The United States Court of Appeals for the Ninth Circuit recently issued an opinion in Pino v. Cardone Capital, LLC that followed the Eleventh Circuit ruling in Wildes v. BitConnect (see our March, 2022 post on that case here: Social media and cryptocurrency fraud), when it held that if a person promotes the sale of a security on social media, that person may qualify as a “seller” under Section 12 of the Security Act of 1933 (the “Act”).
Although the asset types that were marketed differ, the two cases are similar because in both Pino v. Cardone and Wildes v. BitConnect the defendants moved to dismiss claims under the Act by contending that their social media marketing did not directly solicit investments from the individual investors. In both cases, the federal district court granted the defendants’ motion to dismiss, but in both cases the appellate court reversed and remanded the case for further proceedings on this issue.
In citing the Eleventh Circuit, the Ninth Circuit noted that the U.S. Supreme Court has not opined on whether a solicitation must be direct or targeted towards a particular purchaser, and concurred with the Eleventh Circuit’s interpretation of the Act – “that nothing in the Act indicates that mass communications, directed to multiple potential purchasers at once, fall outside of the Act’s protections.” The ruling further establishes social media posts as being the same as mass communication predecessors such as newspapers and radio, both of which are considered settled forms of mass communication that fall under the Act.
In Pino, the advertisements at issue included Instagram posts and YouTube videos, which the defendants used to source investments for multiple real estate funds. Defendants even touted the use of social media as an intentional strategy used to lower marketing costs. The appellate court found that the plaintiff fairly alleged that “the nature of social media presents dangers that investors will be persuaded to purchase securities without full and fair information.”
With the alignment of the of the Ninth Circuit and the Eleventh Circuit on this issue, we can begin to see a firmer stance by the courts of established precedent to guide future disputes. As noted in our previous posts, regulators around the globe are focused on issues related to the marketing of financial products on social media with a clear goal of protecting investors. The Ninth Circuit’s holding highlights that courts are joining these regulators with decisions that establish and enhance investor protections based on case law. It also further highlights the risks that finfluencers, celebrities, financial advisors and investment companies face when marketing financial investments, and emphasizes the need to consult with counsel when promoting or discussing financial products on social media.
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