Ninth Circuit Provides Clarity on Section 12(a)(2) Misstatement Claims in Omnicare Case

On June 10, 2025, the U.S. Court of Appeals for the Ninth Circuit made a significant ruling in the case of Pino v. Cardone Capital, LLC, clarifying the boundaries of certain Securities Act of 1933 claims post the U.S. Supreme Court’s landmark decision in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund. The Ninth Circuit emphasized that a mere reference to a fraud waiver, like in the Omnicare case, does not automatically invalidate a Section 12(a)(2) misstatement claim if the disclaimer is limited to fraud allegations.

The dispute in the Pino case revolves around the defendants, Cardone entities, offering real estate investments to unaccredited investors through social media platforms such as Instagram and YouTube. Plaintiff Luis Pino, an unaccredited investor in the Cardone funds, initiated a class action lawsuit under the Securities Act, citing misstatements and omissions in Cardone’s real estate investment materials, particularly those conveyed through social media. Pino invoked Section 12(a)(2) of the Securities Act against Cardone and Section 15 against Grant Cardone and Cardone Capital.

Pino alleged that Cardone made deceptive opinion statements in Instagram posts and YouTube videos concerning the performance of the Cardone funds, particularly in relation to a promoted 15 percent internal rate of return and associated distribution projections. Furthermore, Pino claimed that Cardone concealed a letter from the U.S. Securities and Exchange Commission requesting the removal of the unsupported IRR and distribution projections from its offerings. Importantly, Pino’s complaint included a fraud waiver disavowing any allegation of fraud contained within the complaint.

Section 12(a)(2) establishes a cause of action for securities sold with prospectuses or oral communications that include significant misstatements or omissions, necessitating proof of both subjective and objective falsity. The District Court initially dismissed Pino’s complaint, contending that the fraud disclaimer waived subjective falsity and that the complaint failed to sufficiently allege both subjective and objective falsity related to the IRR and distribution projections.

The Ninth Circuit, however, reversed the District Court’s decision on several grounds, underscoring that Pino’s fraud disclaimer did not nullify the Section 12(a)(2) misstatement claim regarding the IRR and distribution projections. The court concluded that Pino adequately presented subjective and objective falsity arguments. The Ninth Circuit rejected the District Court’s reliance on Omnicare, stressing that a fraud waiver alone does not negate a Section 12(a)(2) misstatement claim. The court highlighted that the key omission in Omnicare was the absence of claims of subjective disbelief, which ultimately undermined the plaintiffs’ case.

Moreover, the Ninth Circuit differentiated between the broad fraud disclaimer in Omnicare and Pino’s narrower disclaimer, further supporting Pino’s position. Additionally, the court found Pino’s allegations of subjective and objective falsity regarding Cardone’s IRR projections valid, especially considering Cardone’s compliance with the SEC’s directive to remove the unsupported projections from its offerings. This acknowledgment indicated Cardone’s subjective doubt regarding the veracity of the projections, meeting the pleading requirements for Section 12(a)(2) claims.

Overall, the Ninth Circuit’s ruling in Pino v. Cardone Capital, LLC elucidates the nuances of fraud disclaimers in Securities Act claims post the Omnicare decision, affirming that a limited disclaimer focused solely on fraud allegations does not preempt unrelated misstatement claims under Section 12(a)(2). The case serves as a noteworthy precedent in navigating the complexities of securities litigation and offers essential guidance for future similar disputes.