Case 220cv08499 Document 1 Filed 091620 Page 28 of 32 Page - PDF document

1 Case 2:20-cv-08499 Document 1 Filed
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2 ge ID #:3 Case 2:20-cv-08499 Document
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3 32 Page ID #:16 1234567891011121314151
32 Page ID #:16 123456789101112131415161718192021223225262728 2 7591236v1/016789 NATURE OF THE ACTION This is a class action brought on behalf of all persons and entities who purchased interests in Cardone Equity Fund V, LLCFund Vand Cardone Equity Fund VIFun), seeking topursue remediesunder the Securities Act of 19(the Securities Act, 15 U.S.C. a), et seq. As alleged below, efendants are responsible for false and misleading statements andomitting material facts in connection witCardone CpitalLLCpublic offeringsof interests in Fund V and Fund VISpecificallyefendants authorized or signed theoffering statementandparticipated in making alse and misleading testthe waterscommunications that omitted material facts in connection with thepublic offeringsof those interestsThe public offeringserder Regulation Athe SecuritiesAct. This complaiasserts claims under Section 12(a)(2) of theSecurities Act, which provides buyers of securitiesan express remedy for material misrepresentations and omissions made by a seller or solicitor conection with the offeror sale of an issuers securitiesinvolving aospectus or oral communications,and Section 15 of the Securities Act, which extends liability for the Section 12claims tothose who cont

4 rolthe issuerDefeant Cardone Capitardone
rolthe issuerDefeant Cardone Capitardone Capital) provides real estate investment opportunities to the scalled veryday investorthrough real estate crowdfunding. According to Crdone pitalwebsiteCardone Capital finds the deals, negotiates the purchase and financing, andoses the dealand generates rental payments from creditworthy tenants to pay monthly cash distributions to investors. Investors invest in Cardone Capitals equity funds, which have been formed to acquire interests in incomeearning real estate.Deft Cardone (Cardo) is a sales trainer, entrepr, social media influencer, and author.He is also CEO of Cardone Capital. 123456789101112131415161718192021223225262728 3 7591236v1/016789 Fund V and Fund VI are offered to both accredited and nonaccredited investorsaccredited investor is any invesor who does not meet income or net worth requirementsspecifiedby the Securities and xchangeCommission(SEC)Under theSEC guidelinesin effectat the time of the offeringsnonaccreted investor is anyone earninglessthan $200,000 annually witha total net worth of lan $1 million when their primaryresidence is excluded.Fund V claims to have set a world record when it was the first ever to raise $50 million via Regulation Ausing social m

5 edia crowdfunding. It began receiving s
edia crowdfunding. It began receiving subscriptions from investors on December 12, 2018. On September 20, 2019, Fund V completed raising $50 millifrom over 2,200 individual investors. Fund VI is also a $50 million fund. It began receiving subscriptions from investors on October 16, 2019.Fund VI closed on or around June 25, 2020Cardone Capital and Grant Cardone targeted what theycalled the everydayinvestorsolicitinginvestorsto purchase interests in Fnd V and Fund through social mediaThese statements are considered testthewaterscommunicatio, which are considered offers of securities and are subject to the antifraud provisions of the securities laws.Cardone Capital and Grant Cardone made a number of false andmisleading statements in connection with these st the waterscommunications.For example, Grant Cardone assured investors that their capital was protected, waiting for appreciationthat he can return to investors atleast 2Xtheir investmeand that investing $100,000 would pay $500 in dstributionsmonthly 123456789101112131415161718192021223225262728 4 7591236v1/016789 In one video, on September 17, 2019, Cardone advertisedthat if someone invested $220,000 inCardone Capitalfundsths wouldresult in$660,000 positioin thefun

6 d.He claimed that sting $220,000 would a
d.He claimed that sting $220,000 would allow investorsto earn about $12,000$15,000 a yearin distributions In fact, this statement materiallyfalse and misleadingbecause there was no reasonable basis for thisrepresentation and nvestorsdistributions have, in fact,been much lower than these amounts. 123456789101112131415161718192021223225262728 5 7591236v1/016789 Cardonealso told potentialinvestors that he expected to sell the underlying real property in 57 years, at which point, he expected the $220,000 investmnt tobe worth $660,000,plus our cash flow.These statementsfalse and misleading becauseCardone has noreasonable basis for claiming that a given property will triple in valueto 7 years.one Capital further represented topotentialinvestors thattheir capital would safein Cardone Capital funds because done Capital is built on real assets which are already established and stable in naturewithout fficiently warning investoof the risks of investing in the real estateproperites in question 123456789101112131415161718192021223225262728 6 7591236v1/016789 In additionto the oregoingtesthe watersommunications, one and Cardone Capital made materially false and misleading statements regarding (1) whether in

