SEC Obtains Fraud Injunction and Penny Stock Bar Against Microcap Stock Promoter

Litigation Release No. 25572 / November 4, 2022

Securities and Exchange Commission v. Costello et al., No. 2:22-cv-01388 (W.D. Wash. Filed Sept. 29, 2022)

On October 31, 2022, Judge Ricardo S. Martinez of the U.S. District Court for the Western District of Washington entered a consent judgment against David Ferraro for his role in an alleged microcap stock promotion scheme that generated approximately $792,000 in trading profits for Ferraro and Justin Costello. As alleged in the SEC's complaint, this stock promotion scheme was part of a series of frauds that Costello perpetrated while falsely portraying himself to the public as a Harvard-educated military veteran and hedge fund billionaire.

According to the SEC's complaint, from at least October 2019 through January 2021, Costello and Ferraro engaged in a stock promotion scheme in which Ferraro recommended and promoted to his Twitter followers and the public at least five microcap stocks that Costello owned, without disclosing that he and Costello intended to sell shares of those stocks as their prices rose, or that Costello would pay Ferraro a portion of his profits from some of those sales. 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.

The SEC's complaint, filed on September 29, 2022, charges 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. Without admitting or denying the allegations in the complaint, Ferraro consented to a bifurcated settlement, agreeing to be permanently enjoined from violations of the charged provisions and from participating in any offering of a penny stock. Monetary relief will be determined by the court at a later date upon motion of the Commission.

The SEC's litigation against Costello and Ferraro is being conducted by Pascale Guerrier, Samuel Kalar, and Tian Wen. The matter is being supervised by Celeste A. Chase and Sheldon L. Pollock.