The Collapse of Grant Cardone [Bitcoin Margin Calls] Cardone Capital

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Video Summary

The video delves into the intricate financial structures and incentive systems employed by Grant Cardone, specifically examining his funds and how they allegedly allow him to profit from investor capital and various financial maneuvers. It highlights how Cardone's fund documents permit extensive leverage, up to 80%, with significant flexibility in investing these borrowed funds across various asset classes, including real estate, notes, and cryptocurrency. A key point is the "financing coordination fee," which allows Cardone to earn fees on loans generated or drawn from lines of credit, potentially even lending to his own entities, effectively making him his own bank. The analysis suggests a "perverse incentive" structure where Cardone may profit from margin calls, asset sales, and reinvestments, accumulating multiple fees even when investors lose money. A significant finding is the concept of deferred fees, which allows Cardone to collect his income later, enabling investors to receive distributions that mask the growing liability of these deferred fees, creating a "ticking time bomb" for investors whose principal value may be eroding.

A particularly striking revelation is that Cardone's funds are often not required to undergo audits, especially Regulation D funds for accredited investors, leaving investors with limited oversight into the financial dealings within these entities. This lack of transparency, coupled with the ability to conduct related-party transactions without arm's length considerations, creates an environment where Cardone can allegedly compound fees upon fees, potentially obscuring the true cost to investors. The video posits that Cardone's strategy is designed to keep funds in perpetual motion within his ecosystem to continuously generate fees, rather than closing them out and returning capital, thereby avoiding the realization of deferred payables that could reveal the extent of his earnings and investor costs.

Short Highlights

Grant Cardone's funds allow leverage of up to 80% of the fund's capital.
Cardone can potentially make money from margin calls through various fees (acquisition, disposition, financing coordination).
The structure incentivizes continuous borrowing, selling, and refinancing to generate fees.
Deferred fees allow Cardone to collect income later, masking potential principal erosion for investors.
Many of Cardone's funds are not required to have audits, reducing transparency.

Key Details

Bitcoin's Fixed Supply and Value [00:10]

The total supply of Bitcoin is capped at 21 million.
The rate at which new Bitcoin is created is asymptotically falling to zero.
This scarcity is presented as a fundamental aspect of its value.

Because there's 21 million. That's all there's ever going to be.

Grant Cardone's Financial Dealings and Potential Conflicts of Interest [00:25]

Reports indicate Grant Cardone listed his jet for sale and a $30 million mansion, prompting questions about his financial state.
The video investigates potential incentives that could allow Cardone to profit from getting "margin called" using investor money.
These funds could potentially be lent to his own entities to finance his lifestyle.
The analysis relies on opinions derived from data found in Cardone's fund documents.

So, what if I told you I have discovered incentives that actually enable Grant Cardone to make money off of getting margin called using investor money potentially in those margin calls or to lend to his own entities to finance his lifestyle.

Cardone Fund Document Analysis: Leverage and Investment Flexibility [01:47]

Cardone's Fund Number 28 allows leverage up to 80% of the fund.
Cardone himself holds the exclusive power to borrow and has broad discretion over the use of these funds.
Permitted investments include real properties, mortgages, loans, notes, contracts, receivables, crypto, and "pretty much any other asset."
This structure enables Cardone to use investor capital, borrow against it, and invest in virtually anything.

In fact, the actual documents tell us that he can invest in any of the following: real properties, mortgages or loans, notes, contracts, receivables, crypto, or pretty much any other asset.

The "Financing Coordination Fee" and Self-Banking Structure [03:09]

Cardone can act as his own bank by using his various funds to lend to his own entities and generate fees.
A "financing coordination fee" is charged anytime a loan is generated or a draw is made on a line of credit.
For example, borrowing $100 million against $150 million of Bitcoin could yield a $1 million fee.
In a margin call scenario, Cardone can earn disposition fees (1%), acquisition fees (1%), and new loan coordination fees (1%), potentially earning 3.65% in a crash scenario.

So all of a sudden you could see that Cardone actually has this incentive to purposefully buy and sell loan or buy and sell assets and continuously take on new debt, close debt, refinance, take on new debt because that's how he earns a lot of money.

