A fugitive accused of audacious $35 million fraud – in which he allegedly told investors he was a hedge fund billionaire, Harvard MBA and a force veteran was wounded twice in Iraq – was arrested by an FBI SWAT team in California after days in a tuk tuk, authorities said Wednesday.
Justin Costello, 42, of Las Vegas, is accused by federal prosecutors and the Securities and Exchange Commission of defrauding thousands of investors and others as part of a sophisticated scam aimed at advertises his purported efforts to build a cannabis corporation, among other things.
One of his companies, Pacific Banking Corp., provided banking services to three cannabis companies. Authorities said he also used it to transfer at least $3.6 million to himself and other companies he owned.
They also said he was involved in a scheme that cost more than 7,500 investors about $25 million by falsely claiming one of his companies’ plans to buy 10 other companies.
Prosecutors said 29 other investors lost $6 million after investing directly with Costello.
Costello, who also has a home in La Jolla, California, used about $42,000 of investors’ money for expenses related to his wedding to Katrina Rosseini, prosecutors said.
A video of that wedding reviewed by CNBC shows both a cake and an ice sculpture featuring the James Bond movie logo with the number “007” on a semi-automatic pistol and a belly dance performance. of Rosseini, who was not charged in the case against her husband.
“Mr Costello allegedly told many sublime stories to convince victims to invest millions of dollars – money he then used for his own benefit,” said US Attorney Nick Brown of the Western District. Washington, said in a statement.
“In a complex scheme involving shell companies, penny stocks and financial services for cannabis businesses, Costello used Twitter, press releases, stock records and statements of great wealth to paint a picture of great financial success.
“In fact, that photo is an illusion,” he said.
Costello’s attorney did not respond to a request for comment.
Costello, who formerly lived in Bellevue, Washington, agreed through his attorney to surrender last Thursday to the FBI office in San Diego after being told he had been subject to a grand jury in Federal court in Washington state indicted a day earlier, law enforcement officials told CNBC. The lawsuit alleges he has 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 charged Costello and an alleged accomplice, David Ferraro, in a civil lawsuit alleging they misled investors and used Twitter to promote penny stocks without disclosing sales their own stock when the price rises.
As in the federal indictment, the SEC alleges Costello engaged in fraud involving two publicly traded companies he previously controlled, Bone spurs and GRN Holding Corp.
In one example, the SEC said, Costello sold a couple $1.8 million in stock for a gain of more than 9,000% over its price.
Ferraro, 44, of Radford, Virginia, who has not been charged in the criminal charges against Costello, did not immediately respond to a request for comment from CNBC.
Ferraro allegedly used the Twitter handle @computerbux, which had nearly 10,000 followers at the end of 2019, in this scheme.
Shortly after Costello failed to surrender on Thursday, the FBI released a “Wanted” poster featuring Costello, noting that he was a fugitive.
“He may be traveling with his wife, Katrina Rosseini, who is not a fugitive,” said the poster, which includes multiple photos of Costello, some of which featured 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 Langlie, a spokeswoman for the United States Attorney’s Office for the Western District of Washington.
On Wednesday morning, Costello was rushed to the hospital after complaining of health problems, Langlie said.
It remains unclear when he will first appear in federal court in California.
Costello’s arrest is good news for Steven Selna, an attorney in Oakland, California whose client is CCSAC Inc., one of three cannabis companies that Costello scammed.
CCSAC has a pending lawsuit against Costello and his companies in the U.S. Northern District Court for his failure, despite claims to the contrary, to pay 2.2 million dollars in taxes to the state of California on behalf of CCSAC from his account at Pacific Banking Corp.
Selna told CNBC that Costello is holding at least $2.9 million that belongs to CCSAC, which he says has a major 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 top $5 million.
The criminal indictment against Costello accuses him of fraudulently transferring $300,000 CCSAC deposited into Pacific Banking to purchase shares in a publicly traded shell company in 2019 with the ultimate aim of completing the reverse merger with Costello’s then privately held company, GRN Holding Corp.
Shares of GRN are publicly traded as a result of that merger.
GRN Holding’s most recent SEC filing says Costello stepped down as the company’s CEO in April, the same month that he sold 144 million shares of GRN Holding to its current CEO for 140,000. dollars.
The indictment also says that at various points in Costello’s alleged schemes, he described another company he ran, GRN Funds LLC, which had more than $1 billion under management. and $600 million in deposits.
The complaint says that statement is not true.
According to the indictment, a judge in a civil case filed by the CCSAC against Costello last month ordered him to declare under penalty of perjury the name of the financial institution and other details of the account where it is located. CCSAC’s fund balance is being held.
Costello filed a sworn statement saying that at least $2.9 million in CCSAC funds was being held in a credit union in Tacoma, Washington, in the name of GRN Funds LLC, the indictment noted.
But contrary to that claim, the GRN Funds checking account at the credit union “had a balance of $15.35 as of September 9, 2022,” the indictment said.
“All we care about is getting our clients’ money back,” said Selna, a lawyer for CCSAC. “If it facilitates then that’s a good thing,” he said, referring to Costello’s arrest.
Selna also said that Costello, in his dealings with CCSAC, “definitely presented himself as a very successful person in this industry and that he would protect our customers’ money. And that’s not true.”
The indictment says that when Costello solicited money from investors, he made false statements including saying he graduated from the University of Minnesota and earned a master’s degree in business administration from Harvard. .
He also claims to have served two tours in Iraq as a member of special forces and was shot twice, leaving shrapnel in his leg, the lawsuit said.
Costello also falsely claimed that “he is a billionaire”, “he manages money for wealthy individuals, including a leader of Saudi Arabia”, and “he has 14 years of experience in Wall Street,” the indictment said.
“None of that is true,” said a press release from the US Attorney’s office of Brown.
The indictment says that in 2019, when an online article questioned Costello’s claims about his education, he asked GRN Holding Corp to issue an 8-K filing with The SEC stated that Costello “graduated from Winona State University with a Public Degree. Administrator attended Harvard University but did not graduate.”
“This statement is also misleading,” the indictment said. It notes that “Costello took only one course in the Harvard continuing education program.”
That same year, Costello asked GRN Holdings to issue a press release stating that it intended to acquire at least 10 companies, and in the following months it issued 10 press releases announcing the acquisition. completed due diligence on each company, the indictment said. .
GRN Holding’s filings with the SEC also reflect those claims.
But “GRN Holding Corporation never completed the acquisition of the companies, even though Justin Costello was an affiliate, shareholder, owner or manager of each,” the indictment said.
“Instead, most of the companies were acquired by Renewal Fuels Inc., another company [over-the-counter market-]trading company controlled by Justin Costello. “
And contrary to Costello’s claims to investors in GRN Holdings, “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 GRN Holding Corporate stock while Justin Costello was making and continuing to publish material misinformation related to regarding GRN Holding,” the indictment said.
“All of these investors lost about $25 million.”
