“There are no winners here,” said Wayne Klein, a court-appointed conflicts receiver tasked with retrieving around half-a-million dollars fraudulently donated to Utah State University. “The investors aren’t going to get all their money back, Utah State is getting shafted and everybody’s a loser.”
In June, Klein filed a federal lawsuit against USU to retrieve nearly $545,000 after the university was the recipient of donations from a Ponzi scheme.
According to the complaint filed with the United States District Court for the District of Utah, Salt Lake City coin shop owner Gaylen Dean Rust “operated a massive Ponzi scheme through which he and others defrauded over 430 individuals out of over $200 million.”
Investors were “tricked into believing” their investments were being pooled for the physical trading of silver, the complaint states, but the funds were instead used to pay earlier investors and transferred to other entities owned by Rust.
From 2009 to 2018, according to the complaint, Utah State University received 20 donations that unknowingly came from the Ponzi scheme — the majority of which went to the Caine College of the Arts.
The Salt Lake Tribune initially reported the story, explaining Rust had also given more than $2 million in contributions and tithing to The Church of Jesus Christ of Latter-day Saints. According to the Tribune, Rust and his son pleaded not guilty to related criminal charges and are proceeding to trial; Rust’s ex-wife was sentenced to 18 months in prison for money laundering in September.
According to USU spokesperson Amanda DeRito, the funds were primarily donated for the building of the Newel and Jean Daines Concert Hall. In a statement sent to The Herald Journal, DeRitio said USU had a process for vetting donations and gifts, but “the deception that takes place through fraud is hard to detect.”
“The gift was a series of significant donations, made over a period of time, and returning it would be a significant financial burden for the university,” DeRito said. “At this time, we are working with the Conflicts Receiver to resolve the matter.”
The complaint shows multiple tolling agreements between USU and Klein to extend the statute of limitations. Klein explained an appointed receiver has one year to decide whether or not to bring forth a lawsuit. According to Klein, two years were spent trying to work out a deal with the university, but ultimately the parties “weren’t able to get something done.”
For Klein, cases like these are more common than one might think. While his role as a receiver actually makes up between 80 and 90 percent of his workload, it’s not a job he particularly relishes.
“It is professionally stimulating, it is interesting, but it’s not fun,” Klein said. “I liken it to being a pediatric oncologist — that you hate that there has to be such a profession, but if you do need a pediatric oncologist, you’re glad there’s somebody out there who knows how to do it.”
If someone fraudulently donates to a church or pays their personal credit card bill with a company bank account, for example, Klein said a receiver can sue the church or the credit card company to recover the funds.
“The donation to Utah State is really no different in nature than recovering religious donations or political donations,” Klein said.
But making victims entirely whole in these kinds of cases is a rarity. Klein said when a fraudster has stopped making promised payments to investors, desperation has usually set in and assets are sold or borrowed against. And that’s when complaints to regulators begin to emerge.
“Forty percent is considered a really good recovery,” Klein said. “Twenty percent is the beginning of average, and sometimes it’s less than that.”
Klein described these cases as “a battle between innocent parties,” and receivers have to decide who among the innocent is stuck with the loss.
“I feel bad for the university because I’m demanding they give the money back and, frankly, they don’t have it,” Klein said. “The university has lousy choices.”