THE CON: Two miners from Kentucky fooled a dozen businessmen – and the president of Tiffany’s & Company in New York City – with a handful of cheap, uncut diamonds. To seal the deal, they led an expedition to a field they had salted with worthless gems.
THE DAMAGE: Investors in the San Francisco and New York Mining and Commercial Co. lost $600,000, or about $8 million today.
THE OUTCOME: Just before stock in the diamond field went public, a skeptical geologist inspected the field. When he exposed the fraud, one of the miners disappeared. The other returned to Kentucky. Humiliated, the investors declined to press criminal charges.
In 1871, a pair of miners approached a businessman in San Francisco with a bag of diamonds and an amazing story: while traveling through “Indian country,” they had come across a field littered with precious gems. With feigned reluctance, Philip Arnold and John Slack told the businessman there was probably about $2 million worth of diamonds in the field. They also told him not to tell anyone.
The bait was strong – and the businessman talked. Before long, he had gathered a group of prominent colleagues to invest in the diamond field, including the founder of the Bank of California and a mining promoter named Asbury Harpending.
Some of the businessmen were prepared to buy out the miners, but the men insisted on making another trip to the field. They asked for $100,000 – half of which they were given in advance of their journey. Cash in hand, the men traveled to London and bought $20,000 worth of cheap, uncut diamonds, rubies and emeralds. They used some of those gems to salt a field in Wyoming. The rest came back to California to entice the businessmen.
In his autobiography, Harpending describes how the group hatched a plan: they would send the gems to the Charles Lewis Tiffany, the owner of Tiffany’s & Co. in New York City, for appraisal. If he confirmed their value, they would hire a mining engineer to examine the field.
Arnold and Slack had no problem with the plan; Harpending recalled how their “serene” and “confident” demeanor built the investors’ confidence. “On the stage they might have made the most famous actors of any time,” he wrote in The Great Diamond Hoax and other stirring incidents in the life of Asbury Harpending.*
The last bit of necessary confidence came with Tiffany’s positive appraisal. He reported the gems were extremely valuable – in spite of the fact that he had no previous experience appraising rough diamonds. Speculative excitement spread in New York City; at the same time, people were buzzing about diamonds in San Francisco – and gaping at the gems that a jeweler put on display in his window.
The businessmen hired a mining engineer and formed the San Francisco and New York Mining and Commercial Co. with capital stock of $10 million. Even before the field was inspected, the frenzy grew. In exchange for 1,000 shares, Congressman Benjamin Butler promised to pass a mining act so the company could buy the federal land where the diamonds were found.
At last, the miners led an expedition to the site. Harpending described the four-day horseback journey in his book: “Our course was erratic. At times our leaders seemed to be perplexed, to have lost their way.” In fact, the miners took a zig-zag path in order to conceal the location of the field.
Exhausted and frustrated, the group finally arrived at their destination. The miners pointed out the spots where they had found diamonds. Using shovels and picks, the men set to work. In a matter of minutes, a diamond was discovered. “For more than an hour diamonds were being found in profusion, together with occasional rubies, emeralds, and sapphires,” wrote Harpending. “Why a few pearls weren’t thrown in for good luck I have never yet been able to tell.”
The prospecting continued for another two days – during which Harpending felt the “intoxication that comes with sudden accession of boundless wealth.” Satisfied with what he saw, the mining engineer filed a report. Hired to assess the size of the diamond field – and not the quality of the gems – he valued the stock at $40 apiece – making the market value of the field in the summer of 1872 a staggering $4 million.
Investors in the San Francisco and New York Mining and Commercial Co. offered Arnold and Slack a final cash payment of $300,000. Though the stock had not yet hit the market, a speculative frenzy bubbled on both coasts – fueled by newspaper accounts of the expedition. “If so much wealth can be turned up by such primitive means, what might be accomplished with shovels and pickaxes?,” a writer for The Bulletin noted on October 7, 1872.
Before that question could be answered, a chance encounter brought the hoax to an end. Making his way home from the field, the mining engineer found himself on the same train as Charles King, a geologist hired by Congress to survey land between the Rockies and the Sierra. Eager to confirm the diamonds weren’t found on land included in his survey – which would undermine his work – King and his team set out to find the field.
The team discovered the field, along with impossibly perfect patterns of diamonds in the ground. Wherever King found a diamond, he also found a dozen rubies. What appeared to be anthills were, on closer inspection, holes made with a stick – at the bottom of which there was always a diamond. The most glaring evidence that the field had been salted were the rocks with gems pressed into their crevices.
Harpending wrote in his autobiography of a later meeting with a German man who was among that group of geologists. The German told Harpending he found a stone that had clearly been in the hands of a jeweler. “’Look here, Mr. King,’ he said. ‘This is the bulliest diamond field as never vas. It not only produces diamonds, but cuts them moreover also.’”
King sent a letter back to the company’s office in San Francisco in which he described the fields as “utterly valueless.” As quickly as people buzzed about the riches of the field, the talk switched to ridicule of the businessmen. The mechanics of the con came into sharp focus: the prospectors, who had invested $35,000 in the first handful of rough diamonds, had made as much as $600,000.
Perhaps shamed by their gullibility, the investors did not pursue serious charges against the men. After the expedition, Slack disappeared and was never heard from again. Arnold sold his stock and moved back to Kentucky. He insisted his riches came from honest prospecting and mining; if someone salted the mines, it happened after the appraisal and was the work of “California scamps” unknown to him. Sued for $350,000, he handed over $150,000 as a settlement. He maintained his innocence until his death from pneumonia a short time later, in the winter of 1873.
