- A statement of opinion violates § 12(a)(2) if it is:
- Subjectively false (the speaker didn’t believe it); and
- 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.
