"If it sounds too good to be true, then it probably is."
On a late February evening in 1871, two men knocked on the door of the office of George Roberts, a prominent businessman from San Francisco. One of them introduced himself as John Slack, the other as Philip Arnold. The latter took a small leather pouch out of his pocket and said that it contained something very valuable, so he would like to leave it in the "Bank of California".
Arnold and Slack were at first reluctant to answer the questions of the intrigued businessman, pretending not to share their secret. In the end, they confessed that the "rough diamond" they had found somewhere in the West was hidden in the leather bag. Arnold and Slack did not name the exact coordinates of the discovered deposit, but said that they had never seen so many sapphires, emeralds, rubies and other precious stones!
The story sounded implausible, but when Arnold poured dozens of rough diamonds from the bag onto Roberts' table, the businessman's eyes shone and his mind became clouded.
Goldmine
In our day, many would drive Arnold and Slack into three necks with wild laughter, but in 1871 everything was different. It has only been twenty years since the discovery of gold near Sutter's sawmill and the start of the California gold rush. Since then, many fields have been discovered in the US state, Australia and New Zealand. In 1859, the famous Comstock silver vein was discovered in Nevada, and eight years later, prospectors found diamonds in South Africa. Deposits of precious stones and metals could be anywhere, waiting for their turn to become known to the world. People who missed the chance to profit during the gold rush yearned for new discoveries. In 1869, the construction of the transcontinental railroad was completed, and crowds of prospectors rushed to the West in search of instant wealth. When Arnold and Slack arrived in San Francisco with the legend that they had discovered a huge deposit of precious stones, and presented a leather pouch filled with diamonds as proof, people could not help but believe them.
The secret that everyone knew
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The next morning, two men went to the Bank of California and asked to take a leather bag with precious stones from them. They casually boasted to the clerk of its contents, and by evening everyone who worked at the bank knew about it, including William Ralston, its founder and president, who made his fortune on the gold mine of Comstock. He, like George Roberts, could not keep his mouth shut, and soon the whole city knew about the secret of Arnold and Slack.
After visiting the bank, the prospectors left San Francisco. They returned a few weeks later, bringing with them another leather pouch filled with gems. When Ralston saw him, he immediately began looking for investors willing to buy the field. There were a lot of people willing. Arnold could not be persuaded to sell his share of the diamond field; Slack agreed to do this on condition that he was given $ 100,000 (millions in modern money). The prospector received half of the amount immediately, the rest of the money Ralston promised to pay after he brings another bag of diamonds from the field.
Arnold and Slack left town again. A few weeks later, they returned with a new shipment of gems. Ralston, as agreed, gave Slack the other half of the money.
Big success
The rough diamonds that Arnold and Slack brought back were real, but the story of the rich mine was a lie. The prospectors managed to cheat the famous and successful banker and his friends, astute investors, and sell them for a lot of money what is really worthless.
Due diligence measures
Before giving Slack $ 100,000, investors took some precautions that they thought would protect them from fraud. They insisted that the gems found by the prospectors be appreciated by the most respected jeweler in the United States of America, Charles Tiffany. After that, the investors planned to send a mining engineer to inspect the deposit, in order, firstly, to make sure that it really exists, and secondly, to confirm the words of Arnold and Slack about its rich reserves. These precautions would have been sufficient, however, due to short-sightedness and bad luck, they did not work.
The main thing is not to be mistaken
In October 1871, Ralston traveled to New York to show samples of the precious stones found by Arnold and Slack to the jeweler Charles Tiffany. At that time, he was actively involved in attracting potential investors from the East Coast, so during the peer review, in addition to him, there were also such famous people as George McClellan (Major General of the American Army during the Civil War, who participated in the presidential election of 1864), Horace Greeley (editor of the New York Times) and others.
In fact, Charles Tiffany, like his assistant, specialized in diamond grading and knew almost nothing about rough gemstones. But the jeweler preferred not to tell anyone about this. After examining the diamonds with an important air, he announced to all those present: "Gentlemen, these stones, without a doubt, are real and have incredible value." Two days later, Tiffany's assistant, on behalf of the investors, determined the nominal value of the samples provided at $ 150,000, which, of course, was not true.
