Securities Regulation Daily Wrap Up, SECURITIES OFFERINGS—9th Cir.: Real estate investor gets another bite at the apple, (Jun 11, 2025)

By Rodney F. Tonkovic, J.D.

The fact that the fund's founder removed projections without objection after receiving a letter from the SEC suggested that he didn't believe they were true.

A Ninth Circuit panel has again reversed a district court's dismissal of a securities suit brought by an investor in a real estate investment fund. The investor plaintiff alleged that the fund had made misrepresentations about the projected return rate, among other items. The panel concluded that the complaint plausibly showed that the fund subjectively disbelieved certain projections and they were objectively untrue. The district court's dismissal was accordingly reversed (Pino v. Cardone Capital, LLC, No. 23-3512 (9th Cir. Jun. 10, 2025)).

Back-and-forth. The defendant, Cardone Capital, LLC, is a real estate syndicator that invests with funds pooled from unaccredited investors. One of these investors, plaintiff Pino, invested in 2019 and sued in 2020, alleging that Cardone made, mostly on social media, misrepresentations about the projected return rate of the investment funds, the likelihood and amount of cash distributions, and the acquisition and financing of properties by the funds.

The district court dismissed the complaint, finding the Cardone's statements were protected by the bespeaks caution doctrine and that Cardone was not a "seller" under the Securities Act. The Ninth Circuit then affirmed in part and remanded, ruling that Cardone qualified as a seller and that some of the challenged statements were actionable. Cardone then petitioned the Supreme Court for certiorari, but was denied in October 2023.

A second amended complaint followed in 2023. Pino alleged that Cardone made misleading opinion statements on Instagram and YouTube regarding projected returns and disbursements. Pino alleged further that Cardone failed to disclose that the SEC had asked it to remove these projections because they lacked backing. The district court dismissed the claims with prejudice.

Opinions. On appeal, the court concluded that Pino's claims were plausible and reversed the dismissal. The district court had dismissed Pino's claim that Cardone misled about its projections after finding that she had failed to plausibly allege subjective and objective falsity. The appellate court disagreed, concluding that disclaiming fraud (as Pino did below) does not waive a claim under Section 12(a)(2) because fraud is not an element of such a claim, and Pino's waiver was limited.

That said, the court found that Pino sufficiently alleged subjective and objective falsity. The court noted that the SEC had sent a letter to Cardone stating that the projections lacked backing and should be removed. On its own, the letter took no position on Cardone's subjective belief or the objective falsity of the projections, but the court pointed to Cardone's reaction to the letter—removing the projections without any rebuttal—as evidence of subjective belief. The most favorable view of these facts supported the claim that Cardone did not believe the projections in the first place. Similarly, the court accepted Pino's arguments that the statements were objectively false when made.

Omissions. The court went on to find that Pino sufficiently alleged that Cardone's failure to disclose the SEC letter supported a claim for material omissions. The district court said that the SEC letter was publicly available on EDGAR, but the appellate court pointed out that constructive knowledge does not bar recover under Section 12.

The case is No. 23-3512.

Judge: McKeown, M.

Attorneys: Marc M. Seltzer (Susman Godfrey LLP) for Christine Pino. Lisa Bugni (King & Spalding LLP) for Cardone Capital, LLC, Cardone Equity Fund V, LLC, Cardone Equity Fund VI, LLC and Grant Cardone.

Companies: Cardone Capital, LLC; Cardone Equity Fund V, LLC; Cardone Equity Fund VI, LLC

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