The Great Diamond Mine Scam
The California gold rush from 1848 and the Nevada silver rush of 1859 fuelled the idea that the mountains and riverbeds of the western part of the United States was full of minerals just waiting to be found. The idea of finding a source of untold wealth appealed to prospectors and financiers alike. There was a ready audience for an audacious scam and where there is an opportunity someone will exploit it as this tale involving two failed prospectors, Philip Arnold and John Slack, shows.
Arnold was working in 1870 in San Francisco drill making company which used industrial-grade diamonds. By November he had acquired, or perhaps purloined, a bag of diamonds to which he added with some gems he acquired from some Native Americans. He and Slack, the latter playing the taciturn foil to his more volatile character, set out to convince the great and the good of California that they had found a diamond mine and here was the evidence.
The first investor the duo approached was George D Roberts who was not only keen to get involved but soon spread the word around the principal financiers in the city. In order to keep their potential investors sweet, Arnold and Slack offered to show them the site of the mine. They took up the offer and a mining engineer accompanied them to a remote spot in Wyoming where, lo and behold, the ground was sparkling with diamonds and other gems. A sample of the stones was taken and sent to the great New York jeweller, Charles Tiffany, who affirmed their authenticity and placed a valuation of $150,000 on them.
The investors who now included the likes of Baron Rothschild, Tiffany himself, General Dodge and George McLellan, were hooked, line and sinker, and persuaded the, doubtless reluctant, cousins to share their stake in the mine for $660,000 and formed their own mining company.
So how had the cousins fooled so many financiers so comprehensively in what the San Francisco Chronicle called, in 1872 when the truth was out, “the most gigantic and barefaced swindle of the age.” Greed, of course, makes us blind and there was a bit of crowd psychology at play. If your peers are doing something, you don’t want to miss out. But the clever part of Arnold and Slack’s scam was that they used real diamonds, firstly from Arnold’s former employer, and then when they had got some seed capital from the ever obliging Roberts, they went to London and bought $20,000 of rough diamonds and rubies, a prodigious amount, from a London diamond merchant called Leopold Keller. Some would be used to show the size of the find to date and the rest would be put in the ground for the investors to “find”.
This they duly did, the duo leading their mining engineer, Henry Janin, to an area laced with uncut diamonds. On the basis of this discovery, Janin wrote an optimistic report about the quantity of diamonds on the site, thus raising the stock price of the mining company. But trouble was afoot when the Government geologist, Clarence King, inspected the site. He knew that the range and variety of stones and gems could not possibly have co-existed on the same site in the same geological conditions. He concluded that the site had been “salted” , a term associated with tampering with ore to make it seem more valuable. And so it had. The land was worthless and the financiers lost their money.
The investors sued Arnold who settled out of court for around $150,000 – still a tidy profit. Slack became an undertaker.