The Great Diamond Fraud

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In previous winters when Clarence King and James Gardner finished their work in the Nevada desert and hoarded a river boat for San Francisco, they were the center of the attention of the other passengers. Clarence King was the director of a geological survey of the land along the new transcontinental railroad, and Gardner was his first assistant. They were trying to discover what minerals could he found out in the desert waste, what crops could he grown, and how much water was available.

But in October, 1872, when rains and high winds stopped the survey’s work again and King and Gardner once again headed for winter quarters, none of the other passengers paid any attention to them at all. The passengers were talking about something that thrilled every Californian. Somewhere out in the American Desert, two prospectors had stumbled across a whole mountain of diamonds.

If the story was true, the prospectors had come across something King and Gardner and all their assistants and their scientific knowledge and equipment had missed in five years of exploration and study. King had written that there were no precious gems in the American Desert.

King and Gardner listened with astonishment to the report that the project had been taken over by William C. Ralston, the town’s leading investment banker. Twenty-five of the city’s most reputable men had each put up $80,000 to form what they called “The San Francisco and New York Mining and Commercial Company.” Baron Ferdinand Rothschild of London, Charles Tiffany and Horace Greeley of New York were members of the company. Such men did not ordinarily subscribe to fairy tales.

For young men, Clarence King and James T. Gardner had come a long way. Both of them had put themselves through scientific school with little financial help from their parents. They had traveled across the continent with a wagon train. They had several years’ experience working with the great Professor Whitney and his California Geological Survey. At the age of 24, King had talked his way into the command of the most ambitious federal geological exploration survey ever undertaken.

They both realized, however, that the diamond strike could ruin them. The United States Congress would not be likely to support an expensive survey (hat supplied misinformation.

King and Gardner decided they would go immediately to the Pacific Union Club when they arrived in San Francisco. The Union was the garish, noisy rendezvous not only of the richest men in northern California, but also of the men who would know the truth about mining developments.

When their cab readied Montgomery Street and stopped in front of the Pacific Union building, the two men walked upstairs to the clubrooms. Within a few minutes, they saw a friend who could give them more than rumor. The story was a long one.

Early in February, two disreputable-looking miners had been seen in various saloons talking furtively to each other. Eventually the pair entered Ralston’s bank with a heavy bag which they asked the cashier to deposit in a vault. Before he locked up the sack, the cashier found that it contained several hundred uncut diamonds, and many raw rubies, sapphires and emeralds. In ten minutes. William Ralston had been told that someone had discovered a fabulous gem mine.

After several weeks of profitless investigation by many curious people, a former Army general, George I). Roberts, discovered that one of the miners, a southerner by the name of Arnold, was a former employee. General Roberts, of course, resolved to renew his acquaintance.

The General found Arnold almost grateful to meet an old friend whom he thought he could trust. His partner turned out to be a quiet fellow named Slack who nodded his head to agree with Arnold but never disputed the other’s leadership.

It took but gentle prodding to get the talkative Arnold to tell the story; although Arnold and the shrugging Slack seemed a Ira id to share their secret, they appeared even more frightened at the thought of not sharing it. The two miners told the General how they had happened upon a mountain filled with gems of every description. The find was so profuse that diamonds, sapphires, emeralds and garnets could be scratched out by boot heels. Although they had brought back a large sack of the stones, they were certain they had hardly touched the vast store. With this, the miners closed their mouths. Arnold and Slack hinted that the mine might be in Arizona, but beyond that they would tell no more.

When this vague information spread about the city, many parties set out for an exploration of Arizona. Finally, when the month of February was almost gone, Roberts called on Ralston, the master persuader of them all, to talk sense to the prospectors.

Whereas Roberts had been talking about taking rocks out of a hole in the ground, Ralston began to plan a whole gem industry with Arnold and Slack as key figures. Ralston promised the simple fellows lavish offices with solid walnut desks, rich homes with servants and great power. Under this strategy, the miners began to appreciate that there were many advantages to having experienced partners.

Once the miners became interested, Ralston convinced them that they should take two mining experts to the gem fields. Arnold and Slack agreed, demanding only the stipulation that the men should be blindfolded when they reached the vicinity of the field.

In a few weeks two dazzled mining experts returned. They had little idea where they had been, but they were wild with tales of diamonds jutting out of the ground and gleaming in crevices. They brought with them another bag of jewels and deposited it in Ralston’s Bank of California with the earlier sack, which had been assayed at $125,000.

