Cannabis con man Justin Costello, who lied about being a billionaire and seeing combat in Iraq, among a multitude of other falsehoods, pleaded guilty on January 18 in a federal court to securities fraud and admitted in his plea agreement that he victimized marijuana business owners, private investors and investors who purchased stock in the public market.
Under the terms of the plea agreement, the prosecutors and the defense will recommend a 10-year prison sentence when Costello, 42, is sentenced on April 21, though the judge may impose any sentence allowed by statue. Costello may not ask for a shorter term.
“Throughout history we’ve seen people try to take advantage of new industries, defrauding investors and businesses that have limited knowledge of the proposed enterprise,” U.S. Attorney Nick Brown said in an email to Marijuana Venture. “Mr. Costello engaged in old-fashioned fraud, taking money from investors under false pretenses and defrauding marijuana businesses of their income. He used the new and uncharted nature of the marijuana marketplace to hide his old-fashioned fraud from investors and businesses that fell for the tall tales he peddled.”
While Costello pleaded guilty to one count of securities fraud, the plea agreement specifies that the court can take into account all of Costello’s criminal conduct for sentencing purposes. Costello not only defrauded investors, he also stole from three marijuana businesses that trusted him for banking services. As part of the agreement, Costello agreed to pay at least $35 million in restitution to the victims of his fraud.
During his time in the Washington cannabis industry, Costello became well known for telling fanciful tales of his wealth, his love life and being shot twice during his time serving in Iraq, as well as using smaller lies like having a wife and children as ways to gain the confidence of those in the industry. He had a run-in with the law in which he threatened police officers, made a name for himself by purchasing a $10,000 24-karat gold leaf cannagar, announced plans to deliver cannabis by drones and even sponsored a charity event for the announcer of a Seattle sports team.
As part of his securities fraud 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. Costello then recruited investors in these companies, allegedly making numerous false statements. Among his other lies, Costello told potential private investors that he had an MBA from Harvard, exaggerated his personal wealth and said GRN Funds LLC, a private equity and hedge fund he owned, had more than $1 billion in assets under management. None of that is true and Costello did not serve in the military.
Using those lies, Costello convinced multiple investors across the country to invest in his companies. Costello also had press releases and securities filings made with multiple false representations. Between July 1, 2019 and May 18, 2021, more than 7,500 investors purchased and sold GRN Holding Corp. securities while Costello was misrepresenting the company. Collectively, these investors lost approximately $25 million. Similarly, with Hempstract Inc., he made false statements and defrauded investors. Between November 2018 and June 2021, 29 private investors lost about $6 million.
Between October 2019 and January 2021, Costello hired an unindicted coconspirator to use Twitter in a pump-and-dump stock scheme. Costello would acquire the penny stock of a company and then instruct his prolific Twitter user to tweet falsehoods about the company that would drive up the stock price, tweeting about the stock up to 90 times a day. In one instance, Costello directly instructed some of his “investors” to purchase stock in the company, driving the share price from a nickel to $2 per share.
After driving the price up, Costello sold the shares for a profit of more than $355,000. The prolific Twitter user was given a share of Costello’s profits. In all, Costello made $625,092 in the pump-and-dump scheme.
Along with the securities fraud, 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. Costello sent false account statements to the marijuana businesses to lull them into thinking their money was secure. However, between 2019 and 2021, Costello diverted money from three marijuana business to benefit himself and his other companies. The three marijuana businesses lost about $3.7 million. Some of the money was allegedly used to pay for Costello’s wedding.
Costello was arrested in Southern California in October 2022 after failing to turn himself into a Seattle court. When found, he had a backpack that prosecutors described as a “fugitive preparedness kit” that included a Washington state driver’s license with his photo and a fake name, $60,000 in cash, gold bars, Mexican pesos, two designer watches and gem-encrusted jewelry, all of which have been forfeited as part of the agreement. He was initially charged with 22 felony counts of mail and wire fraud and three felony counts of securities fraud.
As part of the agreement, prosecutors agreed not to prosecute Costello’s wife.