Related Party Transactions and Managerial Authority [05:06]

Fund documents indicate Cardone can move debt between different funds without needing arm's length or third-party transaction considerations.
Loan terms are established by the manager, not necessarily through arms-length negotiations.
The manager is permitted to conduct any transaction, irrespective of the relationship between the fund and the manager or its affiliates.
This allows entities associated with Cardone to invest in each other or move debt freely, even to finance assets like a plane, which could be a note receivable for another fund.

Loan terms will be established by the manager, not the result of a arms length or third party transaction.

The Impact of Bankruptcies and Fee Collection [06:10]

If Grant Cardone were to go bankrupt, he could continue operating the funds; investors would not automatically get their money back.
He would continue to receive all his fees, even through liquidation.
The structure allows him to continuously earn fees by selling assets and taking on new debts.

If Grant Cardone goes bankrupt, he gets to keep operating the funds. You do not automatically get your money back.

Deferred Fees and Investor Perception vs. Reality [07:49]

To avoid investors being dissatisfied with high fees, Cardone has the opportunity to defer all owed income and collected fees.
Deferring fees means investor debt is ballooning, as each deferred fee represents future debt for investors.
Investors may see distributions and feel they are earning returns, while their principal liability grows.
In a scenario with 3% appreciation, multiple refinances, and a sale over 10 years, investors might receive distributions but end up with significantly less than their initial investment due to fees.

The reason you would defer the fees is to make it so people keep getting their distribution. But if all of those fees are being deferred, it means basically investor debt is ballooning.

Fee Structures and Incentives for Bitcoin Transactions [11:16]

Cardone charges five types of fees: acquisition (1%), disposition (1%), and financing coordination (1%), among others.
For buying or selling $100 million of Bitcoin, he can earn $1 million in fees for each transaction.
In a crash scenario where he sells $100 million of Bitcoin, he earns a $1 million fee, pays off debt, and then earns another fee when he buys back. He can also earn a fee on new debt.
This results in him getting paid multiple times (e.g., 2.65% in the example) while investors lose money.
The lack of a wash sale rule on Bitcoin allows for tax-loss harvesting, where selling and rebuying can generate fees (e.g., $2 million in fees for a $100 million transaction done within minutes).

So investors lose money. Grant Cardone gets paid three times.

Compounding Fees and Lack of Audits [15:34]

Cardone can earn a management fee (1%) on capital contributions, but the definition of "capital contribution" is unclear.
If money is borrowed from one fund and put into another, he can charge a financing coordination fee on the loan and then potentially another management fee on the capital contributed to the new fund, compounding fees.
Many of Cardone's funds (around 22) are not required to have audits, especially under Regulation D, meaning investors have little visibility into the books.
Regulation A funds require audits, but they might not be the most stringent type.

So he could literally compound fees upon fees upon fees and nobody notices it cuz he just defers all the fees.

The "Vortex" of Funds and Perpetual Fee Generation [20:57]

The structure encourages refinancing to earn a new finance coordination fee, even if not economically optimal.
Cardone benefits from tax loss harvesting, margin calls, related party financing, and selling assets to redeploy into new funds.
There's a potential for fees on selling all assets in 28 funds and then acquiring them into a new roll-up fund.
Cardone has never closed a fund, which the video suggests is intentional to avoid investors realizing the full extent of deferred payables and fees.

So, the loop here, the tools. Every time you buy a property, you also are incentivized to refinance.

Investor Dilution and Exit Strategy Speculation [23:38]

Over a 10-year period with $1 billion in equity and $1.86 billion in debt, management fees alone could amount to $280 million.
Total fees, excluding waterfalls, could reach 36.1% of original investor equity.
Cardone can reinvest gains, keeping funds in perpetual operation to generate fees.
His exit strategy may involve rolling everything into an IPO, but fees would likely be collected before any public offering.

So, in this scenario, on $1 billion of equity, he could make 28% in management fees alone.

Reasons for Investor Adherence and Deception [25:43]

Investors may not understand the magnitude of fees or Cardone's opportunities with them, often not reading private placement memorandums.
Monthly distributions provide a dopamine hit, creating a false sense of security despite potential principal decay.
Deferred fees are not widely understood by investors, leading to a lack of awareness about growing liabilities.
The current system where funds remain within Cardone's control allows for continuous fee compounding.