The history of the diamond scam in 1872

The history of the diamond scam in 1872

"If it seems too good to be true, then it is likely the way it is."

Late one evening in February 1871 in the office door, George Roberts, a prominent businessman from San Francisco, two men knocked. One of them introduced himself as John Slack, the other - by Philip Arnold. Last he took from his pocket a small leather pouch and said that it contains something very valuable, so he would leave it to the store in the "Bank of California" (eng. "Bank of California").

Arnold and Slack initially reluctant to answer questions intrigued businessman pretending to be unwilling to share his secret. In the end, they admitted that the leather pouch hidden "rough diamonds" found them somewhere in the West. Arnold and Slack did not name the exact coordinates of the detected field, but said that as sapphires, emeralds, rubies and other precious stones they had never seen in my life!

Story sounded improbable, but when Arnold emptied from the bag on the table, Roberts scores of rough diamonds, a businessman's eyes sparkled, and his mind clouded.


Today, Arnold and Slack many with wild laughter be driven in three of the neck, but in 1871 everything was different. Since the discovery of gold near Sutter's Mill and the beginning of the California Gold Rush took only twenty years. It has since been discovered a lot of fields in the State of the United States, Australia and New Zealand. In 1859, the Nevada silver mine discovered the famous Comstock, and eight years later in South Africa miners find diamonds. Deposits of precious stones and metals could be anywhere, waiting for their turn to come to become known to the world. People who missed the chance to make money during the Gold Rush, were eager for new discoveries. In 1869 it completed the construction of the transcontinental railroad, and a crowd of prospectors rushed to the West in search of instant wealth. When Arnold and Slack arrived in the legend of San Francisco that found huge deposits of precious stones, and provided as proof leather bag full of diamonds, people could not believe it.

The secret, which everyone knew

The next morning, the two men went to the "Bank of California" and asked to take them to the storage of the leather pouch with the gems. They casually show off to a clerk and its contents, and in the evening it knew everyone who worked at the bank, including William Ralston, its founder and president, who made his fortune in the gold vein Comstock. He, as well as George Roberts, could not keep his mouth shut, and soon the secret of Arnold and Slack knew the whole city.

After a visit to the miners left the bank in San Francisco. They returned a few weeks later, bringing with him another leather bag with jewels. When Ralston saw him, he immediately began to look for investors willing to buy out the field. Who are willing to quite a lot. Arnold to persuade to sell his share of the diamond fields failed; Slack agreed to do so on condition that they would give him 100 thousand dollars (millions of today's money). Half of the amount immediately received a prospector, the remaining money Ralston promised to pay after he will bring to the field one more bag of diamonds.

Arnold and Slack again left town. A few weeks later they are back with a new batch of precious stones. Ralston, as agreed, gave Slack second half of the money.

The great success of

Rough diamonds, which brought Arnold and Slack were real, but the story of a rich field - lies. Miners managed to cheat well-known and successful banker and his friends, astute investors, and sell them for a lot of money is what is actually worthless.

Due Diligence

The history of the diamond scam in 1872

Before Slack pay 100 thousand dollars, investors have taken some precautions, which, in their opinion, had to protect them from fraud. They insisted that the gems found by prospectors, praised the most reputable jeweler in the United States of America - Charles Tiffany. After that, investors are planning to explore the field of mining engineer, to, first, make sure that it actually exists, and secondly, to confirm the words of Arnold and Slack its rich reserves. These precautions would be enough, but because of the lack of foresight and bad luck they did not work.

The main thing - not to be mistaken

In October 1871 Ralston drove to New York City to show samples of precious stones found Arnold and Slack, jeweler Charles Tiffany. At the time, he was actively engaged in attracting potential investors from the East Coast, so during a peer review, in addition to it, was also attended by such famous people like George B. McClellan (Major General of the US Army during the Civil War, he participated in the presidential elections in 1864) Horace Greeley (editor of "New York Times") and others.

In fact, Charles Tiffany, as well as his assistant, he specialized in the evaluation of diamonds and practically knew nothing about the raw gems. But this is a jeweler chose not to tell anyone. With an air of importance inspecting diamonds, he announced to all present: "Lord, these stones, no doubt, are real and have incredible value." Two days later, assistant Tiffany on behalf of investors, the nominal value of provided samples of 150 thousand dollars, which, of course, was not true.

The trip to the field

After Charles Tiffany confirmed the authenticity of diamonds, Ralston turned for help to the independent expert Janine Henry, much-esteemed and qualified mining engineer, who was supposed to evaluate the deposit, supposedly discovered by Arnold and Slack. Jeanine was famous for his entire career researched more than 600 mines and has never made a mistake.

Arnold and Slack Janine, along with three investors hit the road at the end of May 1872. Before they reached the field a few days, first by train, then on horseback through the wilderness. All this time, Jeanine and investors, at the insistence of miners went blindfolded.

To mine they arrived on June 4th. Examining the spot at which Arnold pointed out, one of the investors in the mud found a rough diamond. In the search for it took him only a couple of minutes. An hour Jeanine and investors have found many gems (including rare rubies, emeralds and sapphires), but they do not even dreamed of.