Ralston was already dreaming of a California empire. He began to plot the removal of the whole diamond industry to San Francisco. He would import miners from South Africa and lapidaries from Holland. He would control the gem market in London.

He never lost his caution. He demanded that Arnold and Slack permit him to submit the gems to Tiffany of New York, the most reputable American authority on precious stones. If Tiffany confirmed the value of the treasure, Ralston and his associates were to choose a mining expert of international repute for a final investigation of the mine.

To all of this, Arnold and Slack agreed.

Ralston lost no time in establishing the directorate of his corporation. He sent a long cablegram to his old friend Asbury Harpending and persuaded him to return from England and become general manager of the enterprise. He asked General Roberts to be a director. David Colton, an engineer whose lather had owned the hall where California declared its independence from Mexico, was elected president; Ralston became the corporation’s secretary and treasurer. This small group of men, working with showy secrecy, sketched in the outlines of a corporation with a capital stock of $10,000,000. To represent the New York affairs of the enterprise, they engaged Samuel Barlow, one of New York’s most successful lawyers.

To expedite passage through Congress of a law permitting them to claim a great area of mining land, Ralston added Senator Ben Butler to their legal staff. An influential member of the United States Senate, Butler had a strong voice in establishing mining policy.

Barlow and Butler arranged the meeting with Tiffany. It was full of drama and they provided an appreciative audience. Besides the company officials, the group included George B. McClellan, Lincoln’s deposed commander in chief and presidential opponent of 1864. Although Horace Greeley had resigned as editor of the New York Tribune , his friendship with his successor, Whitelaw Reid, would insure some valuable publicity, and he was in the audience. The impresarios also invited the president of Duncan, Sherman and Company, one of New York’s largest investment firms.

When the group assembled, Barlow dumped the contents of a huge cloth bag onto a tablecloth before Ii If any. In a few words, Barlow told the audience that a fabulous store of gems had been found in the West. Mr. Tiffany was to see if they were valuable.

Tiffany played the part of the expert with gusto, holding up each stone to the light carefully, peering at it with his jeweler’s glass.

“Gentlemen,” he finally pronounced, “these are beyond question precious stones of enormous value. But before I give you the exact appraisement, I must submit them to my lapidary and will report to you further in two days.”

For the next 48 hours, they all waited. At the announced time the group reassembled, this time to witness an even more dramatic presentation. Tiffany paused for a moment until he gained full attention. Then he stated firmly that, when cut, the gems would be worth $150,000. Since the westerners had brought only one-tenth of the treasure, the whole collection presumably would be valued at $1,500,000.

Ralston had only one more step to take before he could feel that his gem industry had a sound foundation. All that remained was a full investigation of the mine itself by a mining expert. When Ralston looked for the right man, he hit immediately on Henry Janin, a consulting engineer. Janin was one of the most dependable mining authorities in the United States. Although he had examined over 600 mines, he had never caused a client to lose a dollar. He agreed to make an appraisal, for a fee of $2,500 cash; all his expenses were to be paid, and he was to have the right to take up 1,000 shares of the stock at a nominal price.

Janin’s trip to the gem field was staged as dramatically as every other episode. Arnold and Slack led the party, all of whom were blindfolded when they left the train.

Now that they had the whole story, King and Gardner were perplexed. Diamonds, they knew, were found either in placer conditions in the alluvial deposits of rivers and creeks, or in lode conditions in rocks of heavily variegated states of metamorphosis. Rubies and sapphires required completely different conditions. King and Gardner were sure that the proper conditions had not existed in the American West. But surely Janin knew this too. Could their own information be wrong? They had to know more.

Although no one in the company would divulge anything officially, the president, David Colton, had already opened impressive offices and hired twenty clerks. He had refused fifteen offers of over $200,000 each for claims at the mining fields. He answered every request only with a glowing prophecy of the corporation’s future.

King and Gardner learned that the fever was not confined to San Franciscans. In New York, investors were besieging Barlow and Butler with demands for stock. When someone who signed his letter “An Old Miner” wrote the New York Sun that he had seen a stone worth half a million dollars taken from the gem field, which he said was in southwestern Arizona, he started a wildcat movement to that state.

In England, Baron Rothschild was watching developments. After the testimony of Tiffany and Janin, the Baron ordered his agents to get control of the gem enterprise. Ralston laughed at this move but he had Rothschild’s agent, A. Gansel, elected to the board of directors.

Meanwhile, Arnold and Slack decided they had had enough of the last company. After showing several corporation officials how to locate the diamond field, they sold out. They took for their interest $300,000 each and a percentage of the future profits.

