The FBI in early October arrested alleged cannabis con man Justin Costello in San Diego after a short period during which Costello was one of the agency’s Most Wanted white-collar fugitives.
According to a 25-count criminal indictment and a separate civil complaint from the Securities and Exchange Commission, Costello used fake credentials to commit nearly $35 million worth of fraud focused around the cannabis industry.
Costello, 42, allegedly portrayed himself to the public as a seasoned, licensed investment professional who was building a conglomerate in the cannabis industry in order to defraud businesses and investors of more than $30 million. His alleged false representations included credentials as a Harvard MBA, experience managing a $1.15 billion hedge fund and years of experience on Wall Street.
According to the indictment, Costello in 2017 owned and operated a company called Pacific Banking Corp that provided banking services to marijuana businesses in Alaska, California, Colorado, Illinois and Washington. Between 2019 and 2021, Costello allegedly diverted money from three marijuana businesses to benefit himself and his companies, contrary to the promises he had made to the marijuana businesses.
According to the Department of Justice, as part of his scheme, Costello purchased two companies that were trading for pennies on the over-the-counter market and renamed them GRN Holding Corporation and Hempstract Inc. He also recruited investors in these companies, allegedly making numerous false statements about the size and success of his marijuana banking business.
Costello used the same lies with other investors and allegedly used investor funds for his own expenses, including at least $42,000 for costs associated with his wedding. In all, some 29 investors invested directly with Costello and lost $6 million because they relied on Costello’s false representations.
In 2019, Costello’s entity GRN Funds, LLC purchased the outstanding shares of Discovery Gold Corp., changing the name to GRN Holding Corp and continued to lie about his background on SEC filings, as well as lying about possible acquisitions to boost share prices. None of the acquisitions occurred even though Costello controlled these other companies. Between July 2019 and May 2021, 7,500 investors lost about $25 million after purchasing and selling GRN Holding Corp stock.
Between October 2019 and January 2021, Costello hired an unindicted co-conspirator to use Twitter in a pump and dump stock scheme. Costello’s associate David Ferraro was also named as part of the stock scheme in the SEC complaint, though only identified as an “unindicted co-conspirator” in the indictment. The complaint also alleges that Costello and Ferraro engaged in various stock promotion schemes in which Costello acquired shares of penny stocks and then directed Ferraro to promote those stocks to Ferraro’s Twitter followers and the public. Through these alleged schemes, Costello and Ferraro together made approximately $792,000 in illicit trading profits as part of a “pump and dump scheme.”
Wire fraud is punishable by up to 20 years in prison and fine of $250,000 or twice the gain to Costello or the loss to the victims. Securities fraud is punishable by up to 20 years in prison and a $5 million fine. The SEC is also seeking civil penalties and fines. If you have information, or believe you were a victim in this fraud, please email: CostelloFraud@fbi.gov.
— Brian Beckley