A fugitive accused of an audacious $35 million fraud — in which he allegedly told investors he was a hedge fund billionaire, Harvard MBA and special forces veteran who had been wounded twice in the Iraq— was arrested by an FBI SWAT team in California days later. to insanity, authorities said Wednesday.
Las Vegas resident Justin Costello, 42, is accused by federal prosecutors and the Securities and Exchange Commission of defrauding thousands of investors and others as part of a complex scam that promoted his alleged efforts to build a cannabis conglomerate, among other things.
One of his companies, Pacific Banking Corp., provided banking services to three marijuana companies. Authorities said he also used it to divert at least $3.6 million to himself and other companies he owned.
They also say he participated in a scheme that cost more than 7,500 investors about $25 million by making false claims about plans by one of his own companies to buy 10 other companies.
Another 29 investors lost $6 million after investing directly with Costello based on his misrepresentations, prosecutors said.
Costello, who also had a residence in La Jolla, Calif., used about $42,000 of the investors’ money for costs associated with his wedding to Katrina Rosseini, prosecutors said.
A video of that wedding reviewed by CNBC shows both a cake and an ice sculpture with the James Bond movie logo of the numbers “007” over a semi-automatic pistol and a belly-dancing performance by Rosseini, who did not is accused in the cases. against her husband
“Mr. Costello allegedly told many stories to convince victims to invest millions of dollars, money that he then used for his own benefit,” U.S. Attorney Nick Brown of the Western District of Washington said in a statement .
“In a complex scheme involving shell companies, penny stocks and financial services for marijuana businesses, Mr. Costello used Twitter, press releases, securities statements and claims of great wealth to paint a picture of a successful fabulous financier,” Brown said.
“That image was actually a mirage,” he said.
An attorney for Costello did not respond to a request for comment.
Costello, who formerly lived in Bellevue, Washington, had agreed through his attorney to turn himself in to the FBI office in San Diego last Thursday after being told he had been indicted on criminal charges by a grand jury in court federal from Washington state a day earlier. law enforcement officials told CNBC. The complaint charges him with 22 counts of wire fraud and three counts of securities fraud in the case.
But Costello never showed up as promised at the FBI office that day, officials said.
The same day, the SEC indicted Costello and an alleged co-conspirator, David Ferraro, in a civil suit accusing them of defrauding investors and using Twitter to promote penny stocks without disclosing their own stock sales to as prices rose.
As in the federal indictment, the SEC accuses Costello of fraudulent conduct in connection with two publicly traded companies he previously controlled, Hempstract and GRN Holding Corp.
The SEC said in one case that Costello sold a married couple $1.8 million in stock at a markup of more than 9,000 percent of its price.
Ferraro, a 44-year-old resident of Radford, Virginia, who was not charged in the criminal indictment with Costello, did not immediately respond to a request for comment from CNBC.
Ferraro is accused of using the Twitter account with the handle @computerbux, which had nearly 10,000 followers at the end of 2019, in the scheme.
Shortly after Costello failed to surrender Thursday, the FBI posted a “Wanted” sign featuring Costello, noting he was a fugitive.
“He may be traveling with his wife, Katrina Rosseini, who is not a fugitive,” said that poster, which included several photos of Costello, some of which included Rosseini.
The poster noted that the couple may be traveling with their small dog, named Harry.
On Tuesday night, Costello was arrested by an FBI SWAT team in El Cajon, California, in San Diego County, according to Emily Langglie, a spokeswoman for the US Attorney’s office for the Western District of Washington.
On Wednesday morning, Costello was taken to a hospital after complaining of health problems, Langglie said.
It is not yet known when he will make his first appearance in federal court in California.
Costello’s arrest was good news for Steven Selna, an Oakland, Calif., attorney whose client, CCSAC Inc., was one of three cannabis companies allegedly defrauded by Costello.
CCSAC has a lawsuit pending against Costello and his companies in the U.S. District Court for the Northern District of California alleging that, despite claims to the contrary, he failed to pay $2.2 million in state taxes California on behalf of CCSAC from your account at Pacific Banking. body
Selna told CNBC that Costello had at least $2.9 million that belongs to CCSAC, which he said has a significant presence in California through retail and distribution operations. The company, which plans to expand to the East Coast in 2023, believes its monetary loss from Costello could be as high as $5 million.
The criminal indictment against Costello accuses him of fraudulently diverting $300,000 of CCSAC money deposited with Pacific Banking to purchase stock in a publicly traded shell company in 2019 for the purpose of completing a reverse merger with Costello’s private company, GRN Holding Corp.
GRN shares were publicly traded as a result of this merger.
GRN Holding’s most recent SEC filing says Costello resigned as the company’s CEO in April, the same month he sold 144 million shares of GRN Holding to its current CEO for $140,000.
The indictment also says that at various times during Costello’s alleged schemes, he described another company he ran, GRN Funds LLC, as having more than $1 billion under management and $600 million on deposit.
That claim was untrue, the complaint says.
According to the indictment, a judge in the civil case brought against Costello by the CCSAC last month ordered him to state under penalty of perjury the name of the financial institution and other details about the account where the balance was kept of the CCSAC funds.
Costello filed an affidavit saying at least $2.9 million in CCSAC funds were held at a credit union in Tacoma, Wash., in the name of GRN Funds LLC, the indictment states.
But contrary to that claim, GRN Funds’ checking account at the credit union “has a balance of $15.35 as of September 9, 2022,” the indictment said.
“All we’re interested in is getting our client’s money back,” said CCSAC attorney Selna. “If this makes it easier, that’s good,” he said in reference to Costello’s arrest.
Selna also said that Costello, in dealing with CCSAC, “certainly presented himself as a big hit in this industry and that he would protect our client’s money. And that was not true.”
The indictment says that when Costello solicited funds from investors, he made false claims that included saying he graduated from the University of Minnesota and had a master’s degree in business administration from Harvard.
He also claimed to have served two tours in Iraq as a member of special forces and was shot twice, leaving shrapnel in his leg, according to the complaint.
Costello also falsely said he “was a billionaire,” “managed money for wealthy people, including a Saudi sheikh” and “had 14 years of experience on Wall Street,” the indictment said.
“None of this is true,” said a news release from US Attorney Brown’s office.
The indictment says that in 2019, when an online article questioned Costello’s statements about his education, he caused GRN Holding Corp. issued an 8-K filing with the SEC that said Costello “was a graduate of Winona State University with a degree in Advertising.” Administration who attended Harvard University but did not graduate.”
“That statement was also misleading,” the indictment says. He noted that “Costello only took one course in Harvard’s continuing education program.”
That same year, Costello had GRN Holdings issue a press release stating that it had non-binding letters of intent to acquire at least 10 companies, and in the following months issued 10 press releases announcing the completion of due diligence due for each company, according to the indictment. .
GRN Holding’s filings with the SEC also reflected these claims.
But “GRN Holding Corporation never completed the acquisitions of the companies, even though Justin Costello was an affiliate, shareholder, owner or manager of each company,” the indictment says.
“Most of the companies were acquired by Renewal Fuels Inc., another [over-the-counter market-]traded company controlled by Justin Costello”.
And contrary to Costello’s claims to GRN Holdings investors, “the companies had little or no revenue or assets,” the indictment said.
Between July 2019 and May 2021, “more than 7,500 investors bought and sold shares of GRN Holding Corporate while Justin Costello made, and continued to make, material misrepresentations about GRN Holding,” the indictment says.
“Collectively, these investors lost approximately $25 million.”