Business

Man claimed to be billionaire, Harvard MBA, Iraq vet in monetary fraud

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A fugitive charged with an audacious $35 million fraud — during which he allegedly instructed 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 staff 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.

Certainly one of his firms, Pacific Banking Corp., offered banking companies to a few marijuana firms. Authorities mentioned he additionally used it to divert at the least $3.6 million to himself and different corporations he owned.

Additionally they say that he engaged in a scheme that value greater than 7,500 buyers about $25 million by making false claims about plans by one in every of his personal firms to buy 10 different corporations.

One other 29 buyers misplaced $6 million after investing instantly with Costello primarily based on his false representations, prosecutors mentioned.

Costello, who additionally had a residence in La Jolla, California, 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 reveals each a cake and an ice sculpture boasting the James Bond film brand of the numbers “007” over a semi-automatic pistol and a belly-dancing efficiency by Rosseini, who shouldn’t be charged within the circumstances towards her husband.

“Mr. Costello allegedly instructed many tall tales to persuade victims to take a position thousands and thousands of {dollars} — cash he then used for his personal profit,” mentioned U.S. Lawyer Nick Brown of the Western District of Washington, in an announcement.

“In a posh scheme involving shell firms, penny shares, and monetary companies 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 fact that image was a mirage,” he mentioned.

An legal professional for Costello didn’t reply to a request for remark.

Costello, who beforehand lived in Bellevue, Washington, 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 felony costs by a grand jury in federal courtroom in Washington state a day earlier, regulation enforcement officers instructed CNBC. The grievance 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 charged Costello and an alleged co-conspirator, David Ferraro, in 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 firms 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% markup to its value.

Ferraro, a 44-year-old Radford, Virginia, resident who was not charged within the felony indictment with Costello, didn’t instantly reply to a request for remark from CNBC.

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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.

Quickly after Costello didn’t give up Thursday, the FBI issued a “Needed” poster that includes Costello, noting he was a fugitive.

“He could also be touring along with his spouse, Katrina Rosseini, who shouldn’t be a fugitive,” mentioned that poster, which included a number of photographs of Costello, a few of which included Rosseini.

The poster famous that the couple may be touring with their small canine, named Harry.

On Tuesday night time, Costello was arrested by an FBI SWAT staff in El Cajon, California, in San Diego County, in accordance with Emily Langlie, a spokeswoman for the U.S. Lawyer’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 identified when he’ll make his first look in federal courtroom in California.

The apprehension of Costello was welcome information to Steven Selna, an Oakland, California, lawyer whose shopper, CCSAC Inc., was one of many three hashish firms allegedly swindled by Costello.

CCSAC has a pending lawsuit towards Costello and his firms in U.S. District Court docket 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 instructed CNBC that Costello was holding at the least $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 felony 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 in the end finishing a reverse merger with Costello’s then privately held firm, GRN Holding Corp.

GRN’s shares grew to become publicly traded because of that merger.

GRN Holding’s most up-to-date SEC submitting says Costello resigned as CEO of the corporate in April, the identical month that he bought 144 million shares of GRN Holding to its present CEO for $140,000.

The indictment additionally says that at varied instances throughout Costello’s alleged schemes, he described one other firm he ran, GRN Funds LLC, as having greater than $1 billion beneath administration, and $600 million beneath deposit.

That declare was not true, the grievance says.

Based on the indictment, a choose within the civil case filed towards Costello by CCSAC final month ordered him to declare beneath the penalty of perjury the identify of the monetary establishment and different particulars in regards to the account the place the steadiness of CCSAC’s funds was being held.

Costello submitted a sworn declaration saying that at the least $2.9 million in CCSAC’s funds had been being held in a credit score union in Tacoma, Washington, within the identify of GRN Funds LLC, the indictment notes.

However opposite to that declare, the GRN Funds checking account on the credit score union “has a steadiness of $15.35 as of September 9, 2022,” the indictment mentioned.

“All we’re fascinated by is getting our shopper’s a reimbursement,” mentioned Selna, CCSAC’s legal professional. “If it facilitates that it is a good factor,” he mentioned, referring to Costello’s arrest.

Selna additionally mentioned that Costello, in dealings with CCSAC, “definitely offered himself as being extremely profitable on this trade, and that he would defend our shopper’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 served two excursions in Iraq as a member of the particular forces and been shot twice, leaving shrapnel in his leg, the grievance 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. Lawyer Brown’s workplace mentioned.

The indictment says that in 2019, when a web based article questioned Costello’s statements about his training, he had GRN Holding Corp. problem an 8-Okay submitting with the SEC which acknowledged 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 training program.”

That very same yr, Costello had GRN Holdings problem a press launch stating it had nonbinding letters of intent to accumulate at the least 10 firms, and that within the following months it issued 10 press releases saying 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, though Justin Costello was an affiliate, shareholder, proprietor, or supervisor of every firm,” the indictment mentioned.

“A lot of the firms had been as an alternative acquired by Renewal Fuels Inc., one other [over-the-counter market-]traded firm managed by Justin Costello.”

And opposite to Costello’s claims to buyers in GRN Holdings, “the businesses had little or no income or belongings,” 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.”

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