FBI Poster for Justin Costello
FBI
The Securities and Exchange Commission has agreed to settle a civil lawsuit against a person accused of 5 separate penny stock pump-and-dump schemes, court filings revealed on Friday.
The person, David Ferraro, is accused of using his prolific Twitter account to help 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 each the SEC’s civil grievance 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 within the criminal case against Costello, which just like the SEC suit was filed several weeks ago in U.S. District Court within the Western District of Washington state.
However the indictment refers to Costello’s unidentified, unindicted co-conspirator with Ferraro’s initials, engaging in the identical conduct that the SEC grievance alleges.
Ferraro agreed to settle the SEC’s case without admitting or denying the allegations. A judge still must log off on the SEC’s proposed agreement to shut the case, which does not 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 suitable for Ferraro, who’s accused of violating the Securities Act and the Exchange Act, to disgorge any “ill-gotten gains” from his schemes, in addition to any civil penalty.
An SEC spokesman told CNBC, “Now 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 within the case against Costello, who has pleaded not guilty.
A civil attorney for Costello didn’t immediately reply to a request for comment.
Costello was arrested earlier this month by an FBI SWAT team in a distant area outside San Diego days after failing to give up to face charges of securities and wire fraud as he had agreed. He was carrying tens of hundreds 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 grievance 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 concerning the company on various investor message boards.
Ferraro was a frequent user of Twitter with the handle @computebux, which had greater than 10,000 followers. Nearly 90 percent of the just about 13,000 tweets Ferraro posted from 2019 through mid-2020 referenced a particular stock or stocks, the SEC alleges.
“In each Stock Promotion scheme, Ferraro advisable a penny stock that he and/or Costello owned to Ferraro’s Twitter followers and the general public,” the SEC grievance said.
Ferraro understood that his tweets “would cause … the stock price to extend,” in accordance with the grievance.
“In his promotional tweets, Ferraro didn’t disclose that he and/or Costello intended to sell their very own holdings of those stocks into the inflated market that Ferraro’s tweets helped create. Ferraro also didn’t 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 within the scheme included Canal Capital Corp., Foothills Exploration, REMSleep Holdings, Clancy Systems International, in addition to two firms that merged, Hempstract and Riverdale Oil and Gas Corp.
“Through these alleged schemes, Costello and Ferraro together made roughly $792,000 in illicit trading profits,” the SEC said in a press release earlier this month.
The grievance said that in 2019 and 2020 Ferraro individually engaged in stock promotion schemes involving the penny stocks Powerdyne International and South Beach Spirits.