King and Gardner still were sure that the mine was fraudulent, and they decided that they must talk to Henry Janin. Since they did not expect Janin to want to talk to them, they learned where he customarily ate dinner and waited for two days until he appeared. When he entered the restaurant, King invited Janin to eat with them.

To their astonishment, Janin opened the conversation by asking if they had heard about the Arizona diamond discovery. He was proud that his name was associated with it.

He related that the journey on horseback had followed an erratic course. Even with their blindfolds, he could tell that at times Arnold and Slack seemed lost. Perplexed, they argued about the position of the sun; Arnold left the party to climb a high peak in search of landmarks. Long after the San Franciscans were ready to give up the search, the guides removed their blindfolds and announced that they had reached their goal. The spot was at a high elevation, about 7,000 feet above sea level, and near a conical mountain.

Immediately all fatigue and irritation disappeared. The party began to scratch and dig where Arnold and Slack pointed. Within ten minutes a San Franciscan found a diamond. Then they all began to have fantastic success. Diamonds were everywhere; occasionally the hunters found a ruby, a garnet, a sapphire, or an emerald. Janin swore that twenty rough laborers could wash out a million dollars’ worth of diamonds per month indefinitely.

When Janin was spent, King and Gardner began a cross-examination. “Of course, you know exactly where the place is?” King asked.

“No. No, I don’t. I was taken a long distance on a train, about 36 hours. Then we left the railroad at some small station where there was no attendant. We were brought out of the station blindfolded and put on horses which our guides secured in some way. For two days we rode, and at last they took our blinds off when we got to this mountain. If I hadn’t gone through it all myself, I should hardly believe it.”

“Why?” Gardner asked.

“It’s a curious place, a desert with a conical but flattopped mountain rising right out of it, and on the mountain you find everything from garnets to diamonds!”

King then commented, “It’s a pity you had such had weather to ride in.”

“Why, we had splendid weather,” Janin said. “In fact, we had the sun in our laces for the entire two days during the trip; it was quite too hot.”

When the mining expert left, King explained to Gardner why he had asked Janin about the weather, Janin was fooled about the mine’s location, or he had not been entirely frank with them. It was impossible to get to Arizona by a 36-hour train trip followed by a two-day ride on horseback. Thirty-six hours on the Central Pacific would have taken the party east of Promontory Point in Utah and on into Wyoming. This checked with some information they had about rainfall. Almost all the mountainous areas in Nevada and Utah had been covered with rains and storms at the time of the trip, yet Janin had said that his trip was dry. Only southwestern Wyoming and northern Utah had escaped the deluge. The party must have been traveling generally southward since Janin made such a point about facing the sun for the entire day. Unless they had wound and twisted a great deal, two days’ trip to the south would have taken them into Utah.

King and Gardner studied their maps. They had a faint recollection ol the mountain Janin had described, but neither could place it exactly. In a few minutes, they found such a mountain on the edge of the Uinta Range east of Salt Lake City, which they had surveyed only a year before.

Thirty-six hours later, King arrived at Rawlings Springs, near what is now Green River, Wyoming. Here he hired an elderly German prospector who had some horses to carry the barometers, transits, sextants, food and books King found necessary for all his trips. King and the German cut across Red Canyon and the valley of the Green River and up into the gulches and ravines of the Uinta foothills, about 140 miles east of Salt Lake City. Finally they climbed onto the mountain of their destination, Table Rock, a plateau of 6,840 feet elevation. They arrived on November 2.

At first they found nothing. Quickly satisfied that their search was profitless. King quit scratching around in the rocks and began to took supper; the old prospector, however, still continued digging, just as the meal was ready, the German called from a spot several hundred feet from their camp site. He had discovered what |an!n and the San Francisco reports had promised: raw diamonds, emeralds, rubies and sapphires.

The geologist and the prospector pitched camp and went to bed, but neither of them slept much. At sunrise, the prospector was again scurrying around picking up the valuable stones. Suddenly he held up a stone and shouted, “Look, Mr. King. This diamond field not only produces diamonds but cuts them also!”

King ran to the prospector and grasped the halt-cut diamond. Clearly it bore the smooth surface left by a lapidary’s tool. He knew for certain now that the field was a fraud. The ground had been “salted” with rough stones. He began to discover evidence he had previously overlooked. Occasionally he found a straight hole at the bottom of which rested a gem as though it had been pushed down by a miner’s bar. He found ant hills jammed with gems. Any crevice of rock or shale might contain a diamond, but the rock was likely to have scratches on it from a steel tool.

