A fugitive charged with an audacious $35 million fraud — through which he allegedly advised buyers he was a hedge fund billionaire, a Harvard MBA and a particular forces veteran who had been twice wounded in Iraq — was arrested by an FBI SWAT group in California after days on the lam, authorities mentioned Wednesday.
Las Vegas resident Justin Costello, 42, is accused by federal prosecutors and the Securities and Alternate Fee of swindling hundreds of buyers and others as a part of a posh rip-off that touted his purported efforts to construct a hashish conglomerate, amongst different issues.
Considered one of his corporations, Pacific Banking Corp., offered banking providers to a few marijuana corporations. Authorities mentioned he additionally used it to divert not less than $3.6 million to himself and different corporations he owned.
Additionally they say that he engaged in a scheme that price greater than 7,500 buyers about $25 million by making false claims about plans by certainly one of his personal corporations to buy 10 different corporations.
One other 29 buyers misplaced $6 million after investing straight with Costello based mostly on his false representations, prosecutors mentioned.
Costello, who additionally had a residence in La Jolla, Calif., used about $42,000 of buyers’ cash for prices related along with his marriage ceremony to Katrina Rosseini, prosecutors mentioned.
A video of that marriage ceremony reviewed by CNBC exhibits each a cake and an ice sculpture boasting the James Bond film emblem of the numbers “007” over a semi-automatic pistol and a belly-dancing efficiency by Rosseini, who is just not charged within the instances going through her husband.
“Mr. Costello allegedly advised many tall tales to persuade victims to speculate hundreds of thousands of {dollars} — cash he then used for his personal profit,” mentioned U.S. Legal professional Nick Brown of the Western District of Washington, in an announcement.
“In a posh scheme involving shell corporations, penny shares, and monetary providers for marijuana companies, Mr. Costello used Twitter, press releases, securities filings, and claims of nice wealth to color an image of fabulous monetary success,” Brown mentioned.
“In reality that image was a mirage,” he mentioned.
An legal professional for Costello, who beforehand lived in Bellevue, Washington, didn’t return a request for remark.
Costello had agreed by means of his lawyer to give up final Thursday to the FBI workplace in San Diego after being knowledgeable he had been indicted on legal prices by a grand jury in federal courtroom in Washington state a day earlier, regulation enforcement officers advised CNBC. The criticism accuses him of twenty-two counts of wire fraud and three counts of securities fraud within the case.
However Costello by no means confirmed up as promised at that FBI workplace that day, officers mentioned.
On the identical day, the SEC slapped Costello and an alleged co-conspirator David Ferraro, with a civil lawsuit accusing them of defrauding buyers and of utilizing Twitter to advertise penny shares with out disclosing their very own gross sales of the shares as costs rose.
As within the federal indictment, the SEC accuses Costello of fraudulent conduct in reference to two publicly traded corporations he beforehand managed, Hempstract and GRN Holding Corp.
The SEC mentioned in a single occasion, Costello bought a married couple $1.8 million in inventory at a greater than 9,000% mark-up to its worth.
Ferraro, a 44-year-old Radford, Va., resident who was not charged within the legal indictment with Costello, didn’t instantly return a request for remark from CNBC.
Ferraro is accused of utilizing the Twitter account with the deal with @computerbux, which had virtually 10,000 followers in late 2019, within the scheme.
After Costello did not give up Thursday, the FBI quickly after issued a “Needed” poster that includes Costello, noting he was a fugitive.
“He could also be touring along with his spouse, Katrina Rosseini, who is just not a fugitive,” mentioned that poster, which included a number of pictures of Costello, a few of which included Rosseini.
The poster famous that the couple could be touring with their small canine, who is called Harry.
On Tuesday night time, Costello was arrested by an FBI Swat group in El Cajon, Calif., in San Diego County, based on Emily Langlie, a spokeswoman for the U.S. Legal professional’s Workplace for the Western District of Washington.
On Wednesday morning, Costello was taken to a hospital after complaining of well being points, Langlie mentioned.
It isn’t but recognized when he’ll make his first look in federal courtroom in California.