7 vestors would obtai15% internal rate of
vestors would obtai15% internal rate of returnon their investments(2)the amounts of monthly distributionsthey would receive; and 3) investorsdebt obligations.ardone andCardone Capital also made materiallyfalse and misleading statements in the offering documenand omitted to state material facts relating tohow the acquisition of properties to be owned by Fund V and Fund VI wouldbe financedandtheinterest Cardone would charge the fundsfor loaning the aggregate principbalanceto acquire those properesBy virtue of Section 12(a)(2) of the SecuritiesAct, the making of material missttements and omissions in offering cuments and testwaterscommunications is prohibited.In spite of their obligationtobe truthful toinvestors, Cardone and e Capitalinsteadtook advantage of investors URISDICTION AND VENUE The claims assertedherin ariseunder section (2) and section of the Securities Act (15 U.S.C. (a)(2) and Jurisdiction is conferred by § 2of the SecuritiesAct(15U.S.C. 77v), and 28 U.S.C. §§ 1331and 1337Venue is proper in this district pursuant to § 2of tSecrities Actand 28 U.S.C. § 13) because false statements were made to plaintiffand other class members who reside in this district and acts giving rise to the violations complained of occurredin this distr

8 ictonnection with theacts, conduct and o
ictonnection with theacts, conduct and otherwrongs alleged in this complaint, efendants, directly or indirectly,used the means andinstrumentalities of interstate commer, including United States mail 123456789101112131415161718192021223225262728 7 7591236v1/016789 III.THE PARTIES PlaintiffLuis Pinos aresidentof Inglewood, California. Luis Pino purchased interests in Fund and Fund VI and was damaged thereby.DefendanCardone Capital, LLCa limited liability company organized undehe laws of the State of Delaware. The principalecutive offices of Cardone Capital, LLC are locatedat 18909 NE 29Avenue, Aventura, FL 33180280Defendant Grant Cardone was the CEO of Cardone Capital at all relevant times, including at the time the Fund V and Fund VIpublic offerings. CEO, Cardone reviewed and approved, and participated in making, statements to investors, including statements in theoffering statementCardoneis a residentFlorida.Cardone signed or authorized the signing of the offering statementused to conductthe public offeringOn September 19, 2019, Grant Cardonadvertised on his Instagram accountthat he was coming to Anaheim, Californiato market Cardone Cpital 123456789101112131415161718192021223225262728 8 759123

9 6v1/016789 On September 21, 2019, lainti
6v1/016789 On September 21, 2019, laintiff attendthe Breakthrough WealtSummitAnaheim, Californiahosted by Grant Cardonee BreakthrougWeaummit took place at the HiltonAnaheim, 777 West Convention Way, Anaheim, CA. 9280ccordingto the Cardone Capital investor portalwo days later, on eptember 23, 2019, laintiff invested iFund V.On Septer 25, 2019, Grant Cardone advertisedn his Instagram page: Three cities today,finally hoe after 2 months. #oneCapital 123456789101112131415161718192021223225262728 9 7591236v1/016789 #RealestatedescribingGrant Cardonetravels to markehe rdone Capital equity funds in connectionwith his tour eptember 26, 2019, the Cardone CapitInstagram account (@cardonecapitalofficial) advertised: “I am proud to announce Cardone Equity Fund V is oversubscribedand the first Regulation A of its kind to raise $50 Million in crowdfundingusingsocial media. By accessing social media, I am off investment opportunities to the everyday investor, like you! #CardoneCapital #MultifamilyInvesting #10XLiving” and went on to list the required SEC legend: Our offerings under Rule 506(c) are foraccredited investors only.The advertisement went on to say:For our anticipated Regulation A offering, until such tim

