Co-defendant in SEC civil fraud complaint against fake billionaire Justin Costello agrees to settle case
- The SEC has agreed to settle a civil lawsuit against a man accused of five penny stock pump-and-dump schemes, court filings revealed.
- The man, David Ferraro, is accused of using his prolific Twitter account to assist a second defendant, former federal fugitive Justin Costello, on the stock schemes. The SEC said they allegedly netted almost $800,000 in illicit profits in those efforts.
- Costello, 42, himself is accused in both the SEC's civil complaint and a related federal criminal indictment of posing as a billionaire, a Harvard MBA and a twice-wounded Special Forces Iraq war veteran to swindle investors and others out of $35 million.
The Securities and Exchange Commission has agreed to settle a civil lawsuit against a man accused of five separate penny stock pump-and-dump schemes, court filings revealed on Friday.
The man, David Ferraro, is accused of using his prolific Twitter account to assist a second defendant, former federal fugitive Justin Costello, on the stock schemes. The SEC said the duo allegedly netted almost $800,000 in illicit profits in those efforts.
Costello, 42, himself is accused in both the SEC's civil complaint and a related federal criminal indictment of posing as a billionaire, a Harvard MBA and a twice-wounded Special Forces Iraq war veteran to swindle investors and others out of $35 million.
Ferraro, a 44-year-old resident of Radford, Va., was not charged in the criminal case against Costello, which like the SEC suit was filed several weeks ago in U.S. District Court in the Western District of Washington state.
But the indictment refers to Costello's unidentified, unindicted co-conspirator with Ferraro's initials, engaging in the same conduct that the SEC complaint alleges.
Ferraro agreed to settle the SEC's case without admitting or denying the allegations. A judge still needs to sign off on the SEC's proposed agreement to close the case, which doesn't apply to Costello.
The deal would permanently bar Ferraro from participating in any offering of penny stocks.
The judgment also said a judge would determine whether it is appropriate for Ferraro, who is accused of violating the Securities Act and the Exchange Act, to disgorge any "ill-gotten gains" from his schemes, as well as any civil penalty.
An SEC spokesman told CNBC, "We have no comment beyond public filings."
Ferraro's attorney, Jeffrey Cox of Boca Raton, Florida, declined to comment on the motion for judgment, noting that a judge had not yet signed off on it.
Cox also declined to say whether Ferraro had cooperated with federal prosecutors in the case against Costello, who has pleaded not guilty.
A civil attorney for Costello did not immediately respond to a request for comment.
Costello was arrested earlier this month by an FBI SWAT team in a remote area outside San Diego days after failing to surrender to face charges of securities and wire fraud as he had agreed. He was carrying tens of thousands of dollars in U.S. and Mexican currency, a bogus ID, gold bars and multiple bank cards and checkbooks, prosecutors say.
He was ordered held without bail pending trial, and ordered sent to Washington state.
The SEC complaint said that Costello met Ferraro in mid-2019 when Ferraro was an investor in Costello's company, the publicly traded GRN Holding Corporation, and had been posting about the company on various investor message boards.
Ferraro was a frequent user of Twitter with the handle @computebux, which had more than 10,000 followers. Nearly 90 percent of the almost 13,000 tweets Ferraro posted from 2019 through mid-2020 referenced a specific stock or stocks, the SEC alleges.
"In each Stock Promotion scheme, Ferraro recommended a penny stock that he and/or Costello owned to Ferraro's Twitter followers and the public," the SEC complaint said.
Ferraro understood that his tweets "would cause ... the stock price to increase," according to the complaint.
"In his promotional tweets, Ferraro did not disclose that he and/or Costello intended to sell their own holdings of those stocks into the inflated market that Ferraro's tweets helped create. Ferraro also did not disclose that Costello had agreed to pay Ferraro a portion of Costello's profits from certain of the Stock Promotion Schemes," the SEC alleged.
The stocks promoted in the scheme included Canal Capital Corp., Foothills Exploration, REMSleep Holdings, Clancy Systems International, as well as two firms that merged, Hempstract and Riverdale Oil and Gas Corp.
"Through these alleged schemes, Costello and Ferraro together made approximately $792,000 in illicit trading profits," the SEC said in a press release earlier this month.
The complaint said that in 2019 and 2020 Ferraro separately engaged in stock promotion schemes involving the penny stocks Powerdyne International and South Beach Spirits.