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A fugitive charged with an audacious $35 million fraud — through which he allegedly told investors he was a hedge fund billionaire, a Harvard MBA and a special forces veteran who had been twice wounded in Iraq — was arrested by an FBI SWAT team in California after days on the lam, authorities said Wednesday.
Las Vegas resident Justin Costello, 42, is accused by federal prosecutors and the Securities and Exchange Commission of swindling hundreds of investors and others as a part of a posh scam that touted his purported efforts to construct a cannabis conglomerate, amongst other things.
One among his corporations, Pacific Banking Corp., provided banking services to 3 marijuana corporations. Authorities said he also used it to divert at the least $3.6 million to himself and other firms he owned.
Additionally they say that he engaged in a scheme that cost greater than 7,500 investors about $25 million by making false claims about plans by one among his own corporations to buy 10 other firms.
One other 29 investors lost $6 million after investing directly with Costello based on his false representations, prosecutors said.
Costello, who also had a residence in La Jolla, Calif., used about $42,000 of investors’ money for costs associated together with his wedding to Katrina Rosseini, prosecutors said.
A video of that wedding reviewed by CNBC shows each a cake and an ice sculpture boasting the James Bond movie logo of the numbers “007” over a semi-automatic pistol and a belly-dancing performance by Rosseini, who shouldn’t be charged within the cases facing her husband.
“Mr. Costello allegedly told many tall tales to persuade victims to take a position tens of millions of dollars — money he then used for his own profit,” said U.S. Attorney Nick Brown of the Western District of Washington, in an announcement.
“In a posh scheme involving shell corporations, penny stocks, and financial services for marijuana businesses, Mr. Costello used Twitter, press releases, securities filings, and claims of great wealth to color an image of fabulous financial success,” Brown said.
“In reality that picture was a mirage,” he said.
An attorney for Costello, who previously lived in Bellevue, Washington, didn’t return a request for comment.
Costello had agreed through his lawyer to give up last Thursday to the FBI office in San Diego after being informed he had been indicted on criminal charges by a grand jury in federal court in Washington state a day earlier, law enforcement officials told CNBC. The grievance accuses him of twenty-two counts of wire fraud and three counts of securities fraud within the case.
But Costello never showed up as promised at that FBI office that day, officials said.
On the identical day, the SEC slapped Costello and an alleged co-conspirator David Ferraro, with a civil lawsuit accusing them of defrauding investors and of using Twitter to advertise penny stocks without disclosing their very own sales of the stocks as prices rose.
As within the federal indictment, the SEC accuses Costello of fraudulent conduct in reference to two publicly traded corporations he previously controlled, Hempstract and GRN Holding Corp.
The SEC said in a single instance, Costello sold a married couple $1.8 million in stock at a greater than 9,000% mark-up to its price.
Ferraro, a 44-year-old Radford, Va., resident who was not charged within the criminal indictment with Costello, didn’t immediately return a request for comment from CNBC.
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Ferraro is accused of using the Twitter account with the handle @computerbux, which had almost 10,000 followers in late 2019, within the scheme.
After Costello didn’t give up Thursday, the FBI soon after issued a “Wanted” poster featuring Costello, noting he was a fugitive.
“He could also be traveling together with his wife, Katrina Rosseini, who shouldn’t be a fugitive,” said that poster, which included multiple photos of Costello, a few of which included Rosseini.
The poster noted that the couple is perhaps traveling with their small dog, who is called Harry.
On Tuesday night, Costello was arrested by an FBI Swat team in El Cajon, Calif., in San Diego County, in line with Emily Langlie, a spokeswoman for the U.S. Attorney’s Office for the Western District of Washington.
On Wednesday morning, Costello was taken to a hospital after complaining of health issues, Langlie said.
It shouldn’t be yet known when he’ll make his first appearance in federal court in California.
Costello’s apprehension was welcome news to Steven Selna, an Oakland, Calif., lawyer whose client, CCSAC Inc., was one among the three cannabis corporations allegedly swindled by Costello.
CCSAC has a pending lawsuit against Costello and his corporations in U.S. District Court for the Northern District of California, over his failure, despite claims on the contrary, to pay $2.2 million in taxes to the state of California on CCSAC’s behalf from its account at Pacific Banking Corp.
Selna told CNBC that Costello was holding at the least $2.9 million that belongs to CCSAC, which he said has a significant presence in California through retail and distribution operations. The firm, which plans to expand to the East Coast in 2023, believes its monetary loss from Costello could also be as high as $5 million.
The criminal indictment against Costello accuses him of fraudulently diverting $300,000 of CCSAC’s money deposited with Pacific Banking to buy shares in a publicly traded shell company in 2019 for the needs of ultimately completing a reverse merger with Costello’s then-privately held company, GRN Holding Corp.
GRN’s shares became publicly traded consequently of that merger.
GRN Holding’s most up-to-date SEC filing says that Costello resigned as CEO of the corporate in April, the identical month that he solder 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 one other company he ran, GRN Funds LLC, as having greater than $1 billion under management, and $600 million under deposit.
That claim was not true, the grievance says.
In response to the indictment, a judge within the civil case filed against Costello by CCASC last month ordered him to declare under the penalty of perjury the name of the financial institution, and other details in regards to the account where the balance of CCSAC’s funds was being held.
Costello submitted a sworn declaration saying that at the least $2.9 million in CCSAC’s funds were being held in a credit union in Tacoma, Wash., within the name of GRN Funds LLC, the indictment notes.
But contrary to that claim, the GRN Funds checking account on the credit union “has a balance of $15.35 as of September 9, 2022,” the indictment said.
“All we’re keen on is getting our client’s a refund, and if it facilitates that it’s a superb thing,” Selna said.
The lawyer also said that Costello, in dealings with CCSAC, “definitely presented himself as being highly successful on this industry, and that he would protect our client’s money. And that wasn’t 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 done two tours in Iraq as a member of the Special Forces, and been shot twice, leaving shrapnel in his leg, the grievance says.
Costello also falsely said “he was a billionaire”; “he managed money for wealthy individuals, including a Saudi sheikh”; and “he had 14 years of experience on Wall Street,” the indictment said.
“None of that’s true,” a press release by U.S. Attorney Brown’s office said.
The indictment says that in 2019, when a web based article questioned Costello’s statements about his education, he had GRN Holding Corp. issue an 8-K filing with the SEC which stated that Costello “was a graduate of Winona State University with a level in Public Administration who attended Harvard University but didn’t graduate.”
“This statement was also misleading,” the indictment said. It noted that “Costello only took one course in Harvard’s continuing education program.”
That very same 12 months, Costello had GRN Holdings issue a press release stating it had non-binding letters of intent to amass at the least 10 corporations, and that in the next months issued 10 press releases announcing the completion of due diligence for every company, the indictment said.
Filings by GRN Holding with the SEC also reflected those claims.
But “GRN Holding Corporation never accomplished the acquisitions of the businesses, although Justin Costello was an affiliate, shareholder, owner, or manager of every company,” the indictment said.
“A lot of the corporations were as a substitute acquired by Renewal Fuels Inc., one other [over-the-counter market-]traded company controlled by Justice Costello.”
And contrary to Costello’s claims to investors in GRN Holdings, “the businesses had little or no revenue or assets,” the indictment said.
Between July 2019 and May 2021, “over 7,500 investors purchased and sold GRN Holding Corporate stock while Justin Costello was making, and continuing to be made, the fabric misrepresentations concerning GRN Holding,” the indictment said.
“Collectively these investors lost roughly $25 million.”