10 e thatthe Offering Statement is qualifie
e thatthe Offering Statement is qualified by the SEC, no money or consideration is being solicited, and if sent in response prior to qualification, such money will not be accepted. No offer to buysecurities can by accepted and no part of the purchase price can be received until the offering statement is qualified. Any offer may be withdrawn or revoked, without obligation or commitment of any kind, at any time before notice of its acceptance given after the qualification date. A person's indication of interest involves no obligation or commitment of any kind. Our Offering Circular, which is part of the Offering Statement, may be found at www.cardonecapital.com/offering .” 123456789101112131415161718192021223225262728 10 7591236v1/016789 n September 28, 2019, Grant Cardone representepersonal Instagramaccount (@grantcardone)that Fund V had closed, raising $50,000000. In his Instagram post, Cardone wrote: Congrats to our nonaccredited investors who have taken advantage of Cardone Equitynd This is the largest Reg + crowdfunding ever done for real estate investments of thisquality using social media. I am so proud of this accomplishment as it is truly a way for memake a significant difference ithefinancial li

11 ves of millions of ple. It is clear 12
ves of millions of ple. It is clear 123456789101112131415161718192021223225262728 11 7591236v1/016789 the deck is stacked against the average every day family from creating financial freedom. The rich get richer andeveryone else continues to struggle. The difference is in how the [sic] investThe great investments available itherld today are heldfor the wealthy institutions and familys [sic]. Cardone Capital gives access to the everyday person to the kind of real estate only availableto the wealthiest of institutions & the well connected. By using no middleman & goindirecly to the public using social media we reduce our cost. This ensures more of your money goes directly into the assets, resulting in lower promotional cost. More importantlyinvestors gain access to real estate that hasnever been available before. We re literally doing something that has never been done. Thanks for your support, I will never let you down. GCext xt ] to invest. #investing # Real estate Fund #PassiveIncome #CardoneCapital #GrantCardone #10X #Investing.He did not includethe required SEC legend on this posteven though Cardone represented to the SEC on September 26, 2018 that t a]ny mention of any specific fund of Cardone Capital

12 will contain the proper legendsin connec
will contain the proper legendsin connection withthe rdone Capital Marketing Policy GULATION A OFFERINGS Cardone Capitalhasa number offunds in whichindividuals and ntities can investThe funds wereormed to acquire interests in incomeearning real estate. For Fund V and Fund VI, CardoneCapital raised money for the funds by regstering with the SEC as Regulation Aofferingsnder Title IV of the 2015 JumpstarOur Business Starts (JOBS) Actation Aprovides for “minipubliofferings,” which are offerings exempt from SEC registration However, the offering materials are subject to SEC filingrequirements. To offer securities under egulation A, an issuer mustfile an offering statement orm 1A with the SEC, including an offering circular for distribution to investors and all required exhibits. 123456789101112131415161718192021223225262728 12 7591236v1/016789 Form 1A filings are subject to SEC review and comment. Before sales under Regulation A can be made, the SEC reviews the offering materials ider to “qualify” the Form 1A. Subject to certain conditions, a Regulation Aissuer is permitted to se estthe waters” communications to communicate with invesrs to see if they might be interested in an offeringbeforefil

13 ing a Form 1A. Regulation A governs how
ing a Form 1A. Regulation A governs how an issuer may communicate with potential investors aroundtimeof a Rgulation A offering. The rules specify the types of communications about the offering an issuer can make depending on the stage of qualification process. Specifically, no offers may be madeuntil the Fois qualified, with the excetion of testing the waters communicatis that meet the quirements of Rule 255.Testthe waterscommunications are considered offers of securities and are subject to theantifraud provisions of the securities laws. All testing the waters communicatiust contain a legend stating: (i) that oney or other consideration is being solicited or accepted, (ii) that offers to buy the securities cannot be accepted, anpart of the purchase price can be received, until the Form 1A is qualified any offer can be withdrawn or revoked at any time before otice of its acceptance is given after the qualification date, (iii) that an indication interest involves no obligation or commitment of any kind, and (iv) the contact information of a person fromwhomthe preliminary offering circular can be obtained, a preliminary URL at which the offering circular is available, or a complete copy of the document (if the Form 1already been filed).Post

