On Thursday, the Securities and Exchange Commission (SEC) filed suit against Justin Costello and David Ferraro over the former’s schemes to defraud investors and the latter’s illegal promotion of stock. The Western District of Washington complaint primarily fingers Costello, a 42-year-old California man, with using fabricated identities to part investors with their money, including a retirement couple.
The case explained that Costello, who claimed to be building a cannabis-industry empire, falsely cast himself to the public as a billionaire with a Harvard MBA, a military veteran, and a hedge fund manager with years of Wall Street experience. “Costello did not graduate from Harvard Business School. Costello has taken just one class through Harvard University’s Division of Continuing Education,” the complaint specified.
Using these fictitious credentials, Costello allegedly duped more than 30 investors to secure approximately $900,000 of investments in two different companies and sold the retirement couple $1.8 million of shares in a penny stock at a markup of 9,000%. Furthermore, Costello used their $4 million brokerage account to trade, at a significant loss, securities of microcap companies in which he purportedly had an undisclosed financial interest, the SEC claimed.
The suit also targeted Costello’s associate Ferraro, a 44-year-old man from Virginia, who controlled the Twitter handle “@computerbux,” which had nearly 10,000 followers as of December 2019. The filing said that the two engaged in stock promotion schemes in which Costello acquired shares of penny stocks and then directed Ferraro to promote those stocks to his Twitter followers and the public.
Ferraro allegedly tweeted hundreds of times to hype those stocks and did not disclose that Costello intended to sell his shares once the stock price increased or that Ferraro would receive a portion of Costello’s profits, earning the pair approximately $792,000 in illicit gains.
The complaint charged Costello and Ferraro with violating the anti-fraud provisions of the federal securities laws and seeks permanent injunctive relief, disgorgement with interest, and civil penalties, among other things. The SEC’s accompanying press release noted that the U.S. Attorney’s Office for the Western District of Washington announced criminal charges against Costello the same day.