Drive to the field
After Charles Tiffany had authenticated the diamonds, Ralston turned to independent expert Henry Janin, a skilled and highly respected mining engineer, to evaluate the deposit allegedly discovered by Arnold and Slack. Janine was famous for having explored more than 600 mines throughout his career and has never been wrong.
Arnold, Slack and Janine, along with three investors, hit the road at the end of May 1872. It took them several days to get to the deposit: first by train, then by horse through the wilderness. All this time, Janine and the investors, at the insistence of the prospectors, drove blindfolded.
They arrived at the field on June 4. While examining the site that Arnold pointed out, one of the investors found a rough diamond in the mud. It took him only a couple of minutes to find. In an hour, Janine and the investors found so many precious stones (including rare rubies, emeralds and sapphires) that they never dreamed of.
To see is to believe
Reporting to Ralston on the results of the trip, Henry Janine informed him that the deposit would bring in millions of dollars a month, since its reserves are inexhaustible. He received $ 2,500 for the work. In addition, he was promised 1,000 shares of the new company at a price of $ 10 each.
After traveling to the mine, the prospectors decided it was time to make legs. Having received another 550 thousand dollars for Arnold's share, they hurried to leave San Francisco.
Empire builder
After Arnold and Slack left the city, William Ralston set about creating a 10 million dollar corporation called the San Francisco and New York Mining and Commercial Company (Russian “Mining and commercial company of San Francisco and New York”). He managed to attract 25 investors (including the editor of the New York Tams newspaper Horace Greeley and the British financier Baron Ferdinand Rothschild), who invested 80 thousand dollars each in the business. Ralston had another $ 8 million to find.
The Rothschilds owned a world famous banking firm. The projects in which they invested money have always been profitable and successful, so it is not surprising that interest around the future Ralston company grew at an impressive pace. Apart from Arnold and Slack, no one knew where the diamond deposit was, but what of that? When rumors began to spread that it was in the Arizona Territory, there were hundreds of seekers of wealth and adventure thrown in there.
Clarence King's appearance
Because of the Arnold and Slack scam, many more people could have suffered, if not for one accident: the prospectors, unaware of it, chose the location of the "diamond field" on the site that was being developed by a group of government geologists at the time.
Its leader, Clarence King, upon hearing about the location of the mine, couldn't believe what he was hearing. He had been exploring this territory for five years and did not find any deposits of precious stones on it. King's professional reputation was on the line: if a "diamond field" is really found there, which Washington immediately becomes aware of, he will be considered an incompetent worker and funding for the project in which he participated will be stopped.
Too good to be true?
King decided to meet with Henry Jeanine over dinner and learn firsthand about the history of the diamond field. As soon as the mining engineer began to describe the details of the trip to the field, he immediately sensed something was wrong. Janine went on to talk about how they were able to find hundreds of diamonds, rubies and sapphires in one place in an hour. As a seasoned geologist, King knew this was impossible. The processes of natural formation of diamonds, rubies and sapphires are very different from each other, so it does not seem realistic to find them in the same deposit.
After talking with Zhanin, King realized which deposit was being discussed. He suggested that the engineer go there the next day with him and his team.
In place
The trip to the "diamond field" took several days. Upon arriving at the site, they set up camp and began to explore the site. It took them very little time to find rough diamonds, rubies and sapphires (as in the case of Jeanine). King could not believe his eyes as he looked at the dozens of gems in his palms. The thought of whether they were real did not leave him all night. King's doubts were dispelled with the onset of the morning.
• Shortly after sunrise, a member of his research team discovered a partially cut and polished diamond. It was clear that the jeweler had worked on it.
• King noticed that in the place where he found diamonds, he also came across other gems - and almost always in the same quantities. This does not happen in nature.
• In addition, the pits and grooves in which King's team found gems were likely to have been made by hand or with special tools.
• At other sites in the same area, Kingu and his assistants were unable to find anything.
Digging deeper
King knew that if the field were real, then diamonds could be found not only on the surface, but also in the earth. Together with his colleagues, he dug a trench three meters deep in an untouched area. Carefully sifting the fresh earth through a sieve, they did not find a single precious stone. There was no doubt: Arnold and Slack had fooled everyone.
