On June 10, 2025, the U.S. Court of Appeals for the Ninth Circuit Pino v. Cardone Capital, LLC1 reversed in part the dismissal of claims brought under the Securities Act of 1933 based on statements made in connection with two Regulation A offerings. Central to the Ninth Circuit's ruling was its conclusion that the removal of projected return figures from offering materials — following a Securities and Exchange Commission (SEC) comment letter questioning those figures — can support an inference that such statements lacked a reasonable basis when made. The decision offers notable guidance on when opinion-based statements, such as performance projections, may be actionable under Section 12(a)(2) and clarifies that a fraud disclaimer or public access to omitted information does not automatically defeat such claims.
Background
Defendants Grant Cardone, Cardone Capital LLC, Cardone Equity Fund V LLC and Cardone Equity Fund VI LLC (Cardone, collectively) marketed real estate investment funds to retail investors through social media and online videos. The offerings were promoted as "conservative," and materials included projected "15% annual returns" based on an internal rate of return (IRR).
The SEC issued a comment letter to Cardone Capital questioning the basis for the IRR projections and requesting their removal from the offering circular. Cardone Capital removed the projections from subsequent materials but did not inform investors that the SEC had raised concerns or that the projections had been withdrawn.2 Cardone also nevertheless continued to promote the 15% return figure in social media communications with prospective investors, even after removing the projections from the offering circular. Plaintiff Luis Pino viewed these projections before investing and alleged they were a key factor in his decision to purchase.
Pino brought claims under Section 12(a)(2) of the Securities Act of 1933, alleging that the projections were misleading and lacked a reasonable basis at the time they were made. Pino also claimed that the offering materials omitted material information — such as the use of investor funds for offering expenses and the amount of leverage involved. The U.S. District Court for the Central District of California dismissed the complaint, holding that (i) the statements were not actionable and (ii) given that Pino's complaint expressly disclaimed any allegations of fraud, any claims requiring allegations of subjective falsity were barred.3 The district court interpreted the disclaimer — which stated that the complaint was not asserting fraud or intentional misconduct — as precluding any argument that Cardone did not actually believe the projections at the time they were made.
The Ninth Circuit's decision
The Ninth Circuit reversed the district court's dismissal, holding that the complaint plausibly alleged that the return projections were misleading when made. The Ninth Circuit emphasized that Cardone Capital withdrew the projections in response to the SEC comment letter and did not inform investors of the change. That omission, the panel held, could support an inference that the projections lacked a reasonable basis and were not sincerely believed — satisfying both subjective and objective falsity under Section 12(a)(2) of the Securities Act of 1933. The panel also pointed to Cardone's continued oral references to the projections as further support for the inference that the statements were misleading when made. In addition, the Ninth Circuit held that the public availability of the SEC letter did not defeat the omissions claim. Information posted to EDGAR does not relieve an issuer of its obligation to avoid misleading investors.
The Ninth Circuit also rejected the district court's conclusion that Pino's fraud disclaimer barred his claim. Disclaiming fraud does not foreclose allegations that a statement was misleading when made. Applying Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund,4 the Ninth Circuit reiterated that Section 12(a)(2) does not require intent to defraud.
Key considerations
The Ninth Circuit's holding confirms that opinion-based statements, including performance projections, may give rise to liability under Section 12(a)(2) of the Securities Act of 1933 where the facts support an inference that those statements lacked a reasonable basis when made. The Ninth Circuit's focus on Cardone's removal of the projections following SEC scrutiny — without informing investors — and that this omission was sufficient to plausibly allege both subjective and objective falsity is especially significant given that registrants often have reasons not to challenge an SEC comment even if they believe that the comment is not correct.
The Ninth Circuit's decision in Cardone stands in contrast to the Delaware Chancery Court's recent decision in Plug Power,5 where the Chancery Court held that SEC comment letters alone do not satisfy the Caremark6 standard for director liability and cannot support an inference of bad faith or a failure of board oversight. HSF Kramer summarized the Plug Power case in its 2025 Midyear Review of US corporate governance. We will continue to monitor potential changes to market practice in responses to SEC comment letters as a result of the Cardone decision, including whether issuers include language in their responses stating that a decision to remove language or otherwise accept a comment should not be interpreted as an indication that the issuer agrees with the comment.
Footnotes
1. Pino v. Cardone Capital, LLC,F.4th, 2025 WL 1642422 (9th Cir. Jun. 10, 2025).
2. Id. at 4-5.
3. Id. at 3-4.
4. Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund, 575 U.S. 175 (2015).
5. In re Plug Power Inc. Stockholder Derivative Litigation, C.A. No. 2022-0569-KSJM (Del. Ch. May 2, 2025).
6. In re Caremark Int'l Inc. Deriv. Litig., 698 A.2d 959 (Del. Ch. 1996).
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