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⚖️ LEGAL STANDARDS APPLIED

The court applied the Omnicare standard from the Supreme Court’s 2015 decision in Omnicare, Inc. v. Laborers District Council:

• A statement of opinion violates § 12(a)(2) if it is:
  1. Subjectively false (the speaker didn’t believe it); and
  2. Objectively untrue (the statement lacked a reasonable basis).

Here, the court held that both prongs were sufficiently met:

• Subjective falsity was inferred from Cardone’s silence in the face of the SEC’s rebuke;
• Objective falsity arose from the fact that no underlying properties had yet been purchased and no historical returns supported the 15% IRR claims (p. 13, ¶1–2).

🚨 MATERIAL OMISSION: THE SEC LETTER

Cardone argued that the SEC letter was public, and therefore, investors could have looked it up on the SEC’s EDGAR website.

The court rejected that argument as “a backhanded effort” to dodge the law. Public availability isn’t the standard. The failure to disclose the SEC’s opposition while simultaneously pushing the same projections is what created the misleading impression.

“Constructive knowledge does not bar recovery under § 12,” the panel reaffirmed, citing Casella v. Webb, 883 F.2d 805, 809 (9th Cir. 1989) (p. 14, ¶1–2).

This means Cardone couldn’t shift the burden to investors to research omitted facts—especially when the representations at issue appeared directly in promotional videos and social media posts.

💸 DEBT DECEPTION: “The Answer Is Grant!”

In one Instagram post, Cardone stated:

“One question you might want to ask is, who is responsible for the debt? The answer is Grant!” (p. 7, ¶3).

But the funds themselves—not Cardone personally—bore the debt. The court held that this misrepresentation could significantly alter the “total mix” of information for a reasonable investor.

“There would be fewer costs for investors and thus greater returns if Cardone were responsible for the debt,” the court noted, finding the claim plausibly material (p. 15, ¶2).

📈 REG A, CROWDFUNDING, AND EVERYDAY INVESTORS

This case strikes at the heart of crowdfunded securities marketed to unsophisticated investors. Under the 2015 JOBS Act, Cardone Capital was allowed to raise money from the general public under Regulation A—a framework meant to democratize investing.

But the Ninth Circuit signaled a clear warning: Even under relaxed reporting standards, basic securities law still applies. Misleading statements, half-truths, and omissions can land promoters in court, especially when bold social media promises target retail investors.

“Section 12(a)(2) is unique as ‘a virtually absolute liability provision that does not require an allegation that defendants possessed scienter,’” the court explained, citing Miller v. Thane Int’l, Inc., 519 F.3d 879 (9th Cir. 2008) (p. 11, ¶3).