Grant Cardone has established himself as an influential influencer, sales trainer, New York Times best-selling author, real estate investor and motivational speaker. Forbes estimates his fortune is valued at more than $4 billion; yet allegations of fraud, illegality and misleading followers threatens its existence – now threatened by a class action lawsuit that threatens to bring it all down.
He showcases the advantages of his approach to real estate in videos posted to YouTube, emphasizing multifamily apartment rentals as an investment strategy that can bring both sustained rental income and appreciation in value. Furthermore, these cash flow positive properties help investors cover mortgage payments while producing profits that can either be reinvested back into further investments or used to pay down debt.
But in a lawsuit brought by a former executive at Cardone Capital, she alleges that they concealed rising property valuations from investors and took advantage of investors to pocket millions in markup fees. According to the lawsuit, this enabled Cardone Capital to purchase more properties and generate greater profits selling them off to investors. A former executive also claimed an external audit revealed discrepancies which forced Cardone Capital to hire temporary staffers to shred boxes of documents. HuffPost reviewed materials supporting his claim and spoke to an investor lawyer representing them; neither would comment on specifics of their lawsuit but did confirm authorities are currently probing Cardone Capital’s business practices.
The class action lawsuit filed against Cardone Capital alleges multiple instances in which it misled small-time investors. One such example involves Cardone’s concealment from investors of how it bought property at more than its worth before selling it off to a fund; also hidden were fees it charged for managing and acquiring properties.
Paul Pelletier, who served 25 years as senior DOJ prosecutor before leaving for private practice, reviewed the documents filed in this lawsuit and came away concluding that Cardone is using an intricate plan to take advantage of his followers. According to Pelletier’s assessment, his funds use both lies and deception to lure investors to invest their money with them; ultimately “his business model looks like it could collapse at any moment, leaving investors holding nothing”, Pelletier concluded.
Cardone’s business model relies on an investment portfolio comprised of multifamily apartment rental properties financed with debt that generate steady income through rent and appreciation of property values. But rising interest rates could cause the value of those properties to decrease – and with any significant decrease, they would wipe out his debt-laden investments entirely. He frequently emphasizes diversifying his portfolio in order to mitigate against macroeconomic changes that might damage them further.