A fugitive charged with an audacious $35 million fraud, in which he allegedly told investors he was a hedge fund billionaire, a HarvardMBA and a special forces veteran who had been twice wounded in Iraq, was arrested by an FBI SWAT team in California after days on the lam.
A Las Vegas man is accused by federal prosecutors and the Securities and Exchange Commission of swindling thousands of investors as part of a complex scam that promoted his purported efforts to build a cannabis conglomerate.
Three marijuana companies received banking services from one of his companies. He diverted at least $3.6 million to himself and other companies.
He engaged in a scheme that cost more than 7,500 investors about $25 million by making false claims about his own companies buying other firms.
Prosecutors said another 29 investors lost $6 million due to false representations made by Costello.
Prosecutors said that about $42,000 of investors' money was used for costs associated with his wedding toKatrina Rosseini.
A video of that wedding reviewed by CNBC shows both a cake and an ice sculpture boasting the James Bond movie logo of the numbers "007" over a semi-automatic pistol and a belly dancing performance by Rosseini, who is not charged in the cases facing her husband.
The US Attorney for the Western District of Washington said in a statement that Mr. Costello told many tall tales to victims to convince them to invest millions of dollars.
Brown said that the scheme involved shell companies, penny stocks, and financial services for marijuana businesses.
He said that the picture was not real.
A request for comment was not returned by an attorney for Costello.
Law enforcement officials told CNBC that Costello surrendered to the FBI office in San Diego last Thursday after he was indicted by a grand jury in Washington state. He's accused of 22 counts of wire fraud and 3 counts of securities fraud.
Officials said that Costello didn't show up at the FBI office that day.
On the same day, the SEC slapped Costello and an alleged co-conspirator David Ferraro with a civil lawsuit accusing them of defrauding investors and of using social media to promote penny stocks without revealing their own sales.
The SEC accuses him of fraudulent conduct in connection with two companies he used to control.
In one instance, the SEC said, Costello sold a married couple $1.8 million in stock at a much higher price.
Ferraro did not return a request for comment from CNBC.
Ferraro is accused of using the account with the handle "Computerbux" to carry out the scheme.
The FBI put out a "Wanted" poster for Costello after he failed to turn himself in.
According to the poster, he may be travelling with his wife, who is not a fugitive.
A couple may be traveling with their small dog named Harry.
Emily Langlie is a spokeswoman for the U.S. Attorney's Office for the Western District of Washington.
Langlie said that Costello was taken to the hospital after he complained of health issues.
It is not known when he will appear in court.
Steven Selna, an Oakland, Calif., lawyer whose client, CCSAC Inc., was one of the three cannabis companies allegedly swindled by Costello, was happy to hear that Costello had been arrested.
CCSAC has a pending lawsuit against Costello and his companies in the U.S. District Court for the Northern District of California over his failure to pay taxes to the state of California onCCSAC's behalf from its account at Pacific Banking Corp.
Selna told CNBC that Costello has a significant presence in California through retail and distribution operations. The firm believes it will lose as much as $5 million from Costello.
According to the indictment, Costello diverted $300,000 of CCSAC's money to purchase shares in a publicly traded shell company in order to complete a reverse merger with his private company, GRN Holding Corp.
The merger resulted in GRN's shares becoming publicly traded.
According to the most recent SEC filing, the CEO of GRN Holding resigned in April, the same month that he sold 144 million of the company's shares for $140,000.
He described another company he ran, GRN Funds, as having more than $1 billion under management and $600 million under deposit, according to the indictment.
The claim was not true according to the complaint.
According to the indictment, the funds were held in a credit union in Washington in the name of GRN Funds.
The indictment states that the GRN Funds checking account at the credit union has a balance of $15.35.
Selna said that the only thing they were interested in was getting their client's money back.
According to the lawyer, Costello presented himself as being highly successful in this industry, and that he would protect our client's money. That wasn't correct.
According to the indictment, when he was soliciting funds from investors, he made false claims that included saying he had a master's degree in business administration from Harvard.
According to the complaint, he claimed to have done two tours in Iraq as a member of the Special Forces and been shot twice.
He managed money for wealthy individuals, including a Saudi sheikh, and had 14 years of experience on Wall Street.
According to a press release from the office of the U.S. Attorney, there is no truth to that.
According to the indictment, when an online article questioned Costello's statements about his education, he had GRN Holding Corp. issue an 8-k filing with the SEC.
The statement was misleading according to the indictment. According to it, Costello only took one course in Harvard.
In the same year, GRN issued a press release stating it had non-binding letters of intent to acquire at least 10 companies, and in the following months issued 10 press releases announcing the completion of due diligence for each company.
GRN Holding filed with the SEC.
The indictment said that GRN Holding Corporation never completed the acquisitions of the companies even though they were owned or managed by the same person.
The majority of the companies were acquired by Renewal Fuels Inc., a company controlled by Justice Costello.
The companies had little or no revenue or assets according to the indictment.
Over 7,000 investors bought and sold GRN Holding Corporate stock between July and May of this year.
These investors lost a lot of money.
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