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Zions Bank Should Have Stopped Silver Ponzi Scheme, Says Class Action

This class action sues Zions Bancorporation for the failure to act of Zions Bank, one of its divisions. The complaint’s allegation is that others operated a Ponzi scheme, and that the bank was negligent in failing to detect the scheme and take action against it.

The class for this action is all persons and entities who paid for an interest in the Silver Pool scheme and who deposited money or wired payments for it to an account maintained by Zions.

The scheme was allegedly created by Gaylen Rust and members of his family who owned a company called Rust Rare Coin, Inc. (RRC). Rust raised money from investors that he claimed he was putting into a “Silver Pool” which would be used to buy and sell silver, some of which would be physically retained in warehouses. 

Rust claimed to have a trading account at HSBC Bank and a successful track record in trading silver, and he promised investors returns of 20 to 25% per year. But the complaint says there was no account at HSBC, no trading in silver, no silver in warehouses, no double-digit gains. Investors’ money was diverted to Rust, his family members, or other businesses they ran. 

The complaint says that Rust used new investor money to make payments to earlier investors. In other words, he ran a Ponzi scheme, and the complaint claims that its “epicenter … was one account at Zions Bank…” 

The complaint says that a senior officer at the bank, Individual 1, became aware of the scheme and even spoke to investors about depositing money in the Silver Pool. Individual 1 interacted with Rust and his family and often reviewed the Silver Pool account, which the complaint says “experienced an enormous amount of insufficient fund events, each of which had to be reviewed manually by a senior person” at the bank. The same individual also reviewed the account in connection with requests for financing and for other bank procedures. 

Banks are required under federal laws “to know their customers and understand their banking activities and conduct.” The complaint goes into more detail about the bank’s duties under those laws. 

In brief, because RRC operated a precious metals and rare coin business, the bank should have put it on “enhanced due diligence” procedures with heightened supervision. This should have made the bank aware of the Ponzi scheme being operated out of it, the complaint says; instead the bank “provided a crucial financial lifeline to RRC and Rust, thus allowing them to continue to operate their Ponzi scheme and victimize investors for far longer than it would have otherwise been able to.”

Regulators finally caught up with the scheme, and the complaint says they described the role the bank played in it.

The complaint claims that the bank aided and abetted fraud and conversion and breached its fiduciary duties, among other things. 

Article Type: Lawsuit
Topic: Fraud

Most Recent Case Event

Zions Bank Should Have Stopped Silver Ponzi Scheme Complaint

January 15, 2019

This class action sues Zions Bancorporation for the failure to act of Zions Bank, one of its divisions. The complaint’s allegation is that others operated a Ponzi scheme, and that the bank was negligent in failing to detect the scheme and take action against it.

zions_ponzi_scheme_complaint.pdf

Case Event History

Zions Bank Should Have Stopped Silver Ponzi Scheme Complaint

January 15, 2019

This class action sues Zions Bancorporation for the failure to act of Zions Bank, one of its divisions. The complaint’s allegation is that others operated a Ponzi scheme, and that the bank was negligent in failing to detect the scheme and take action against it.

zions_ponzi_scheme_complaint.pdf
Tags: Failure to Perform Due Diligence, Ponzi Scheme, Your Bank