14 filing the waterscommunications must inc
filing the waterscommunications must include acurrent preliminary offering circular or a notice informing potential investors where to obtain one (i.e., by providing theURL of preliminaroffering circular). Anissuer must distribute revised testthewatersmaterials if any postfiling testinaters material contains information that is or becomes materiallinaccurateor dequate. 123456789101112131415161718192021223225262728 13 7591236v1/016789 Written or broadcasttestthe watersmaterialsmust be filed as Exhibits to Form 1when the issuer initiallyconfidentiallysubmits or filesthe Form 1 ENDANTSMATERIAL MISSTATEMENTS AND OMISSIONS aterial Misstatements and Omissions in Testthe Water Communications Cardone Capital acknowledged that pursuant to SEC Rule 255, testthe waterscommunicationsare subject to the antifraud provisions oederal securities laws and cannot contain false or misleading communications. When the SECrequired Cardone Capital to provide a detailedanalysis regarding how all of [its] comunications comply witRegulation A and ectionunder the Securities ActCardone Capital responded on November 5, 2018 thatit had nducted a comprehensive audit of its online presence including all websites and social media ccountsand adopted a

15 Social media and soliitation policyto e
Social media and soliitation policyto ensure ongoing and futurecomplianceCardone Capitals letter attached an Action Plan and Written Social Media ComplianceManualwhich provided, All social media posts on all social dia platforms, videos,websites, live shows,replay of live shows have to be compliance withthe SEC. This is for every social media platform as wellas emails that solicit investor interest. Until we clearcomments, no posting on social media will occur until it has been passed through the Compliance Oficer and Compliance processOnce comments are cleared, then we will havean official opening date, e will amend this manual to reflece new guidelines for posting on Social Media.The Manual went on: As such, this social media policy isa living document and willbe reviewed on an ongoing basis with an emphasis on preventing false and misleading communicationsIt went on to describe requiments for Twitter, Facebook, Instagram, GCTV (Grant Cardone TV), 123456789101112131415161718192021223225262728 14 7591236v1/016789 YouTube, Website (conecapital.com), LinkedIn, and Podcats and stated that The Web Team and SEC Compliance Oficer will keep track of all media postings for compliance. ardone Capitals Statements About 15%

16 Internal Rates of Return Were Baseless
Internal Rates of Return Were Baseless and MteriallyMisleadi Cardone Capital has repeatedly told investorin its social media posts that they can expect a 15% internal rate of returneven though there is no basis for this statementand it ismateriallyfalse and misleadingn July 30, 2018, a letter from Jennifer Gowetki, Senior Counsel, Office of Real Estate and Cmmodities of the SEC, directed CardoneCapitalWe note your disclosure on page 17 and throughout the offering statement that references your strategy to pay a monthly distribution tinvestorsthat will result in a return ofapproximately 15% annualized returinvestmentWe further note you have commencnly limited operations, hae not paid any distrbutions to dateand do not appear to have a basis for such return. Please rvise to remove this disclosure throughout the offering statement.Notwithstanding the specific warningfrom the SECthat it had no basis for making this statement, Cardone Capital continued to advertise a internalrate returnto potential investoThebelow advertisementappeared on Cardone Capital’s Instagram accoun, all of which tell investors that Cardone Capital targetedat least a 15% internal rate of return for Fund V and Fund VI. In the May 5, 2019 advertisement, Cardone Capita

17 l advertisea 15% Targeted IRR,monthly di
l advertisea 15% Targeted IRR,monthly distributionsand long term appreciation”inconnection with soliciting investments in Fund VI.Because Cardone Capital had basis for advertising the projectionfor h a return, as acknowledgedthe SEC, this statement was materially false and misleading. 123456789101112131415161718192021223225262728 15 7591236v1/016789 In theOctober 16, 2019 advertisement for Fund VI, Cardone Capital advertised how 10X Living at Panama City Beach, one of the properties in which Fund VI acquired an interest, had a targeted investor f 17.88%, a targeted equity multiple of 2.53X, and a targeted average cash yieldof 10.31%Because Cardone Capital had basis fosuch returnthis statement was materiallyfalse andmisleading. 123456789101112131415161718192021223225262728 16 7591236v1/016789 In Cardone Capitals September , 2019advertisement, it advertised a Target IRR of 15% with regard to the bonus property10X Living at BreakfastPoint, purchased by Fund V. BecauseCardone Capital had not basis for sucreturnthis statement was materiallyfalse andisleading MisleadingStatements Regarding Monthly Distributions Cardone Capitaloverstated the amount of monthly distributions investors could expectt

