Rust Coin charged in $170M silver buying Ponzi scheme

The Division of Securities of the Utah Department of Commerce has joined the U.S. Commodity Futures Trading Commission (CFTC) in filing a joint civil enforcement action against Gaylen Dean Rust and Rust Rare Coin of Layton charging the precious-metals dealer with defrauding at least 200 individuals from Utah and at least 16 other states, in a $170 million Ponzi scheme. {mprestriction ids="1,3"}

Filed in U.S. District Court in Salt Lake City, the complaint alleges that the fraud started in May 2013 and is ongoing. In the first eight months of 2018, the charges state Rust received at least $42 million from investors in a pool that purportedly bought and sold silver. Rust and his company also attempted to solicit new investors to the pool as recently as Oct. 8.

On Nov. 15, U.S. District Court Judge Tena Campbell entered a restraining order freezing the assets of the defendant and ordered the inspect of all relevant records of Rust and his company. The court also appointed Jonathan O. Hafen as a temporary receiver to take control of Rust Rare as well as the assets of Rust. 

“As alleged, for at least a decade, the defendants defrauded their friends, customers and business associates out of more than $170 million,” said James McDonald, director of enforcement for CFTC. “The defendants allegedly concealed their fraud with false account statements and Ponzi payments. However, their scheme was brought to light through the combined efforts of the CFTC and our law enforcement partners. This is yet another example of the CFTC’s commitment to coordinate with our law enforcement partners both to protect our markets from fraud and to ensure that wrongdoers are held accountable.  I’m grateful to the Utah Department of Commerce, Division of Securities and Utah’s attorney general and their staffs for their assistance in this matter.”

According to the complaint, Rust tricked investors into believing that he and his company were pooling investor money for the purpose of entering into contracts of the sale for silver. The defendants told investors and prospective investors that they would sell silver held in the pool as market prices rose and buy silver for the pool as market prices fell, thereby increasing the amount of silver held in the pool, as well as the value of each investor’s share in that pool.

But law enforcements said the silver pool was a sham. Rust told investors that by trading silver in this manner, they generated extraordinarily high profits, averaging 20 percent to 25 percent per year and sometimes as high as 40 percent per year or more. Rust provided investors with false account statements that showed every trade made by the defendants as being profitable. The defendants also told investors that the pool possessed approximately $77 million to $80 million of silver, which was stored at Brink’s Inc. depositories in Salt Lake City or Los Angeles, even though the defendants never purchased and stored anything approaching that amount at Brink’s.

According to the complaint, Rust did not use contributions from investors to purchase silver. Instead, he used the funds to make payments to other investors in the manner of a Ponzi scheme, transfer money to other companies he owned and pay personal expenses.{/mprestriction}