💸 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).
