in June 2023.
- Cardone again filed a Rule 12(b)(6) motion to dismiss.
- The district court again dismissed the claims without leave to amend and dismissed the action with prejudice.
- Pino appealed to the United States Court of Appeals for the Ninth Circuit (appellant Christine Pino v. appellee Cardone Capital, LLC, et al.).
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Issue:
Does a plaintiff sufficiently state a claim under §§ 12(a)(2) and 15 of the Securities Act of 1933 by alleging that a securities seller made opinion statements they subjectively disbelieved and that were objectively untrue, failed to disclose a material fact even when publicly available, and misrepresented debt obligations, even when disclaiming fraud in the complaint?
Opinions:
Majority - McKeown, Circuit Judge
Yes, Pino sufficiently stated claims under §§ 12(a)(2) and 15 of the Securities Act of 1933. The court held that Pino's complaint plausibly alleged that Cardone made misleading opinion statements about IRR and distribution projections, material omissions regarding an SEC letter, and material misstatements about debt obligations. Regarding the misleading opinion claim, the court found that Pino sufficiently alleged both subjective and objective falsity under Omnicare. Subjective falsity was supported by Cardone's removal of the projections from official documents after SEC criticism, while continuing to promote them on social media, suggesting he did not genuinely believe them. Objective falsity was alleged by claims that the projections lacked basis, no prior funds performed similarly, and properties had not yet been purchased. The court clarified that Pino's disclaimer of fraud in the complaint did not waive the subjective falsity claim, as fraud is not an element of a § 12(a)(2) action, and the waiver was narrower than the one in Omnicare. For the material omission claim, the court held that Cardone's failure to disclose the SEC letter, which requested removal of the projections, was actionable. The court rejected the argument that the public availability of the SEC letter on the EDGAR database defeated the omission claim, reaffirming that constructive knowledge does not bar recovery under § 12 claims, per Casella v. Webb. An omission implies that a fact was not part of the relevant statement, even if available elsewhere. Finally, the court concluded that the district court erred in dismissing the claim regarding misstatements about debt obligations. The prior appellate disposition already held these statements were plausibly alleged as 'untrue statements of fact.' Materiality, which requires a substantial likelihood that a reasonable investor would view the disclosure as significantly altering the 'total mix' of information, is a question typically for the trier of fact at this stage. The potential change in costs and returns for investors due to who is responsible for debt could alter this total mix. Since Pino sufficiently alleged the underlying § 12 claims, the § 15 control person liability claim against Grant Cardone and Cardone Capital also stands.
Analysis:
This case significantly clarifies the application of Omnicare's subjective and objective falsity standard to opinion statements in the context of social media marketing for securities offerings. It reinforces that a plaintiff's disclaimer of fraud in a complaint does not necessarily waive a subjective falsity claim under § 12(a)(2), distinguishing non-fraud-based securities claims from those requiring particularity under Rule 9(b). Crucially, the ruling confirms that a material omission claim under § 12(a)(2) is not defeated by the mere public availability of the omitted information, emphasizing that actual disclosure within the relevant offering materials is paramount. This decision lowers the pleading bar for plaintiffs in certain securities actions, particularly where investment promotions leverage digital platforms, by focusing on what was actually presented to investors versus what was publicly accessible elsewhere.
