The silver trade is alive, but 300 investors may not feel so well. The SEC filed charges in November against Gaylen Dean Rust and Rust Rare Coin of Utah. During a 20-month period in 2017 and 2018, Rust secured over $85 million from investors in a silver trading scheme. The details of this Ponzi scheme will give silver tarnish new meaning.
The Family Business. Rust’s father started a rare coin shop in 1966. Gaylen Rust took over the business, and now his son manages the retail shop and website. The business sells rare coins, collectible paper money and precious metal bullion, including early Mormon currency. Family businesses often struggle when handed down a generation. And, sometimes each generation builds on the prior’s successes, adding new products, services or divisions. Rust did bring a whole new division to the family business—a silver trading Ponzi scheme.
The Silver Scam Misrepresentations. Rust must be a heck of a salesman to get 300 people to invest $85 million in under two years. Here are just a few of the misrepresentations Rust is alleged to have shared with potential investors. See SEC Complaint.
- Rust traded only physical silver, not silver futures.
- Rust traded only 50% of the silver purchased on behalf of an investor. The balance was stored with Brink’s Global Services USA in Salt Lake City or Los Angeles.
- As of fall 2018, Rust told investors he had $80 million of silver stored with Brink’s.
- Rust utilized an HSBC trading algorithm thereby never experiencing even a month of losses. He even told one investor he earned 12% in his worst year, and normally averaged a 20 to 25% return.
The Silver Scam Facts. According to the SEC Complaint,“Investor funds were not used to buy silver in the trading program.” Rust used the $85.7 million to fund his other businesses, for personal use and to pay prior investors. Most of the investors’ money was disbursed as follows:
- $70 million was paid to prior investors.
- Almost $2.7 million was withdrawn in cash.
- Over $1.1 million was used in Rust’s horse racing entity, R Legacy Racing.
- $9 million was transferred to another of Rust’s businesses involved in music production, R Legacy Entertainment
- Another $2 million was transferred to R Legacy Investment.
- No silver was stored at Brink’s.
Rust’s family name will forever be tarnished. And the once legitimate coin business may never recover. As for Rust’s other commercial businesses, can you imagine what commercial litigation lurks in their future? How far a stretch would it be to find future commercial lawsuits claiming deceptive trade practices and breach of contract?
When it comes to investments and commercial transactions, you can never be too careful.Whether you are investing in a new business, embarking on a complex business transaction, or investing in real estate, we hope you earn great rewards. And, if you find yourself in need of commercial lawyer or a breach of contract attorney, we are ready to put our decades of winning experience to work for you.
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