By The National Law Review
In Pino v. Cardone Capital, LLC, 2022 U.S. App. LEXIS 35278 (9th Cir. Dec. 21, 2022), the United States Court of Appeals for the Ninth Circuit (Lynn, J.) joined with the Eleventh Circuit in holding that a person may qualify as a statutory “seller” within the meaning of Section 12(a)(2) of the Securities Act of 1933 (the “Act”), 15 U.S.C. § 77l(a)(2), by promoting the sale of a security in mass communications made on social media. Online videos and social media posts may trigger liability because Section 12(a)(2) does not require that a solicitation be directed or targeted to a particular investor. The Ninth Circuit’s holding highlights the risk that investment companies and their advisers face if they promote or otherwise discuss the merits of securities offerings online.
Defendant Grant Cardone founded Cardone Capital, LLC, which managed Cardone Equity Fund V, LLC and Cardone Equity Fund VI, LLC (collectively, the “Funds”). The Funds invested in real estate assets throughout the United States by raising millions of dollars in crowdfunding using social media. Plaintiff Luis Pino invested in the Funds and filed a class action in the United States District Court for the Central District of California against Cardone, Cardone Capital, and the Funds asserting that they violated Section 12(a)(2) of the Act by soliciting investment in the Funds on Instagram and on YouTube postings that contained materially misleading statements and omissions. Pino also brought a claim for secondary “controlling person” liability under Section 15 of the Act, 15 U.S.C. § 77o(a), against Cardone and Cardone Capital.
“Posting YouTube videos and social media posts about investment opportunities could trigger serious liabilities under securities laws, even if the solicitation is not directed or targeted to a particular investor. The Ninth Circuit’s holding highlights the risk that people face if they promote or otherwise discuss the merits of investment offerings online.”
Shruti Gurudanti, Rose Law Group partner and director of corporate transactions
