Published by BiggerPockets.com | September 11, 2023
Entrepreneur, author, and real estate investor Grant Cardone is facing legal trouble related to his social media marketing tactics, which has implications for other syndicators who double as social media influencers.
A class action lawsuit filed in Los Angeles Federal Court alleges that Cardone, who showcases his lavish lifestyle on social media, misled investors with promises of high returns while failing to disclose the risks of investing in his real estate fund.
Although Cardone included legal disclaimers on his website, the suit argues these weren’t sufficient, given the exaggerated nature of his boastful claims. An example: “You’re gonna walk away with a 15% annualized return,” says the former salesman in a 2019 video. “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.” Cardone goes on to say, “They call me Uncle G, and some people call me Nostradamus, because I’m predicting the future, dude. This is what’s going to happen.”
The suit is brought by Christine Pino, who is proceeding with a claim brought by her deceased father, Luis Pino, in 2019. Luis Pino invested $5,000 in a Cardone Capital real estate fund after attending one of Cardone’s 2019 “Breakthrough Wealth Summit” events. Though the case was initially dismissed in 2021, an appeal reinstated the case in 2022.
Cardone was able to solicit investments from his social media following directly, thanks to Registration A+ offerings, which were signed into law with the JOBS Act of 2015. These small securities don’t require as much oversight as traditional offerings and enabled Cardone to appeal to everyday people with as little as $1,000 to invest.
Cardone then used the pooled capital to purchase undervalued properties with large loans and drive up rents, taking up to 20% of the profits along the way. Meanwhile, residents of the buildings dealt with rent hikes and poor maintenance, The New Republic reports.
Cardone’s confidence may have garnered millions of social media followers, but the lawsuit says his statements were materially misleading and omitted essential disclosures, violating the Securities Act of 1993. Cardone’s habit of overpromising continued even after a warning from the Securities and Exchange Commission (SEC) in 2018 about his social media marketing material, the suit argues.