On November 10, King and his aide returned to the Union Pacific station and flagged a train. At the next stop, the geologist sent a brief telegram to Colton stating that the company was duped.

In San Francisco, the board of directors hurriedly identified King and established his reputation. When they learned that whatever he said about mining and geology would be authoritative, the company president, two directors and Henry Janin traveled the mountainous way to Rawlings Springs. Two days later, they sent Ralston the telegram he had been dreading. As Ralston read the telegram to his associates, they knew their dreams were dead.

By the time King returned to San Francisco, Ralston had started a nation-wide search for the men who had tricked him. He never located Slack, but found Arnold ensconced in Hardin County, Kentucky. When the Californians brought suit, the southern state refused to extradite Arnold. The courts in Kentucky were solidly in support of the successful son who had made a foray into Yankeedom and returned with a third of a million dollars. After months of wrangling, Arnold surrendered $150,000 for immunity from further litigation. The only other satisfaction the Californians got was that Arnold, who used the balance of his gains to start a bank in Elizabethtown, Kentucky, was promptly shot to death by a competitor.

The recovery of only one-fourth of what he had paid to Arnold and Slack left Ralston a heavy loser, especially since he made it a point of honor that no one else should lose a penny. Because he sold no stock and paid back to each one of the charter members the $80,000 originally invested, he was freed by public opinion of any taint.

Gradually the Californians began to understand how they had been gulled. Amsterdam gem merchants remembered that two “crazy Americans,” one talkative and the other taciturn, had been “throwing their money away” on inferior, uncut gems for almost a year before the great strike. The stones they had bought were rejects, worth less than $25,000.

The embarrassed Tiffany could offer slight excuse. His lapidaries were the best in America, but none of them had ever before seen uncut gems. Only the most experienced cutters, all of whom were members of the gem monopoly at Amsterdam, were aware how much of a raw stone is lost when its heart is fashioned into a jewel. Janin, who had sold his 1,000 shares for $40,000 before King’s discovery, had an even lamer excuse. The enthusiasm of Ralston and the reputation of Tiffany had confused him. He was convinced about the authenticity of the mine before he got off the train at Rawlings Springs.

The most acceptable explanation of how so many shrewd and reputable men were so thoroughly fooled probably lay in two facts. In the first place, Arnold and Slack must have been skillful actors. Their “air of simple rugged honesty” made them master swindlers. When they learned that Tiffany had agreed to appraise the gems they were convincingly exultant, and they were equally delighted with the selection of Henry Janin. At all conferences they affected being both nervous and relieved that they had found some honest men with whom to share their secret.

The second fact was that in the 1870’s everyone had abundant confidence in the “Manifest Destiny” of California and the West. After the completion of the transcontinental railroad, settlers began a drive for the productive lands on the coast. Their success stories added to the legends of fortunes made earlier in gold, silver and trade. At that time, anything good was expected of the West.

As for King, the fame he acquired from the exposure was almost blinding. The New York Times , the Philadelphia Enquirer , the Chicago News , and the Rocky Mountain News gave the exposé more space on their front pages than they did the arrest of Jay Gould and the first reports that Horace Greeley had gone insane, stories which broke at the same time. The London Times publicized King’s act extravagantly, including in its story the first account of how Arnold and Slack had secured the rough diamonds of Amsterdam.

Immediately, of course, rumors began to exaggerate his triumph. There is an unsubstantiated claim that officials of the corporation offered King a tremendous bribe to delay his announcement until they had sold enough stock to get their “investment” back. To this, King is supposed to have returned a declaration that is today preserved in the histories of science: “There is not enough money in the Bank of California to induce me to delay this announcement a single hour.”

Ironically, if the bribe was offered and King did say that there was not enough money in the Bank of California to tempt him, his reply had a dreadful pertinency. An investigation made soon after King’s exposé revealed that Ralston’s bank was insolvent. The next morning Ralston’s body was found in the Bay, and his whole empire crashed.

The magnitude of the swindle and King’s independent method of frustrating it caught the fancy of America. He was praised in the newspapers and eulogized from the pulpits. One of the leading churchmen in New York, Reverend Horatio Stebbins, declaimed, “One scientific man, whose untarnished fame alone is worth all the diamonds in the world, has found occasion to prove to the world the value of science and his own moral worth; and that result alone compensates for all the shame of this great fraud. … To have learned that we have one such man is enough to make us look upon the whole stupendous wrong and its results as a cause of thankfulness.”