Business
This Cannabis Con Man Could Get 10 Years In Prison — What Did He Do?
Last September, when Justin Costello found out he was under indictment, he ran. He was captured by an FBI SWAT team in October and was held without bail.
Justin Costello pretended to be a billionaire, claimed he was a war veteran, and took money from investors for cannabis businesses. Instead, he spent that money on himself including funding his lavish wedding. On Wednesday, Costello pleaded guilty a few months after a dramatic capture by an FBI SWAT team in California. He could get up to 10 years in prison due to 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 to have been shot twice as a special forces veteran with shrapnel remaining in his leg. In order to pretend he was wealthy, Costello planned to buy an $11 million house, showing bank statements for GRN Funds. The $9 million bank balance actually belonged to another cannabis company.
The unsuspecting investors bought stock in GRN Holding Company, thinking the shares would eventually trade publicly. Costello also convinced the investors to open an account at TD Ameritrade and that he would manage their money at a discount from his usual fees. Costello did not possess any securities licenses. Costello was taking a 20% commission on the trades, which were only in shares of Discovery Gold Corporation (which eventually became GRN Holdings). The trading in the shares artificially propped up the price increasing Costello’s performance fees.
The cannabis con man kept the ruse up by putting out press releases claiming GRN Holdings was making acquisitions and that those companies had been vetted. Instead, Costello owned all the companies he claimed to be acquiring. In addition to that falsehood, a separately owned Costello company Renewal Fuels, made the acquisitions.
Ultimately, investors lost roughly $25 million in the GRN Holdings scheme.
Hempstract
Costello engaged in a similar scheme with another investor he convinced to invest in Hempstract Inc., which was trading at the time under the name Riverdale Oil & Gas. He also convinced investors to open a trading account and led them to believe he would be combining these cannabis companies into one larger entity.
By 2019, Costello told his investors that he had about 12 cannabis companies that he was planning to roll up into one larger company. He told the investors that these companies made millions in revenue, which was false. He continued to get more investor money as he claimed Hemstract was soon to go public.
Pacific Banking
GRN Holdings and Hempstract weren’t the only companies Costello was playing games with. Green Market Report reported Costello’s other company Pacific Banking was accused by Cann Distributors of failing to make millions of dollars in tax payments to the state of California on its behalf, as well as failing to pay vendor invoices. Cann was assessed $2 million in penalties by the state for not making those tax payments. The company also secured an order blocking Pacific from touching the roughly $2.8 million Cann said it had deposited with the bank that sees itself as a middleman between cannabis companies and traditional banks.
In addition to the issue over the tax payments, Cann Distributors also told the judge of a disturbing situation it learned about during the Costello deposition. The bank has apparently registered the Cann Distributor name in the state of Washington without telling the company.
The judge said at the time, “I have to say, that is the weirdest thing I have ever heard. I have never heard of an agreement that said one party could create a fictitious business in another state using the other party’s name.” The bank went through several ownership changes throughout the process. Pacific Processing was bought by Pacific Compliance, which was then bought by Renewal Fuels. It was also supposed to have been acquired by GRN Holdings (OTC: GRNF) which recently changed its name to Marijuana Inc.
On the Lam
Last September, when Costello found out he was under indictment, he ran. He was captured by an FBI SWAT team in October and was held without bail.
According to court filings, he was found in a remote area near San Diego on Oct. 4. He was reported to have been carrying a backpack loaded with six one-ounce gold bars worth $12,000, U.S. currency worth $60,000, $10,000 in Mexican pesos and banking cards and checkbooks, prosecutors said in a court filing. Costello also had a receipt for a prepaid phone number in the backpack, along with a Washington state driver’s license in the name of “Christian Bolter” with Costello’s photograph, the filing said.
Pump & Dump
Costello paid stock promoters to pump up the penny stocks on Twitter and other social media. Once the shares began to rise on the purchases from his unsuspecting investors, he would then sell his shares at a profit and pay his promoters a share of the gains. It was a classic pump and dump scheme.
In October 2022, the SEC (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. In a statement, 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. The SEC also wants to bar Costello and Ferraro from serving as an officer and director and bar them from penny stocks.
The SEC statement said that Costello shared approximately $32,000 of his profits with Ferraro, and Ferraro profited approximately $41,000 from his own trading in this scheme. The SEC’s complaint also alleges that Ferraro separately conducted his own stock promotion scheme respecting two additional microcap stocks, generating profits of approximately $68,000.
Restitution
As part of his guilty plea, Costello agreed to pay his victims $35 million in restitution. As part of his plea deal, his wife will not face any charges.
Source: https://thefreshtoast.com/news/this-cannabis-con-man-could-get-10-years-in-prison-what-did-he-do/
New Mexico regulators fined a cannabis operator nearly $300,000 and revoked its license after the company allegedly created fake reports in the state’s traceability software.
The New Mexico Cannabis Control Division (CCD) accused marijuana manufacturer and retailer Golden Roots of 11 violations, according to Albuquerque Business First.
Golden Roots operates the The Cannabis Revolution Dispensary.
The majority of the violations are related to the Albuquerque company’s improper use of BioTrack, which has been New Mexico’s track-and-trace vendor since 2015.
The CCD alleges Golden Roots reported marijuana production only two months after it had received its vertically integrated license, according to Albuquerque Business First.