18 o receive after investing in thefundOn F
o receive after investing in thefundOn February 5, 2019, Grant Cardone advertised that investors woulddouble their money, receive 480,000 in cashflow (i.e., monthly distributions) after investing $1,000,000, chieve“north of 15% returns after fees,” obtain a % return amounting to 19.6% per year,and other disclosures that are neitherin line with the fering tatementsor the representationspermitted by the SECeither Grant Cardonor rdone Capital had any basis for making these statements, and thedvertisements are not consisent with what investors have actually receivedon ir investments 123456789101112131415161718192021223225262728 17 7591236v1/016789 Cardone Capital also represented toinvestors that an investment of $1 million would pay$50,000 in yearly dividend income. Neither Grant Cardone nor ne Capital had any basis for making these statements, and theadvertisements are not consisent with what investors have actually receivedon their investments ardone Capital also representto investors that it would pay monthly distributions bason cash flowfrom operationswhen,in fact, Cardone Capitalsuspendedmonthly distributions in April 2020 123456789101112131415161718192021223225262728 18 7591236v1/0

19 16789 The Company will make Distribution
16789 The Company will make Distributions monthly out of available cash flow from operations equal to the total cash gross receipts of the Company durithe month (i) derived from all sources(otherthan capital contributions and capital transactions) together with any amounts included in reserves or working capital from prior periods which the Manager reasonably determines to distribute, or the sale, refinancing or disposition of investments,as determined by the Manager, net of disbursementsand less the operating expenses of the Company paid during such period (including, but not limitedto, present and anticipated debts and obligations, capital needsnd expenses, the payment of any management or administrative fees and expenses, including without limitation the Asset Management Fee, Asset Acquisition Fee or Asset Disposition Fee, and reasonable reserves for contingencies) and any increases or replacents in reserves (other than from Capital Contributions) during such period.one Capitahad advertised the monthly distributions as a key reason to invest in the Funds: Grant Cardone held aninvestor call in April2020explaining that rent paymentscross Cardone Capital properties remained stable, and that he was suspending distributions out ofan abundance o

20 f caution. To the extent there wasany l
f caution. To the extent there wasany lack of cash flowthat precluded Cardone Capital from making those monthly 123456789101112131415161718192021223225262728 19 7591236v1/016789 distributions, it did not sclose the source of the problem to investors. ardone Capital has since resumed monthly distributions. Misleading Statements RegardingDebtObligations Cardone Capital misrepresented the extentwhich investors would befinancially responsible for tdebt incurredto finance the properties. In oneInstagrampost, Cardone Cpital wrote: One questionyou might want to askis, who is responsiblefor the debt? The answeris GrantThisatementismateriallymisleading becausethe capital contruted investors in Fund V and Fund VI is used to pay the debt service fortheFunds, i.e., the monthly interest payments on theinterestonly loans obtained by Cardone Capital on behalf of the fs. The debt is a significant operating expense for whiinvestors are responsibleby virtue of theirinvestment in fundsimilarly, Cardone Capital representedthatnvestment in Cardone pital was an assetand nota liability,whichs misleading because the interestsin properties acquired Fund V and Fund VI were leveraged with financing debt with aloantovalue ratio The stateme

21 nt suggests that 1234567891011121314151
nt suggests that 123456789101112131415161718192021223225262728 20 7591236v1/016789 investorre notresponsiblefor the significantmonthly debtservicementswhich is inaccurateand misleading aterial Misstatements and Omissions in the Securities Offering Documents Cardone Capital Misrepresented How Properties Would Be Financed The ffering tatements represented that Cardone Capital would secure the necessary financing before obtaining propertieson behf of the Funds: “When e Company identifies a location or a potential property, it will secure the 123456789101112131415161718192021223225262728 21 7591236v1/016789 necessary financing, sign a contract and place an escrow deposit to be held with the designatedescrow agent. The Company will take the time necessary toomplete all its due diligence to the property including: site inspection, reviewing all leases, income and expenses, as well as securing a firsmortgage on the property. After the due diligence process has been completed, the Company will determine whetr the property is suitable or not.This statement was materially misleading because insteadof obtaining loans to finance the acquisition ofhe properties from third parti, Grant Cardone perso

