SEC v. Justin Costello; and David Ferraro, No. LR-25552, Western District of Washington (Oct. 6, 2022) — Press Release

SEC Charges Man for Defrauding Investors Out of Millions of Dollars by Posing as Hedge Fund Billionaire Litigation Release No. 25552 / October 6, 2022 Securities and Exchange Commission v. Justin Costello and David Ferraro, No. 2:22-cv-01388 (W.D. Wash. filed Sept. 29, 2022) The Securities and Exchange Commission charged Justin Costello for using a false persona, as a Harvard-educated military veteran and hedge fund billionaire, to defraud investors out of millions of dollars. The SEC also charged Costello and David Ferraro, an associate of Costello's, for promoting the stock of several microcap companies on social media without disclosing their own simultaneous stock sales as market prices rose. According to the SEC's complaint, Costello portrayed himself to the public as a seasoned, licensed investment professional who was building a conglomerate in the cannabis industry. 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. As alleged in the complaint, Costello used these fabricated accomplishments to secure approximately $900,000 of investments in two different companies from more than 30 investors. As further alleged in the complaint, while acting as an investment adviser to a married couple, Costello sold the couple $1.8 million of shares in a penny stock at a markup of 9,000 percent over the price paid by Costello and used their $4 million brokerage account to trade, at a significant loss, securities of microcap companies in which Costello had an undisclosed financial interest. 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. The complaint alleges that Ferraro posted hundreds of tweets 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 share of Costello's profits. Through these alleged schemes, Costello and Ferraro together made approximately $792,000 in illicit trading profits. The SEC's complaint, filed in the Western District of Washington, charges Costello and Ferraro with violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and further charges Costello with violating Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The complaint seeks permanent injunctive relief, disgorgement with prejudgment interest, and civil penalties. The SEC also seeks penny stock bars against Costello and Ferraro and an officer and director bar against Costello. In a parallel action, the U.S. Attorney's Office for the Western District of Washington announced criminal charges against Costello. The SEC's investigation was conducted by Jordan Baker, Samuel Kalar, and Tian Wen with assistance from Stanley Husband. It was supervised by Celeste Chase and Mr. Pollock, of the New York Regional Office. The litigation will be led by Pascale Guerrier of the New York Regional Office and Mr. Kalar and Ms. Wen. The SEC appreciates the assistance of the U.S. Attorney's Office for the Western District of Washington, the Federal Bureau of Investigation, and the Financial Industry Regulatory Authority. The SEC's Office of Investor Education and Advocacy (OIEA) encourages investors to use the free resources on Investor.gov to check the background of anyone selling or offering investments. SEC Complaint

SEC Charges Man for Defrauding Investors Out of Millions of Dollars by Posing as Hedge Fund Billionaire Litigation Release No. 25552 / October 6, 2022 Securities and Exchange Commission v. Justin Costello and David Ferraro, No. 2:22-cv-01388 (W.D. Wash. filed Sept. 29, 2022) The Securities and Exchange Commission charged Justin Costello for using a false persona, as a Harvard-educated military veteran and hedge fund billionaire, to defraud investors out of millions of dollars. The SEC also charged Costello and David Ferraro, an associate of Costello's, for promoting the stock of several microcap companies on social media without disclosing their own simultaneous stock sales as market prices rose. According to the SEC's complaint, Costello portrayed himself to the public as a seasoned, licensed investment professional who was building a conglomerate in the cannabis industry. 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. As alleged in the complaint, Costello used these fabricated accomplishments to secure approximately $900,000 of investments in two different companies from more than 30 investors. As further alleged in the complaint, while acting as an investment adviser to a married couple, Costello sold the couple $1.8 million of shares in a penny stock at a markup of 9,000 percent over the price paid by Costello and used their $4 million brokerage account to trade, at a significant loss, securities of microcap companies in which Costello had an undisclosed financial interest. 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. The complaint alleges that Ferraro posted hundreds of tweets 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 share of Costello's profits. Through these alleged schemes, Costello and Ferraro together made approximately $792,000 in illicit trading profits. The SEC's complaint, filed in the Western District of Washington, charges Costello and Ferraro with violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and further charges Costello with violating Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The complaint seeks permanent injunctive relief, disgorgement with prejudgment interest, and civil penalties. The SEC also seeks penny stock bars against Costello and Ferraro and an officer and director bar against Costello. In a parallel action, the U.S. Attorney's Office for the Western District of Washington announced criminal charges against Costello. The SEC's investigation was conducted by Jordan Baker, Samuel Kalar, and Tian Wen with assistance from Stanley Husband. It was supervised by Celeste Chase and Mr. Pollock, of the New York Regional Office. The litigation will be led by Pascale Guerrier of the New York Regional Office and Mr. Kalar and Ms. Wen. The SEC appreciates the assistance of the U.S. Attorney's Office for the Western District of Washington, the Federal Bureau of Investigation, and the Financial Industry Regulatory Authority. The SEC's Office of Investor Education and Advocacy (OIEA) encourages investors to use the free resources on Investor.gov to check the background of anyone selling or offering investments. SEC Complaint