King sent a telegram to Ralston stating that he had been deceived. The banker, upon learning of the scam, flew into a rage. He had to close the company and, in order to preserve his reputation, return part of the money ($ 250 thousand) to investors from his own pocket. As it turned out later, Ralston went bankrupt not only on diamonds: he invested millions in the construction of the Palace Hotel, already invented a logo for it, and also invested several unprofitable projects, which turned out to be bankruptcy for him. In 1875, his body was found in San Francisco Bay.
Arnold and Slack did not hire a shell engineer or bribe Tiffany to fool their important wealthy clients. All the experts were real, and they sincerely believed in the existence of the vein and the value of stones. What has been a hoax in the whole story is Arnold and Slack themselves. These two seemed so simple, bumpkin, so naive, that it never occurred to anyone for a moment that they could be capable of such a daring deception. The prospectors applied the law “seem stupider than your client” - the first commandment of deceivers.
The scammers' plan was very simple. A few months before announcing the "discovery", Arnold and Slack traveled to Europe, where they purchased precious stones for about 12 thousand dollars (part of the money they earned in their time in gold mining). Then they stuffed the "vein" with these stones and invited the first expert who "found" the stones and brought them to San Francisco. The jewelers who studied the stones, including Tiffany himself, psychologically succumbed to the excitement around the find, and significantly inflated their price. Then Ralston paid the prospectors 100 thousand as insurance, and immediately after the trip to New York they went to Amsterdam, where they bought bags of rough stones, after which they returned to San Francisco. They worked on the mine for the second time, so much more treasure could now be found.
The success of the scheme, however, was not these tricks, but the fact that Arnold and Slack played their roles brilliantly. During a trip to New York, where they moved in the company of millionaires and tycoons, they very accurately portrayed the village boobies, dressed in too short and tight pants and jackets and looking incredulously at everything they saw in the big city. No one would have believed that these simple-minded provincials could fool the most sophisticated and cynical businessmen of their time. And when Harpending, Ralston, and even Rothschild recognized the vein, anyone who doubted had to question the minds of the world's most successful businessmen.
As a result, Harpending's reputation was irrevocably destroyed, and Rothschild learned his lesson and never again became a victim of fraud. Slack got his share and went into hiding, he could not be found. Arnold went home to Kentucky. After all, the paperwork for the sale of the rights to the land was genuine and legal, the buyers were hiring the best consultants, and if the livelihood was exhausted, that was not his problem. With the proceeds, Arnold turned his farm into a magnificent farm and opened his own bank.
Exposing deception
The story of the great diamond deception of 1872 received wide coverage not only in American but also in European publications. As soon as the journalists took up this case, very interesting details of the scam immediately began to surface.
• Arnold worked as an accountant at Diamond Drill in San Francisco, which made industrial diamond drill bits. Apparently, it was these stones (mixed with cheap rough rubies and sapphires) that he used for a joint swindle with Slack.
• Some of the money that Ralston paid Slack as an advance was spent by the miners to buy another batch of rough diamonds from London dealers. It was these stones that Tiffany and his assistant estimated at 150 thousand dollars.
The fate of the crooks and Clarence King
Philip Arnold and John Slack managed to earn 650 thousand dollars from the scam. The money, which would have been enough for them for the rest of their lives, they divided in half and then parted. Arnold moved to Kentucky, where he bought 200 hectares of land for farming. When the authorities finally tracked him down, he paid $ 150,000 to settle all claims against him. With the money left over from the scam, Arnold opened his own bank. Six years later, he was wounded in a shootout with a rival banker. Six months later, Arnold died of pneumonia.
Little is known about Judge Slack. He wasted his part of the money, after which he was forced to work first as an undertaker in Missouri, and then as a director of a funeral home in New Mexico. Slack died in 1896. His acquired property was estimated at $ 1,600.
Clarence King has progressed significantly through the exposure of the fraud; in 1879 he became deputy head of the US Geological Survey. After a couple of years, King decided to leave this position and take up livestock. Unfortunately, his business failed. He died in 1901, penniless.
Fool's gold
The most fortunate of all the characters in this story was the mining engineer Henry Janine. The scam didn't hit his reputation too hard. Moreover, before her exposure, he managed to sell his shares to another investor for an amount four times higher than their real value - 40 thousand dollars. Janine was not a fraud, he was just lucky.