22 nally, through entities that he owns and
nally, through entities that he owns and controlspurchased the properties from third parties before selling them to the Fundant Cardone acknowledged his practice of buying properties personallynd then selling them to investors in an April 21, 2020 interview: “I buy the deal. In the past at least, upntil thismoment right now, our current fund, I buy the deal with my moneybefore I offer it to the public.”As to Fund V,for example,mortge documents show that Grant Cardone, signatory forCardone Capital, on behalf of Cardone Delray Member, LLC hrough the entity Atlantic Delray Beach, LLC) took out a $60,125,000 mortgage on the property on September 2, 2018. But Fund V investors did t acquirethe property until January 1, 2019, when the Fund “immediately purchased an investment in Cardone Delray Member, LLC which owns, Atlantic Delray Beach, LLC (dba 10X Living at Delray).”The operatingstatements further described that the purchaice of any Property or real estate investment acquired fromor sold ton affiliated partywill be basedpon the fair market value of the asset established by a thirdparty apprasal or fairness opinion that is dated within the last 120 days prior tothe transactionThis is materially misleading because, Cardone

23 Capital did not obtain https://www.yo
Capital did not obtain https://www.youtube.com/watch?v=1XVWdBC8ffw&t=183s (last visedon September 1, 2020) 123456789101112131415161718192021223225262728 22 7591236v1/016789 thirdparty appraisal or fairness opinion for those real estate investments it sold to the equity funds. Withthe exception of one property, Grant Cardonehas filed to isclosethe acquisition price for any otheproperties he sold toFundsCardone Capital has also iled to disclose whether Grant Cardoneacquired the propertiesat a different acquisition price than that pid by investorsin the FunNot only did Grant one purchaseproperties withhisown money beforeselling them to the unds, he statedthat he loaningthe money to investors, and charged the Funds interest. he April 2, 2020 Fund VSEC Formstates that Grant Cardone loaned millions of dollarsto the Fund to acquire the propertiesbeingsold to the Fundand chargeinvestorsinterestWhen each Cardone Member entity purchases a multifamily property, Grant Cardone contributes his equity and loans the balance needed to purchase theproperty toeach Cardone Member entity. The aggregate principle balance loaned by Grnt Cardone on behalf of the Company to he Cardone Member entities to acquirethe investments amounted to

24 approximately $42,159,000. Each loan pa
approximately $42,159,000. Each loan pays 6% interest rate, is unsecured andis payable on demand. As of December 31, 2019, all loans had been repaidand the Company’sroportional share of interest paid totaled $216,266.Similarly, the April 21, 2020 Fund VI SEC Form K statesWhen each Cardone Member entity purchases a multifamily property, Grant Cardone contributes his equity and loans the balance needd to purase the property to each Cardone Member entity. The aggregate principle balance loaned by Grant Cardone on behalf of the Company to the Cardone Member entities to acquire the investments during 2019 amounted to $10,126,000. Each loan pays 6% intrest e,is unsecured and is payable on demand. As of December 31, 2019, thCompany’s proportional share of principal outstanding and interest incurred totaleto $5,877,743 and $50,487, respectively. 123456789101112131415161718192021223225262728 23 7591236v1/016789 ardoneCapitalfailure to disclose that Grant Cardoned charge investors intereston Cardones loanto acquire properties is a material omissionbecauseinvestors were contributing capital to provide the equityto acquiinterestsin properties. There was noapparentneed for GrantCardone to loan oney that investors were p

25 roviding to the Funds, and then to charg
roviding to the Funds, and then to charge investors for the loan. Investors contributed their capital based on ts expressly described in the ffering statement. For example, Cardone Capital disclosed that investors would pay ant Cardone an asset management fee, basedon fees charged to FundV and Fund VIfor the management of [their]investmentsand an acquisition feefor fees charged to the company as properties areacquired.To the extent Cardone Capital intended to chae investors additional fees relating to acquiring the properties, the fees should have been disclosed.Similarly, Cardone Capital failed to disclose thatGrantCardone hadalready acquirCardone Delray Member LLC which ownsAtlantic Delray BeaLLC (dba 10X Living at Delray) at the time of the offering statement.n theoffering statement, Cardone Capital claimed, However, because as ofthedate of this Offering Circular, we have nt identified the assets we expect to acquire and because ouMembers will be unable to evaluate the economicmerit of assets before we invest in them, they will have to rely on the ability of our manager to lect suitable and successful investment opportnities.The offering statement was dated October 22, 2018CardoneCapitalacquired 10X Living at Delrayon September 2, 2018.

