When investors put money into an enterprise, how do they know that it’s being used as claimed? The complaint for this class action claims that the Silver Pool supposedly run by Gaylen Rust was a Ponzi scheme with no reality to it. However, the defendant in the case is not Rust but Zions Bancorporation, which the complaint claims should have seen evidence that Silver Pool funds were being diverted to other uses.
The class for this action is all persons and entities who paid for an interest in the Silver Pool scheme, and who deposited or wired payment for it to an account maintained by Zions Bank.
Rust operated Rust Rare Coin, Inc. (RRC) and told investors that he was raising money to profit from the price of silver. He claimed to be using a trading account at HSBC Bank, selling silver when prices rose and buying it when they fell, and also to be physically stockpiling silver in warehouses. He promised investors returns of 20%-25% per year and periodically produced statements that purportedly documented those returns.
In actuality, the complaint says, the plan was a sham: Rust was not buying or selling silver, he had no account at HSBC, and he had no silver in warehouses. Money that was to be invested in the nonexistent Silver Pool was diverted to himself and his family, to their other businesses, and to make payments to earlier investors. In other words, Rust was operating a Ponzi scheme built on a fantasy.
The complaint claims that Rust could not have operated the scheme by himself and that its “epicenter” was the Silver Pool Investment Account at Zions Bank.
The scheme began to fall apart on November 13, 2018, as the Commodity Futures Trading Commission (CFTC) and State of Utah Division of Securities filed a civil enforcement action against Rust, members of his family, and RRC. The suit charged them with fraud and violations of the Commodities and Exchange Act and the Utah Uniform Securities Act. Two days later, the Securities and Exchange Commission filed another suit against Rust and RRC.
The complaint claims that documents related to Rust’s operations and particularly documents in the CFTC and Utah suits show that Zions Bank had knowledge of information that should have alerted them to the scam. For example, it says that RRC was a high-risk account, as a precious metal and coin dealer, and should therefore have triggered certain due diligence requirements; that RRC and Rust were managing investment money in the account as fiduciaries; that they were commingling money from different accounts; and that they were using the money to make Ponzi-style payments.
The complaint charges Zions Bancorporation with aiding and abetting fraud and breaches of fiduciary duty, among other things.