Justin Costello, who posed as a billionaire and twice-wounded Special Forces Iraq veteran to dupe investors while portraying himself as a legal cannabis mogul, pleaded guilty Wednesday to securities fraud.
Under a plea agreement with Costello, prosecutors will recommend a sentence of 10 years in prison, with Costello echoing that call and being barred from asking for less time than that.
Costello also agreed to pay victims of his frauds — which related to cannabis firms, a would-be bank, and stock pump-and-dumps — not less than $35 million in restitution.
Costello’s guilty plea in federal court in Seattle came three months after an FBI SWAT team apprehended the 42-year-old in a remote area of southern California, carrying a backpack containing gold bars, $70,000 in U.S. and Mexican currency, and a fake ID.
Days earlier, he had failed to surrender as agreed to face a 25-count indictment in the case.
That indictment charged Costello with three counts of securities fraud and 22 counts of wire fraud.
His guilty plea Wednesday was to a single count of securities fraud, but it covered much of the criminal conduct alleged in the indictment.
Prosecutors agreed as part of the plea deal not to file criminal charges against Costello’s wife “for any offenses known” to the U.S. Attorney’s Office for the Western District of Washington in connection with the investigation.
Costello had used about $42,000 of investors’ money to pay for his wedding, prosecutors have said. That wedding featured a cake and an ice sculpture featuring the “007” James Bond movie logo.
Sentencing for Costello, who has been held in jail without bail since his arrest, was scheduled for April 21.
Costello admitted in his plea agreement to lying to investors and would-be investors by falsely claiming he had graduated from the University of Minnesota and had a master’s degree in business administration from Harvard. Costello also lied by saying he had managed money for wealthy individuals and had 14 years of experience on Wall Street.
The agreement says that while Costello was lying about his qualifications from July 2019 through May 2021, more than 7,500 investors bought and sold stock in his publicly traded company, GRN Holding Corp. Those investors collectively lost about $25 million, the plea agreement says.
Nearly 30 investors in another Costello company, Hempstract, collectively lost about $6 million after relying on his false statements about the firm’s business operations, the agreement notes. Those lies included claims that a large grocery business in Chicago had made a $12 million purchase order for Hempstract products, and that Hempstract had more than 3,100 kilograms of CBD isolate valued at $10.7 million.
In another scam, Costello fraudulently diverted a total of nearly $3.7 million from three marijuana businesses that had agreements to obtain banking services from another one of his companies, Pacific Banking Corp., the plea deal said.
Finally, prosecutors wrote, Costello between October 2019 and January 2021 engaged in a fraudulent pump-and-dump stock scheme in which he manipulated the prices of multiple stocks.
In that scheme, Costello bought large blocks of stocks of the companies at low prices, and then paid another man to use a Twitter account to fraudulently promote the companies by making false claims about them. Costello made more than $625,000 from that scheme, according to his plea agreement.
The other man involved in that scheme was not identified by name by prosecutors, who used his initials, D.F., to describe him.
But in late October, a Radford, Virginia, man named David Ferraro, 44, agreed to settle a civil lawsuit filed by the Securities and Exchange Commission accusing him and Costello of engaging in pump-and-dumps of penny stocks. Ferraro was not criminally charged with Costello.
The SEC’s suit against Costello remains pending.
H/T: www.cnbc.com
