A proposed class action lawsuit out of Utah federal court alleges Zions Bank helped facilitate a Ponzi scheme.
Filed by 20 named plaintiffs, the 56-page complaint focuses first on an individual named Gaylen Rust, who, through his company Rust Rare Coin, Inc. (RRC), reportedly raised money from investors under the guise of purchasing contracts of sale for silver. Investors were told by Rust, the suit says, that he was pooling their funds in a “silver trading pool” under his oversight. Rust allegedly claimed that he, through a proprietary trading system and a trading account he said he held with HSBC Bank, would use investors’ money in the silver pool to sell silver as market prices rose and buy silver when market prices fell, with the goal of increasing the total amount of silver in the silver pool. Further still, Rust, the suit continues, assured investors that he maintained large amounts of physical silver owned by the pool at warehouses operated by Brink’s Incorporated.
Investors were promised by Rust “double-digit returns averaging 20 to 25 percent per year on their investment,” the lawsuit states. Yet in reality, the case alleges, the silver pool was a mirage. From the complaint:
“Rust was not buying or selling silver, nor did he have physical silver stored in a Brink’s warehouse. Moreover, neither Rust nor RRC maintained an account at HSBC. Instead, Rust diverted investor money to himself and to his family, to other flailing companies Rust or his family members controlled, and used new investor money to make payments to earlier investors seeking to liquidate all or part of their interests in the Silver Pool.”
The earnings statements provided to investors and the returns detailed on the documents were also shams, the case goes on.
“Rust was not earning profits from buying and selling silver, and instead was making those distributions from the money received from new investors,” according to the case. “The Silver Pool was not a real business or trading operation, and instead was a Ponzi scheme.”
As the lawsuit tells it, Rust “crucially depended on the knowing participation” of Zions Bank, which held the so-called silver pool investment account, to execute his operation. According to the lawsuit, Zions Bank “has actual knowledge” that Rust’s precious metals company was a high-risk account and, as such, should have triggered enhanced due diligence requirements. Zions Bank, the case adds, knew that RRC and Rust were managing investor money and misusing those funds by “commingling such funds and transferring them to Rust, his family, and other entities whose business was unrelated to the silver pool.”
Rust’s alleged scheme began to fray in November 2018, the lawsuit says, when the Commodity Futures Trading Commission and Utah Division of Securities sued Rust, members of his family, and his company over allegations of fraud. Two days after that case was entered, the complaint reads, the SEC entered the arena, alleging the same misconduct.