26 This statement is materially misleading
This statement is materially misleading because it implies that investors were paying Grant Cardonean acquisition fee or his ability to target properties for investmentwhen, in facCardoneCapitalwas selling investorsinterests in Funds which for he already owned the propertiesIt is further isleading because, hadardone Capital disclosed its acquisition of 10X Living atDelray, investors could have evaluated the merit of theroperty prioro investing Fund V Finally, the statement is misleading becauseCardone charged investors 123456789101112131415161718192021223225262728 24 7591236v1/016789 interest for rdonecontribututing] his quityand loaning the balance needed to purchase the propertyeven though Cardone Capital had acquired10X Living at Delray months before Fund V invested in the property.Cardone Capital also represented that its strategy would be to buy multiamily apartment ommunities at lowmarket prices.This statement is materially misleading becausepon inrmationand belief, Crdone Capital didnot acquire multifamily apartment communities at “belowmarket priceswhich raised the costs to investors.Plaintiff andthe members of theClasshad no knowledge of the untrue statements or omissions alleged rein or factssufficien

27 t to place them on noticeof those untrue
t to place them on noticeof those untrue statements and omissionsuntil April 2020 at the earliest, when distributions of the Fundswere suspended. LASS ACTION ALLEGATION Plaintiffbringthis action on their own behalf, and on balf of a class pursuant to Rule 23and (b)(3)of the Federal Rules of Civil Procedure. The Class is defined as: All persons and entities who purchased or otherwise acquired nterestCardone Equity Fund V and Cardone Eqity Fund VIpursuant to heir public offeringsExcluded from the Class are defendants and their directors,officers, employees and agentThe members of the Class are so numerous that joinder of allmembers is impracticable. While the exact number of Class members is unknown tplaintat this time and can only be ascertained through appropriate discovery, plaintiffbelievethat there are severathousand members of the Class.Absent members of the Class may be identified from records maintained by defendants and may be notfied othe pendency of this actionusing a form of notice similarto that customarily used in securities class actions 123456789101112131415161718192021223225262728 25 7591236v1/016789 Plintiffclaims are typical of the claims of the members of the Class, as all members of theClass were s

28 imilarly affected by defendants’ wr
imilarly affected by defendants’ wrongful common course of conduct complained of herein.Plaintiffwill fairly and adequately protect the interests ofthe members of the Class andained counsel competent and experienced in class and ecurities litigation.Common questions oflaw and fact exist as to all members of the Class and predominate over any questions solely affecting individual members othe Class. Among the questions of law and fact common tothe Class are:whether defendants violated the federal securities law(b)hether fendants made material misstatements or omissions in the Offering Documentswhether the Offering Documents werenegligently prepontained materially misleadingstatementsandomitted material informationrequired to be stated therein;and(d)whether the teste waterscommunicationsmadeefendants were materially misleadingandomitted materialformationclass action is superior to all other available methods for the fair and efficient adjudication of this controversy, since jinder of allmembers is impracticable. The damages suffered by individualClass members may be relatively small, the expense and burden of individual litigation makesvirtuallimpossible as a practical matter for members of the Class to redress indivdually the rongs done

29 to them. There will be no difficulty in
to them. There will be no difficulty in the management of this action as a class action 123456789101112131415161718192021223225262728 26 7591236v1/016789 IRST CLAIM FOR RELIEF (Against Cardone Capitalfor Violationof Section(a)(2)of the Securities ActPlaintiffcorporateeach and every allegation set forth above asif fully set forth herein Cardone Capital offedand soldinterests inFundnd Fund VI through offering statements and stthewaterscommunications in onnection with the solicitationof itspublic offerings. meanthe defectiveffering statemenand testwaterscommunicationsade in connection with soliitation of the initial public offeringCardone Capitalpromoted and sold interests inFund V and Fund VI to plaintiff andother members of the Class. The fering statementantestthewaterscommunicamade in connecionwith solicitation of theinitial public offerings contained untruatements of material fact, andoncealed or failed to disclose materialfacts. Cardone Capitald plainiff and other members of the Class who purchased interests in Fund V andFund VI pursuant the offering statementsand testthewaterscommunicatithe duty to make a reasonabe anddiligent investigationof the statements contained in theoffering statementsand test thewatercommu

