The SEC’s Warning Shot
The Ninth Circuit’s decision systematically dismantled every major argument in Grant Cardone’s defense strategy, delivering what legal experts are calling a comprehensive judicial rebuke. The three-judge panel, consisting of Circuit Judges M. Margaret McKeown, Lucy H. Koh, and Anthony D. Johnstone, unanimous in their decision to reverse the lower court’s dismissal.
Perhaps most significantly, the appeals court rejected Cardone’s attempt to shield himself from liability by disclaiming fraud in his legal filings. The district court had initially accepted this argument, concluding that because Christine Pino (Luis Pino’s successor-in-interest) had “disclaimed any and all allegations of fraud,” she could not proceed with her misstatement claim under Section 12(a)(2) of the Securities Act.
The Ninth Circuit found this reasoning fundamentally flawed. As the court explained, “fraud is not an element of a § 12(a)(2) claim,” and a fair reading of relevant precedent “is consistent with Pino’s argument that disclaiming fraud alone does not foreclose an entirely separate § 12(a)(2) misstatement cause of action.”
The court emphasized that Section 12(a)(2) is “a virtually absolute liability provision that does not require an allegation that defendants possessed scienter”—meaning intent to deceive or defraud is not required for liability.
