FOLLOW US

Lawsuit Origins and Legal Journey

After investing in Cardone’s real estate funds, Luis Pino, later succeeded by his daughter Christine Pino, after Mr. Pino’s passing, filed a putative class action alleging violations of the Securities Act based on Cardone’s misstatements and omissions in both official offering materials and online marketing. The lower court initially sided with Cardone, but the Ninth Circuit saw it differently.

“Doing so here, Pino has sufficiently stated claims under §§ 12(a)(2) and 15 of the Securities Act of 1933, 15 U.S.C. § 77a et seq. (the ‘Act’ or ‘Securities Act’). We reverse the district court’s grant of Cardone’s motion to dismiss.”
(See Opinion)

Cardone’s 15% Promise: More Than Just “Opinion”?

A crucial point in the court’s ruling revolves around Cardone’s continued claims of a 15% internal rate of return (IRR), even after the SEC explicitly told him to remove these numbers:

“The SEC reviewed the offer and in a letter to Cardone stated these projections lacked backing and should be removed. Cardone pushed back on other criticisms from the SEC, but not this one, suggesting Cardone did not truly believe its own projections and lacked evidence to rebut the SEC. Even so, Cardone continued to repeat the IRR and distribution projections in other communications to would-be investors on social media.”
(See p. 12)

The court notes that this sequence “evinces Cardone’s subjective disbelief” in his own projections—meeting the legal test that a statement is actionable if the speaker did not honestly believe it was true at the time it was made.

The Court’s Take on “Material Omissions”

Not only did Cardone allegedly make knowingly false claims, but he also failed to disclose that the SEC required him to remove those very claims. The Ninth Circuit decisively states:

“Pino sufficiently alleges that Cardone’s failure to disclose the SEC letter (which requested that Cardone remove the projected rates of return and distributions) supports an omission claim under Omnicare... By its nature, a misleading omission suggests that a contrary fact could exist and may have been disclosed elsewhere, but not as part of the statement in question. Indeed, ‘that truthful information is available elsewhere does not relieve a defendant from liability for misrepresentations in a given filing or statement.’”
(See p. 14, citing Miller, 519 F.3d at 887 n.2)

The kicker? The court held that even if this SEC letter was publicly available, “constructive knowledge does not bar recovery for § 12 claims”—meaning ordinary investors don’t lose their rights simply because the information was buried in regulatory databases or available somewhere online.