30 nications,to ensure that such statements
nications,to ensure that such statements were trueandto ensurethatthere was no omission to state amaterial fact required to be stated in order tomake the statements containedthereint misleading. Cardone Capital, in theexecise of reasonable care, should have known of the misstatements and omissioncontainedin the fering statements and test the waters communications asset forth above.laintiff, while reserving all of hisrights, expressly disclaimanddisavowat this time any allegation in this complaint that couldbe construed as alleging fraud.Plaintiff didnot know,nor in exercise oreasonablediligence could laintiffhave known, of the untruths and omissions contained in the fering 123456789101112131415161718192021223225262728 27 7591236v1/016789 statements and test the waters communicatins made in connection with solicitation of the initial public offerings atthe time laintiffacquired interests in Fund V and Fund VI.By reason of the conductalleged herein, Cardone Cpitalviolated Section 12()(2)of theSecuriies Act. As a direct and proximate result of such violations, plaintiff and the other members ofe Classwho purchased interests in Fund and Fund VI pursuantto the offering statementsustained substantial damages in connection

31 with their purchases. Accordingly, pla
with their purchases. Accordingly, plaintiffand the other members of the Class who purchased shares in Fund V and Fundpursuathefering statementhavehe right to rescind and recoverthe consideration paid for their shares, nd thereby tender their hares to the defendants sued herein. Class members who have sold their shares seek damages to the fullest extent permittedby law SECOND CLAIM FOR RELIEF (AgainsCardoneor Violation of Section 15 of theSecurites Act Plaintiffincorporaeach and every allegation set forth above as if fully set forth herein.This claimis brought puruant to Section 15 of Securities Act against Cardone.Cardonwas a control person of Cardone Capitalvirtue of his position as CEOand ownership interest in Cardone Capitalone signed the fering Documentsand published posts and advertisements on his social media accountssoliciting investors to purchase interests in theunds forhis own financial benefitBy reason of the above conduct, for which Caone Capital iprimarily liable, as set forth above, Cardone is jntlyand severally liable with anto the same extentas one Capital pursuantto Section 15 of the SecuritiesAct. 123456789101112131415161718192021223225262728 28 7591236v1/016789 PRAYER FOR RELIEF HEREFORE, plainti

32 ffprayfor judgment, as follDetermne that
ffprayfor judgment, as follDetermne that thisaction is a proper class action under Rule 23of the ederal Rules of Civil Procedureand appointing plaintiffs counsel as Class ounselAwadamages in favor of plaintiffand the Class against all defendants, jointlyand severally, foall damages sustained as a result of defendants’ violations ofthe law, in an amount to be proven attrial, including udgment interest thereon.Award rescission or a rescissory measure of damages;Award plaintiffand the Clasasonable attoneys’ fees, costs and expensesncurred in this action, including expertfees.Award such other and further relef as the Court may deem just and proper.Dated: September 16, 2020MARC M. SELTZERSTEVELAVERYSTKAUBLE PACHMANSUSMAN GODFREY L.L.P. /s/Marc M. Seltzer M. SeltzerAttorneys for Plaintiff 123456789101112131415161718192021223225262728 29 7591236v1/016789 JURY DEMAND Pursuant to Fed. R. Civ. P. 38(b), plaintiffdemandtrial by jury of all of the claims asserted in this complaint so triableDated: September 16, 2020MARCM. SELTZERSTEV. SKLAVERYSTAKAUBLE PACHMANSUSMAN GODFREY L.L.P. /s/Marc M. Seltzer Marc M. SeltzerAttorneys for Plaintiff "/01213 F).&.0 J1.,! H7*%). E1-8*),! ��N,9.,7?,-!B#!Q5U VI#QQQ E1-8*