Saturday, August 15, 2020

"The Great Diamond Hoax of 1872"

From The Smithsonian via Brewminate:

How a Kentucky grifter and his partner pulled off one of the era’s most spectacular scams – until a man of science exposed their scheme.
The rush for gold that began in California in 1848 and for silver in Nevada in 1859 filled the West with people hooked on the Next Big Thing. From grubby prospectors washing dirt in a thousand Western streams to bankers and speculators in San Francisco, New York and London, everyone, it seems, embraced the idea that the West’s mountains and riverbeds held an abundance of mineral wealth there for the taking.

An announcement in the Tucson Weekly Arizonian in April of 1870 catches the mood of the moment: “We have found it! The greatest treasures ever discovered on the continent, and doubtless the greatest treasures ever witnessed by the eyes of man.” Located in the Pyramid Mountains of New Mexico, the “it” was a new mine dubbed the Mountains of Silver. Bankers hurried in, miners claimed stakes, investors sought capital in distant cities and surveyors laid out a town nearby. But in the end, the much-touted venture did not yield enough of the stuff for a single belt buckle.

At about the same time came news of a diamond rush in South Africa, the third major diamond find known to the world after one near the city of Golconda, India, and an 18thcentury site discovered by the Portuguese in Brazil. Stoked by the tall tales of early 19th-century trapper-guides like Jim Bridger and Kit Carson about diamonds, rubies and other gems that could be scooped right off the ground, avaricious dreamers were soon looking for precious stones in Arizona and New Mexico, where the terrain was said to resemble South Africa’s. An odd diamond or two had actually turned up during the gold rush, especially near Placerville, California. In a report on the phenomenon, a state geologist helpfully recommended that “though it may not pay to hunt for diamonds, yet it always pays to pick them up when you do happen to see them.”

And so the stage was set for the Great Diamond Hoax, a brilliantly acted scam by two Kentucky grifters that would embroil, among others, some of California’s biggest bankers and businessmen, a former commander of the Union Army, a U.S. representative, leading lawyers on both coasts, and the founder of Tiffany & Co. Accurately described by the San Francisco Chronicle in 1872 as “the most gigantic and barefaced swindle of the age,” the scheme was also noteworthy for the manner of its unraveling and its colorful characters. Not only did it propel to prominence a geologist later befriended and admired by Theodore Roosevelt, it also gave a fed-up American public some hope that honest science could triumph, at least occasionally, over hucksterism and greed.

Swelled by the completion of the transcontinental railroad in 1869, the San Francisco of 1870 was a city of some 150,000 souls. One of them was Philip Arnold, a Kentuckian born in the same county as Abraham Lincoln. A poorly educated former hatter’s apprentice, Mexican War veteran and gold rush forty-niner, Arnold had spent two decades working in mining operations in the West, making enough money to pay for periodic visits back to Kentucky, where he bought a farm, married, started a family and perhaps stashed a little cash. In 1870, he was working as an assistant bookkeeper for the Diamond Drill Co., a San Francisco drill maker that used diamond-headed bits. For a bookkeeper, Arnold, then just past 40, showed a surprising interest in the industrial-grade diamonds that kept the drills running. He even plowed through learned works on the subject.

By November of that year, Arnold had acquired a bag of uncut diamonds, presumably taken from his employer, and mixed them with garnets, rubies and sapphires that he likely bought from Indians in Arizona. He also had acquired a partner, John Slack, an aptly named older cousin from Kentucky who, like Arnold, had fought in the Mexican War and had gone after gold in 1849. Indeed, in the months ahead, as the two men hatched their scheme, Slack played the listless, taciturn foil to the voluble and cunning Arnold.

The first person the pair approached was George D. Roberts, the sort of businessman described in newspapers as prominent, but his was a prominence earned by moving fast and not asking too many questions. Arnold and Slack turned up one night at Roberts’ San Francisco office, looking weather-beaten and clutching a small leather bag. Inside was something of great value, they said, which they would have deposited in the Bank of California except for the late hour. The two men feigned a reluctance to talk about what was in the sack until Arnold allowed himself to let slip the words “rough diamonds.” But Arnold and Slack were more circumspect about where they’d found the jewels, mumbling something about Indian territory, an answer that carried a certain truth, but not in the way Roberts took it.

The bag of diamonds sank the hook deep. “Roberts was very much elated by our discovery,” Arnold told the Louisville Courier-Journal in December 1872, soon after their scheme had been exposed, “and promised Slack and myself to keep it a profound secret until we could explore the country further and ascertain more fully the extent of our discoveries.” Like many able liars, Arnold had an intuitive sense of how others would react to his fictions. What better way to get Roberts to spread the word than to make him swear an oath of silence?

Almost before his office door banged shut behind the two miners, Roberts broke his promise. First he told the founder of the Bank of California, William C. Ralston, a legendary financier who built hotels and mills and invested in almost everything else, including the Comstock Lode and the completion of the transcontinental railroad when the s0-called Big Four—Collis Huntington, Leland Stanford, Mark Hopkins and Charles Crocker—came up a little short. The banker had also put money into the Mountains of Silver venture, and in return, the nearby town of Grant had been courteously restyled Ralston, New Mexico. Then Roberts got word to the theatrically named Asbury Harpending, who was in London trying to float a stock offering for the Mountains of Silver. Harpending swallowed the bait as hungrily as Roberts had. As Harpending, an even shadier businessman than Roberts, recalled 45 years later in The Great Diamond Hoax and Other Stirring Incidents in the Life of Asbury Harpending, his colorful and mendaciously self-serving memoir, he knew that “they had got something that would astonish the world.” He made his way to San Francisco “as fast as steamships and railroads would carry us,” arriving back home in May 1871.

In the meantime, Arnold and Slack led Roberts to believe that they had made another visit to the diamond field and had returned with 60 pounds of diamonds and rubies said to be worth $600,000. More convinced than ever, Roberts drew others into the trap with this second, bigger bag of jewels, which he claimed a local jeweler had authenticated. Roberts, Ralston, Harpending and now San Francisco mining entrepreneurs William Lent and Gen. George S. Dodge wanted to get Arnold and Slack out of the picture as soon as possible by buying out their interests. At first, the two prospectors appeared to resist a quick payday. But then Slack asked for $100,000 for his share—$50,000 now and $50,000 after the two made what they claimed would be a third visit to the diamond field.

Once Slack got his first 50 grand, he and Arnold headed off to England to buy uncut gems. In July 1871, under assumed names—Arnold was Aundel and Slack used his middle name, Burcham—they bought $20,000 worth of rough diamonds and rubies, thousands of stones in all, from a London diamond merchant named Leopold Keller. “I asked them where they were going to have the diamonds cut,” Keller later testified in a London court, but of course they never intended to cut the stones. Some would go to San Francisco as further evidence of the richness of their find. Others would be planted in the still secret field for their investors to discover....