139 F. 4th 1102
9th Cir.2022Background
- Cardone founded and controls Cardone Capital, manager of Cardone Equity Fund V and VI, Regulation A offerings that each raised $50 million.
- Pino invested $10,000 across Funds V and VI after attending a Cardone marketing presentation and alleged reliance on social media and live pitches.
- The FAC alleges Cardone and Cardone Capital made materially misleading statements and omissions in Instagram posts and a YouTube video (e.g., projecting ~15% annualized returns) and failed to include substantive risk warnings beyond a generic legend.
- Defendants moved to dismiss under Rule 12(b)(6); the district court dismissed all §12(a)(2) and §15 claims, finding Cardone and Cardone Capital were not statutory sellers because they did not directly target or actively solicit Pino.
- On appeal, the Ninth Circuit considered whether mass social media communications can constitute solicitation under §12(a)(2) and whether Pino plausibly alleged Cardone and Cardone Capital were statutory sellers and §15 control defendants.
- The Ninth Circuit held Pino plausibly alleged solicitation via mass communications and a financial interest, reversing dismissal of the §12(a)(2) and §15 claims in part.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Cardone and Cardone Capital are "sellers" under §12(a)(2) via social media and related solicitations | Cardone's mass social media posts and conference pitches solicited purchases and he had a financial interest, so they are statutory sellers | Solicitation under §12 must be direct or specifically targeted to the purchaser; broad mass communications cannot create seller liability | Mass communications (e.g., social media, YouTube) can constitute solicitation; FAC plausibly alleges Cardone and Cardone Capital were sellers under §12(a)(2) |
| Whether solicitation must be individually targeted or personally directed | No; solicitation need not be individualized to be actionable | Yes; statute contemplates a buyer-seller relationship akin to privity, requiring targeted solicitation | The Act does not require individualized targeting; solicitation can be through broad, persuasive mass communications |
| Whether §15 control claims survive dismissal absent a primary §12 violation | §15 is viable where a primary §12 violation is plausibly alleged | §15 fails if §12 claims are dismissed | Because §12(a)(2) dismissal was erroneous as to Cardone and Cardone Capital, §15 claims may proceed (predicate violation plausibly alleged) |
| Whether reliance is an element of a §12(a)(2) claim | Reliance is not required for §12(a)(2) liability | Defendants implied reliance was necessary to hold them liable | Reliance is not an element of a §12(a)(2) claim; Pino need not allege direct reliance to state a claim |
Key Cases Cited
- Pinter v. Dahl, 486 U.S. 622 (1988) (defines statutory "seller" and articulates solicitation prong for §12 liability)
- Wildes v. BitConnect Int'l PLC, 25 F.4th 1341 (11th Cir. 2022) (publicly posted videos and mass online promotions can constitute solicitation under §12)
- In re Daou Sys., Inc., 411 F.3d 1006 (9th Cir. 2005) (elements of a §12(a)(2) claim and requirement that misstatements be material)
- Smolen v. Deloitte, Haskins & Sells, 921 F.2d 959 (9th Cir. 1990) (reliance is not an element of a §12(2) claim)
- SEC v. Todd, 642 F.3d 1207 (9th Cir. 2011) (elements for control person liability under §15)