Because cannabis takes longer than two months to be cultivated, the CCD was suspicious of the report.
After inspecting the company’s premises, the CCD alleged Golden Roots reported cultivation, transportation and sales in BioTrack but wasn’t able to provide officers who inspected the site evidence that the operator was cultivating cannabis.
In April, the CCD revoked Golden Roots’ license and issued a $10,000 fine, according to the news outlet.
The company requested a hearing, which the regulator scheduled for Sept. 1.
At the hearing, the CCD testified that the company’s dried-cannabis weights in BioTrack were suspicious because they didn’t seem to accurately reflect how much weight marijuana loses as it dries.
Company employees also poorly accounted for why they were making adjustments in the system of up to 24 pounds of cannabis, making comments such as “bad” or “mistake” in the software, Albuquerque Business First reported.
Golden Roots was fined $298,972.05 – the amount regulators allege the company made selling products that weren’t properly accounted for in BioTrack.
The CCD has been cracking down on cannabis operators accused of selling products procured from out-of-state or not grown legally:
- Regulators alleged in August that Albuquerque dispensary Sawmill Sweet Leaf sold out-of-state products and didn’t have a license for extraction.
- Paradise Exotics Distro lost its license in July after regulators alleged the company sold products made in California.
Golden Roots was the first alleged rulebreaker in New Mexico to be asked to pay a large fine.
Source: https://mjbizdaily.com/new-mexico-cannabis-operator-fined-loses-license-for-alleged-biotrack-fraud/
Four marijuana companies, including a multistate operator, have filed a lawsuit against U.S. Attorney General Merrick Garland in which they allege the federal MJ prohibition under the Controlled Substances Act is no longer constitutional.
According to the complaint, filed Thursday in U.S. District Court in Massachusetts, retailer Canna Provisions, Treevit delivery service CEO Gyasi Sellers, cultivator Wiseacre Farm and MSO Verano Holdings Corp. are all harmed by “the federal government’s unconstitutional ban on cultivating, manufacturing, distributing, or possessing intrastate marijuana.”
Verano is headquartered in Chicago but has operations in Massachusetts; the other three operators are based in Massachusetts.
The lawsuit seeks a ruling that the “Controlled Substances Act is unconstitutional as applied to the intrastate cultivation, manufacture, possession, and distribution of marijuana pursuant to state law.”
The companies want the case to go before the U.S. Supreme Court.
They hired prominent law firm Boies Schiller Flexner to represent them.
The New York-based firm’s principal is David Boies, whose former clients include Microsoft, former presidential candidate Al Gore and Elizabeth Holmes’ disgraced startup Theranos.
Similar challenges to the federal Controlled Substances Act (CSA) have failed.
One such challenge led to a landmark Supreme Court decision in 2005.
In Gonzalez vs. Raich, the highest court in the United States ruled in a 6-3 decision that the commerce clause of the U.S. Constitution gave Congress the power to outlaw marijuana federally, even though state laws allow the cultivation and sale of cannabis.
In the 18 years since that ruling, 23 states and the District of Columbia have legalized adult-use marijuana and the federal government has allowed a multibillion-dollar cannabis industry to thrive.
Since both Congress and the U.S. Department of Justice, currently headed by Garland, have declined to intervene in state-licensed marijuana markets, the key facts that led to the Supreme Court’s 2005 ruling “no longer apply,” Boies said in a statement Thursday.
“The Supreme Court has since made clear that the federal government lacks the authority to regulate purely intrastate commerce,” Boies said.
“Moreover, the facts on which those precedents are based are no longer true.”
Verano President Darren Weiss said in a statement the company is “prepared to bring this case all the way to the Supreme Court in order to align federal law with how Congress has acted for years.”
While the Biden administration’s push to reschedule marijuana would help solve marijuana operators’ federal tax woes, neither rescheduling nor modest Congressional reforms such as the SAFER Banking Act “solve the fundamental issue,” Weiss added.
“The application of the CSA to lawful state-run cannabis business is an unconstitutional overreach on state sovereignty that has led to decades of harm, failed businesses, lost jobs, and unsafe working conditions.”
Alabama regulators are targeting Dec. 1 to award the first batch of medical cannabis business licenses after the agency’s first two attempts were scrapped because of scoring errors and litigation.
The first licenses will be awarded to individual cultivators, delivery providers, processors, dispensaries and state testing labs, according to the Alabama Medical Cannabis Commission (AMCC).
Then, on Dec. 12, the AMCC will award licenses for vertically integrated operations, a designation set primarily for multistate operators.
Licenses are expected to be handed out 28 days after they have been awarded, so MMJ production could begin in early January, according to the Alabama Daily News.
That means MMJ products could be available for patients around early March, an AMCC spokesperson told the media outlet.
Regulators initially awarded 21 business licenses in June, only to void them after applicants alleged inconsistencies with how the applications were scored.
Then, in August, the state awarded 24 different licenses – 19 went to June recipients – only to reverse themselves again and scratch those licenses after spurned applicants filed lawsuits.
A state judge dismissed a lawsuit filed by Chicago-based MSO Verano Holdings Corp., but another lawsuit is pending.
Source: https://mjbizdaily.com/alabama-plans-to-award-medical-cannabis-licenses-dec-1/
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