Farmington • Twenty investors who lost money in a Utah rare-coin dealer’s alleged $170 million Ponzi scheme are suing Zions Bank, claiming bankers ignored red flags in the dealer’s deposits and withdrawals that would have exposed the con game.

“We think they knew,” said Alan Rosca, one of the attorneys who filed the proposed class-action lawsuit against Zions Bancorporation in U.S. District Court in Utah on Tuesday. “We think they dropped the ball here.”

The investors are suing to recoup some of the money they say they lost in a scheme revealed in November, when the U.S. Securities and Exchange Commission filed a civil complaint against Gaylen Dean Rust and his Salt Lake City company, Rust Rare Coin Inc.

Rust was accused of tricking investors who believed they were pooling their money so he could sell silver when market prices were high and buy silver when prices dipped, the Utah Department of Commerce said at the time. This allegedly went on for 10 years, as investors were told they would reap “extraordinarily high profits.”

Rosca said Rust never traded any silver, but instead paid off earlier investors with money paid by later investors.

“We think the evidence will show [Zions Bank] was aware that money deposited in the account was not being used for silver trading, but instead was being used for Ponzi payments to existing investors,” Rosca said.

The suit accuses Zions Bank of aiding and abetting Rust in fraud, improper conversion of funds and breach of fiduciary duty. It also accuses the bank of negligence and its own breach of fiduciary duty.

It says that because Rust was dealing with high-risk commodities — precious metals and coins — and handling investors’ money, Zions Bank should have given his account heightened scrutiny. But between January and August 2018, the suit says, Rust’s account was regularly being drained — it lists 102 times the bank fined Rust for insufficient funds, at $32 a pop, for a total of $3,264.

Rob Brough, executive vice president for Zions Bank, said in a statement that the bank is reviewing the lawsuit and “we may have further comment,” though “as a general practice, we do not comment on pending litigation.”

Brough’s statement added this about Rust: "Subsequent to litigation filed against Mr. Rust and Rust Rare Coin in November, we have been actively reviewing all our interactions with Rust Rare Coin and have been cooperating with the receiver and authorities.”

While the SEC’s civil complaint accuses Rust of fraud and selling unregistered securities, he has not been indicted on any criminal charges. Rust’s lawyer was unavailable for comment late Tuesday afternoon.

(Chris Detrick | Tribune file photo) Gaylen Rust poses for a portrait at his home in Layton, Wednesday, May 22, 2013.

The attorneys who filed the lawsuit estimate there are more than 400 investors who could eventually be included in the case, if a judge approves it as a class action. That group would represent about $100 million in investments lost in the alleged silver scheme, said attorney Bart Goplerud. He and Rosca are the lead attorneys for the plaintiffs in the case.

Goplerud is based in Iowa, Rosca in Philadelphia, and both boast years of experience in class-action and consumer fraud cases. Sam Adams and Darren Davis, of the Salt Lake City firm Adams Davis P.C., are the local attorneys on the case.

Among the initial plaintiffs are Travis and Nicole Gregory, a Taylorsville couple who started investing in the silver pool in 2013. They started with just $4,000, and it paid off, they said.

“Travis and I went in very small,” Nicole Gregory said. That first investment did well, so they borrowed more money to invest, and it paid off, too. “We were very comfortable, and we went all in,” she said.

By January 2018, they had lost all they invested, the Gregorys said.

Although litigation eventually requires such disclosures, Goplerud would not immediately disclose how much the Gregorys or any individual client lost, citing privacy concerns. Some of the investors in the proposed class lost a few thousand dollars, he said, while others lost millions.

With the family’s losses, Travis Gregory, a building engineer, said, “I feel like I’m going to be working for another 15 years beyond the retirement I had planned.”

Travis Gregory said one of his relatives, a teacher, told Rust she would join in the silver pool even though she had limited funds to invest. “He heard her story and took her money,” Gregory said.

The Gregorys’ story is typical, Goplerud said. “We have a number of investors that retired early. They don’t know when or how they’re going to go back to work,” he said. “We have people with health problems that we believe were brought on by stress from this situation.”

Some, Rosca said, took out second mortgages or other loans against their houses to have money to invest. “Now those investors are victimized twice,” Rosca said. “Not only did they lose everything they had, but they also have a loan on their home that they don’t know how they’re going to pay back.”

Travis Gregory, who said he has been a Zions Bank customer for 25 years, faults the bank for not following up on warning signs. “If they had done their job, maybe I wouldn’t have lost my money,” he said.

“We’re just little Davids, they’re the big Goliath,” said Patrick Springer, another plaintiff, a real-estate investor from Highland who lost money in the silver pool.

Goplerud acknowledged there is a degree of practicality in suing Zions Bank, because the investors can’t sue Rust. The federal judge who froze Rust’s assets after the SEC filed its complaint also issued a restraining order barring lawsuits against the dealer.

Also, as Nicole Gregory said, “We don’t believe Rust has anything. We think he spent it all.”

The Utah Department of Commerce said in November that Rust used investor funds to pay other investors, make transfers to other companies he owned and pay personal expenses.

The suit does not specify how much the plaintiffs are seeking in damages, Goplerud said, and there is no demand for punitive damages. It’s too early to talk about settling the suit, he added, though 95 percent to 98 percent of civil litigation like this is resolved through a settlement rather than a trial.

“This is not something that is going to resolve in the near future,” Goplerud said. “This is going to be something that will be a hard-fought battle for years to come.”


Correction: An earlier version of this story misidentified attorney Bart Goplerud.