Court revives lawsuit over 15% fund return promise

If wealth managers need to remind clients of finfluencers and bold promises of future riches, an ongoing court case has highlighted the issue.  

A federal appeals court recently revived a class-action lawsuit against real estate entrepreneur Grant Cardone and his firm Cardone Capital, finding that investors may have been misled by bold promises of high returns. The Ninth Circuit Court of Appeals handed down the decision on June 10, sending the case back to a lower court for further proceedings. 

At the heart of the case is Cardone’s use of social media to promote investment opportunities to everyday investors. Cardone, through YouTube and Instagram, advertised projected returns of 15 percent per year in his real estate funds, Cardone Equity Fund V and VI. These funds were offered under Regulation A of the Securities Act, which allows for public fundraising from unaccredited investors while requiring offerings to be filed with and qualified by the SEC. 

In one YouTube video referenced in the court opinion, Cardone told viewers: “you’re gonna walk away with a 15% annualized return. If I’m in that deal for 10 years, you’re gonna earn 150%… You can tell the SEC that’s what I said it would be… some people call me Nostradamus, because I’m predicting the future dude, this is what’s gonna happen.” 

The lawsuit, brought by Christine Pino on behalf of her late father Luis Pino and other similarly situated investors, alleges that Cardone not only made these projections without a reasonable basis but also omitted key information. Specifically, the suit points to a letter from the SEC that asked Cardone to remove the projected return and distribution figures from his offering materials because they lacked adequate support. Although Cardone later removed the figures, the complaint says he continued to promote the same projections on social media without mentioning the SEC’s objection. 

The district court had dismissed the case, reasoning that Cardone’s statements were non-actionable opinions and that the SEC letter was publicly available. But the Ninth Circuit reversed that decision. Writing for the panel, Judge Margaret McKeown concluded that the investor had adequately alleged both subjective and objective falsity — that Cardone didn’t believe his own projections and that those projections were untrue. The panel also rejected the lower court’s view that disclaiming fraud in the complaint waived the investor’s ability to bring a misstatement claim. 

The court further held that the omission of the SEC letter could support a claim, even though the letter was publicly available on the SEC’s EDGAR database. It cited precedent establishing that constructive knowledge doesn’t prevent a purchaser from recovering under Section 12(a)(2) of the Securities Act. 

The lawsuit also challenges a social media post in which Cardone said, “One question you might want to ask is, who is responsible for the debt? The answer is Grant!” The complaint alleges that this statement misled investors into thinking Cardone personally guaranteed the funds’ debt obligations. The appeals court found that such a claim, if untrue, could materially impact an investor’s perception of risk and potential returns. 

The ruling doesn’t resolve the allegations but allows the case to proceed. For advisors and fund managers, it’s a reminder of the growing legal and regulatory scrutiny over how investment opportunities are marketed—especially on social media and in offerings targeting retail investors. 

Cardone and the other defendants are represented by King & Spalding LLP. The plaintiff is represented by Susman Godfrey LLP. 

The Ninth Circuit’s June 10 decision emphasizes that even in the era of digital promotion and crowdfunding-style offerings, accuracy and disclosure remain critical—and that courts are paying close attention.