Costello’s apprehension was welcome information to Steven Selna, an Oakland, Calif., lawyer whose consumer, CCSAC Inc., was one of many three hashish corporations allegedly swindled by Costello.
CCSAC has a pending lawsuit towards Costello and his corporations in U.S. District Courtroom for the Northern District of California, over his failure, regardless of 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 advised CNBC that Costello was holding not less than $2.9 million that belongs to CCSAC, which he mentioned has a serious presence in California by means of retail and distribution operations. The agency, which plans to increase to the East Coast in 2023, believes its financial loss from Costello could also be as excessive as $5 million.
The legal indictment towards Costello accuses him of fraudulently diverting $300,000 of CCSAC’s cash deposited with Pacific Banking to buy shares in a publicly traded shell firm in 2019 for the needs of finally finishing a reverse merger with Costello’s then-privately held firm, GRN Holding Corp.
GRN’s shares turned publicly traded on account of that merger.
GRN Holding’s most up-to-date SEC submitting 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 present CEO for $140,000.
The indictment additionally says that at numerous instances throughout Costello’s alleged schemes, he described one other firm he ran, GRN Funds LLC, as having greater than $1 billion below administration, and $600 million below deposit.
That declare was not true, the criticism says.
In keeping with the indictment, a choose within the civil case filed towards Costello by CCASC final month ordered him to declare below the penalty of perjury the title of the monetary establishment, and different particulars in regards to the account the place the stability of CCSAC’s funds was being held.
Costello submitted a sworn declaration saying that not less than $2.9 million in CCSAC’s funds have been being held in a credit score union in Tacoma, Wash., within the title of GRN Funds LLC, the indictment notes.
However opposite to that declare, the GRN Funds checking account on the credit score union “has a stability of $15.35 as of September 9, 2022,” the indictment mentioned.
“All we’re concerned about is getting our consumer’s a reimbursement, and if it facilitates that it is a good factor,” Selna mentioned.
The lawyer additionally mentioned that Costello, in dealings with CCSAC, “definitely offered himself as being extremely profitable on this business, and that he would defend our consumer’s cash. And that wasn’t true.”
The indictment says that when Costello solicited funds from buyers, he made false claims that included saying he graduated from the College of Minnesota and had a grasp’s diploma in enterprise administration from Harvard.
He additionally claimed to have carried out two excursions in Iraq as a member of the Particular Forces, and been shot twice, leaving shrapnel in his leg, the criticism says.
Costello additionally falsely mentioned “he was a billionaire”; “he managed cash for rich people, together with a Saudi sheikh”; and “he had 14 years of expertise on Wall Road,” the indictment mentioned.
“None of that’s true,” a press launch by U.S. Legal professional Brown’s workplace mentioned.
The indictment says that in 2019, when an internet article questioned Costello’s statements about his schooling, he had GRN Holding Corp. situation an 8-Ok submitting with the SEC which said that Costello “was a graduate of Winona State College with a level in Public Administration who attended Harvard College however didn’t graduate.”
“This assertion was additionally deceptive,” the indictment mentioned. It famous that “Costello solely took one course in Harvard’s persevering with schooling program.”
That very same 12 months, Costello had GRN Holdings situation a press launch stating it had non-binding letters of intent to amass not less than 10 corporations, and that within the following months issued 10 press releases asserting the completion of due diligence for every firm, the indictment mentioned.
Filings by GRN Holding with the SEC additionally mirrored these claims.
However “GRN Holding Company by no means accomplished the acquisitions of the businesses, although Justin Costello was an affiliate, shareholder, proprietor, or supervisor of every firm,” the indictment mentioned.
“Many of the corporations have been as a substitute acquired by Renewal Fuels Inc., one other [over-the-counter market-]traded firm managed by Justice Costello.”
And opposite to Costello’s claims to buyers in GRN Holdings, “the businesses had little or no income or property,” the indictment mentioned.
Between July 2019 and Could 2021, “over 7,500 buyers bought and bought GRN Holding Company inventory whereas Justin Costello was making, and persevering with to be made, the fabric misrepresentations regarding GRN Holding,” the indictment mentioned.
“Collectively these buyers misplaced roughly $25 million.”
