This cannabis scammer could face 10 years in prison – what did he do?

Justin Costello pretended to be a billionaire, claimed he was a war veteran, and took money from investors for cannabis deals. Instead, he spent that money on himself, including funding his lavish wedding. Costello pleaded guilty Wednesday a few months after a dramatic arrest by an FBI SWAT team in California. He could face up to 10 years in prison for his fraudulent activities.

GRN holdings

According to the case, filed in Seattle, Washington, Costello claimed to be a self-made hedge fund billionaire who managed money for wealthy people, including a Saudi sheikh. He also claimed to have a Harvard MBA and, as a special forces veteran, to have been shot twice in the leg with shrapnel. To pretend to be wealthy, Costello planned to buy an $11 million home complete with GRN Funds bank statements. The $9 million bank balance actually belonged to another cannabis company.

Photo by Cappi Thompson/Getty Images

The unsuspecting investors bought shares in GRN Holding Company, thinking the shares would eventually go public. Costello also convinced investors to open an account with TD Ameritrade and manage their money at a discount to its usual fees. Costello held no securities licenses. Costello received a 20% commission on the trades, which were made only in shares of Discovery Gold Corporation (which eventually became GRN Holdings). Trading in the shares artificially supported the price and increased Costello’s performance fees.

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The cannabis scammer kept the ruse going by issuing press releases claiming that GRN Holdings was making acquisitions and that those companies had been under scrutiny. Instead, Costello owned all of the companies he claimed to be acquiring. Adding to this untruth, a separate Costello company, Renewal Fuels, made the acquisitions.

Ultimately, investors lost around $25 million in the GRN Holdings program.

hemp extract

Costello got involved in a similar plan with another investor, whom he convinced to invest in Hempstract Inc., then trading as Riverdale Oil & Gas. He also convinced investors to open a trading account, leading them to believe that he would combine these cannabis companies into a larger entity.

By 2019, Costello was telling his investors that he had about 12 cannabis companies that he wanted to combine into one larger company. He told investors these companies were making millions in revenue, which was wrong. He continued to receive more investor money as he claimed Hemstract would soon go public.

Pacific banking

GRN Holdings and Hempstract weren’t the only companies Costello toyed with. Green Market Report reported that Cann Distributors accused Costello’s other company, Pacific Banking, of failing to make millions of dollars in tax payments to the state of California on its behalf and failing to pay supplier bills. Cann was fined $2 million by the state for failing to make those tax payments. The company also secured an order preventing Pacific from touching the roughly $2.8 million Cann had deposited with the bank, which sees itself as a middleman between cannabis companies and traditional banks.

In addition to the dispute over the tax payments, Cann Distributors also reported to the judge a troubling situation it learned of during the Costello hearing. The bank apparently registered the Cann Distributor name in Washington state without notifying the company.

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The judge said at the time: “I have to say that’s the strangest thing I’ve ever heard. I have never heard of an agreement that said one party could form a fictitious company in another state using the other party’s name.” The bank went through several changes of ownership throughout the process. Pacific Processing was bought by Pacific Compliance, which was then bought by Renewal Fuels. It should also have been acquired by GRN Holdings (OTC: GRNF), which recently changed its name to Marijuana Inc.

Photo by matt_benoit/Getty Images

On the run

When Costello found out he was charged last September, he ran away. He was arrested by an FBI SWAT team in October and held without bail.

According to court documents, he was found on Oct. 4 in a remote area near San Diego. He was reportedly carrying a backpack containing six one-ounce gold bars worth $12,000, $60,000 in U.S. currency, $10,000 in Mexican pesos, and bank cards and checkbooks, prosecutors said in a court filing . Costello also had a receipt for a prepaid phone number in his backpack, along with a Washington state driver’s license in the name “Christian Bolter” with Costello’s photo, the filing said.

Pump & Dump

Costello paid stock promoters to pump up penny stocks on Twitter and other social media. As soon as the shares started to rise due to his unsuspecting investors’ buying, he sold his shares at a profit and paid his promoters a portion of the profits. It was a classic pump and dump system.

In October 2022, the SEC (Securities and Exchange Commission) indicted Justin Costello for using a fake persona to swindle investors out of millions of dollars as a Harvard-educated military veteran and hedge fund billionaire. In a statement, the SEC also accused Costello and David Ferraro, a Costello associate, of promoting the stock of several microcap companies on social media without disclosing their own simultaneous stock sales amid rising market prices. The SEC also wants to bar Costello and Ferraro from serving as officers and directors and bar them from penny stocks.

The SEC statement said that Costello shared approximately $32,000 of its profits with Ferraro and Ferraro benefited approximately $41,000 from its own trading on the program. The SEC’s complaint also alleges that Ferraro separately ran its own stock promotion program on two additional microcap stocks and made gains of about $68,000.

restitution

As part of his guilty plea, Costello agreed to pay his victims $35 million in compensation. As part of his plea deal, his wife will not be charged.

This article originally appeared in Green Market Report and has been republished with permission.