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The big, brassy personality of real estate investor Grant Cardone has helped make believers out of his millions of social media followers.
But the investing practices and advice that underlie his larger-than-life public persona have landed the Louisiana-born Scientologist on the receiving end of a new class action lawsuit in Los Angeles federal court by Christine Pino, The New Republic has reported.
Pino takes up the battle of her deceased father, Luis Pino, who had filed a complaint against Cardone and his company, Cardone Capital, in 2021, after investing in one of Cardone Capital’s real estate funds for $5,000 in 2019. Luis Pino’s suit was dismissed in 2021 and then reinstated in 2022 after an appeal.
The suit argues that Cardone misled investors by boasting on social media about the potential returns they would see from investing in his real estate fund, as well as frequently showing off his lavish lifestyle of private jets and expensive sports cars, all while downplaying the financial risk investors took by buying into his scheme.
The lawsuit adds that Cardone continued to conduct such misleading practices even after being warned by the Securities and Exchange Commission that he needed to adjust his marketing in order to continue his investing business legally.
Through social media, reality TV programming, conferences and online classes, Cardone has built up a reputation as a multifamily investor, relying on a model of raising rents to maintain the profitability of his portfolio.
In the type of syndicated investment Cardone promotes online, his followers invest in his funds for as little as $1,000, Cardone pools the capital, uses the funds to get a loan, buys undervalued rental properties and rents units out, gradually increasing how much those units can earn over time with rent hikes, The New Republic explained. Cardone also takes his own management fees, acquisition fees and up to 20 percent of the profits out of those investments.
Cardone’s investing programs have found success online because real estate investing is a mostly accessible and understandable form of financial investment, and something influencers are able to use to cash in on their popularity, attorney Robert Freund told The New Republic.
“You don’t really have to explain to someone the concept of buying property, whereas investing in some kind of other security or financial instrument takes a little bit of sophistication to grasp,” Freund, who specializes in consumer class actions and digital marketing, said.
Cardone tapped into the group investing game after Registration A+ offerings (also known as Reg A+ offerings) were signed into law by Barack Obama in 2015 as a way of helping to reinvigorate financial investment following the Great Recession. The small security offerings require less oversight than something like a traditional initial public offering (IPO) and allowed Cardone to collect investments directly from his audience.
While filing all the required SEC paperwork and posting disclosures for Cardone Capital, Cardone simultaneously made inflated claims on social media to draw in investors.
“You’re gonna walk away with a 15 percent annualized return,” Cardone says in one video from 2019. “If I’m in that deal for 10 years, you’re gonna earn 150 percent. You can tell the SEC that’s what I said it would be. They call me Uncle G, and some people call me Nostradamus, because I’m predicting the future, dude. This is what’s gonna happen.”
The suit claims that the legal disclosures Cardone included at the bottom of his website were not enough to cover his bold claims on social media.
But Cardone also isn’t the only individual who has leveraged his personality to try and draw in investors on pooled investment vehicles, The New Republic pointed out. Influencer Kris Kohn, YouTuber Ryan Pineda and former Fox & Friends co-host Clayton Morris all took to social media to try and gain investors to pool on investments. (Morris actually ended up fleeing the U.S. in 2019 amidst several allegations of fraud by some of his investors.)
However, crowdfunding has also gained in popularity among tech platforms, including CrowdStreet, RealtyMogul, FundRebel, Fundrise and Arrived, which position themselves as a way of making investing more accessible and democratic.
The New Republic’s Josh Gabert-Doyon argues this type of online crowdfunding has transformed online investment into a new form of entertainment “akin to gambling.”
“The rise of this sort of real estate investing is of particular concern because of the way it can adversely impact many people beyond the investors themselves,” Gabert-Doyon writes. “While the real estate market continues to have an oversized importance as a foundation of the American economy, the issue with crowdfunded investment isn’t about systemic risk to the sector (at least not for the time being). But the way Cardone and others have constructed a populist veneer for this kind of real estate investing can come at the expense of those in precarious housing situations.”
The report goes on to detail the trials of tenants of Cardone’s apartment complexes who have been victims of his aggressive rent hikes, evictions and neglectful property maintenance practices.
“A recent investigation by The Tampa Bay Post also charged that Cardone had been abusing a ‘workforce housing’ scheme and overcharging tenants who are meant to receive affordable, subsidized housing in his building,” The New Republic report states. “Instead of passing on the subsidies to the tenants, 10X Wellington Club [Cardone’s apartment complex] pocketed the public money provided by the county and claimed subsidies for vacant properties in the building as well.”
Thus far, Cardone’s charisma has enabled him to keep his real estate funds afloat. However, there’s reason to believe that higher interest rates may negatively impact his ability to woo the investors needed to continue to make multifamily acquisitions. Multifamily in general may become a less attractive investment class amidst a landscape of higher rates, The New Republic report suggests, particularly given that a real estate syndication fund in Dallas called Applesway Investment Group — quite similar to Cardone’s — has already collapsed in the face of rising rates.
And in another potential sign that Cardone may be putting out some lifelines, he has also recently diversified his investments into the air conditioning and health supplements industries, with the creation of his 10X HVAC Summit and 10X Health System brands.
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