A dissatisfied Inglewood investor has filed an appeal with the 9th Circuit Court of Appeals challenging a federal judge’s decision to dismiss class action litigation against a purported real estate guru who promotes a luxury lifestyle in order to attract crowdfunding investors.
“I think the plaintiff is reaching for something to show that he was wronged and the court correctly said there's no intention to deceive,” said attorney Nicole Kuklok-Waldman. “Lots of us have buyer's remorse when we do things.”
Luis Pino sued Cardone Capital in the Central District of California alleging violations of Section 12(a)(2) and Section 15 of the Securities Act after he had attended Grant Cardone’s Breakthrough Wealth Summit in Anaheim two years ago. Cardone Capital, owned by Grant Cardone, promoted Fund V and Fund VI in which individuals and entities can invest through social media. The funds were formed to acquire an interest in income-earning real estate
“Cardone Capital has repeatedly told investors in its social media posts that they can expect a 15% internal rate of return even though there is no basis for this statement and it is materially false and misleading,” wrote Pino’s attorney Marc Seltzer in the original complaint.
But U.S. District Judge John Walter, appointed by President George W. Bush in 2002, decided that Pino had failed to adequately allege material misstatements or omissions.
“The Court concludes that Defendant's statements regarding the projected Internal Rate of Return (IRR) are forward-looking and the Offering Circulars contain more than sufficient cautionary language under the law to invoke the protections of the bespeaks caution doctrine,” Judge Walter wrote in his May 12 order.
A review of Cardone’s advertisements shows promotions that include pictures of swimming pools, sports cars, private jets, and women posing in a sexy manner. Pino invested $10,000 in two Cardone funds, according to the complaint.
“These advertisements can create a false sense of intimacy,” Kuklok-Waldman told Southern California Record. “Facebook and Instagram posts also can create a false sense of intimacy but the salesman is not your buddy. They're just like anyone else off the street trying to sell you something and you have to be a good consumer. It's your money. So the duty lies with you to be a smart consumer.”
The Aventura, California-based Cardone Capital allegedly ignored warnings from a Securities and Exchange Commission enforcement lawyer, according to media reports, but Waldman said a warning is not enough.
“The SEC enforcement lawyer didn't say they were deceptive,” Kuklok-Waldman said of Cardone Capital. “The SEC lawyer warned that they weren’t complying. If there had been a citation by the SEC that might have made a difference because then you have a compliance issue and that's a bigger question but advice by an SEC lawyer is just that. It's advice.”
The Real Deal reported that the advice the SEC enforcement lawyer gave Cardone Capital was to withdraw claims that promised distributions investors would receive monthly.
“The reality is that the offering memo is really controlling and that’s what the court fairly found,” Kuklok-Waldman added. “The offering memo and Instagram posts are advertising for sure but it is a new world and I do feel non-lawyers get a lot of flexibility in the things they say.”