See - is believing

Ralston reporting on the visit, Janine Henry informed him that the monthly deposit will bring millions profit, because its reserves are inexhaustible. For his work he received $ 2,500. In addition, he was promised a new 1,000 shares at a price of $ 10 per share.

After traveling to the mine prospectors we decided it was time to make feet. Having received more 550 thousand dollars for a share of Arnold, they hurried to leave San Francisco.

Empire Builder

The history of the diamond scam in 1872

After Arnold and Slack left the city, William Ralston set about creating ten-corporation under the name "San Francisco and New York Mining and Commercial Company" (eng. "The mining and Commercial Company of San Francisco and New York"). He managed to attract 25 investors (including the "New York Tams" newspaper editor Horace Greeley, and British financier Baron Ferdinand de Rothschild), who have invested in the business for 80 thousand dollars each. Ralston had to find another $ 8 million.

Rothschild owned by the world famous banking firm. Projects in which they have invested money have always proved profitable and successful, it is not surprising that the interest around the future of the company Ralston grew at an impressive pace. In addition to Arnold and Slack, no one knew where the diamond field, but what of it? When rumors began to circulate that it is in the territory of Arizona, to get knocked down hundreds of wealth and adventure seekers.

The emergence of Clarence King,

Due scam Arnold and Slack would suffer far greater number of people, if not a coincidence: the miners themselves that without knowing it, have chosen the location of "diamond field" on the site, which at the time was developing a group of government geologists.

Its leader, Clarence King, after hearing about the location of the field, could not believe his ears. He was researching the area and no deposits of precious stones on it are not found within five years. King's professional reputation was at stake: if there really will find a "diamond field", what immediately becomes known to Washington, he would be considered for an incompetent employee and stop funding the project, in which he participated.

Too good to be true?

King decided to meet for dinner with Henry Jeanine and learn first-hand about the history associated with the diamond field. Once a mining engineer began to describe the details of the trip to the field, he immediately sensed something was wrong. Janine continued talking about how they were able to find an hour in one place hundreds of diamonds, rubies and sapphires. As an experienced geologist, King knew that this is impossible. Processes natural formation of diamonds, rubies and sapphires are very different from each other, so to detect them in the same field, not real.

After talking with Jeanine, King realized what kind of deposit in question. He suggested the engineer to go there the next day with him and his team.

In place of

A trip to the "diamond field" took several days. Upon arrival, they set up camp and began to explore the site. To find rough diamonds, rubies and sapphires, and it took them quite a bit of time (as in the case of Jeanine). King could not believe his eyes, looking at dozens of gems lying in his hands. The idea that if they are true, do not leave it overnight. King doubts vanished with the onset of the morning.

• Shortly after sunrise, one of the members of his research team discovered the partially sanded and polished diamond. It was clear that it worked on a jeweler.

• King noticed that the place where he found the diamonds, he also falls and other precious stones - and almost always in the same quantities. In nature, this does not happen.

• In addition, pits and grooves, in which the team found King gems appear to have been made by hand or with the help of special tools.

• On other sites in the same area King and his associates could not find anything.

Digging Deeper

King knew that if the field was present, the diamonds could be found not only on the surface but also in the interior of the earth. Together with his colleagues he is an unspoilt area dug a trench three meters deep. Sift fresh ground through a sieve, they did not find a single gem. There was no doubt: Arnold and Slack all fooled.

King sent a telegram Ralston saying that he had been deceived. The banker, having learned about the scam, was furious. He had to close the company and to preserve the reputation of return of the money ($ 250,000) to investors out of pocket. As it turned out, Ralston went bankrupt not only in diamonds he has invested millions in the construction of the hotel "Palace Hotel", has invented for his logo, and even invested a few loss-making projects, which resulted in bankruptcy for him. In 1875 his body was found in San Francisco Bay.

Arnold and Slack, to inflate its major wealthy clients, not hired an engineer and not a dummy bribed Tiffany. All the experts were present, and they sincerely believe in the existence of core and value of the stones. That was a hoax in the history, so it themselves Arnold and Slack. These two seemed so simpletons, hillbillies, so naive, that anybody at the moment and it never occurred that they could be capable of such daring deception. The miners used the law "seem dumber than your client" - the first commandment of cheaters.

Scam plan was very simple. In just a few months before they announce the "opening", Arnold and Slack went to Europe, where he acquired precious stones about 12 thousand dollars (the money earned by them in their time on the gold mining). Then they bustles "mine" these stones, and was invited to the first expert who "found" the stones and brought them to San Francisco. Jewelers who have studied the stones, including of Tiffany, psychologically succumbed to the hype, raised around the findings and much overestimated their price. Then Ralston paid miners 100 thousand as insurance, and immediately after a trip to New York, they went to Amsterdam, where he purchased a bag of rough stones, and then returned to San Franiisko. Second time they have worked on mine, so now you can find a lot more jewelry. The success of the scheme, however, were not these tricks, and the fact that Arnold and Slack brilliantly played their role. During a trip to New York, where they rotate in the community of millionaires and tycoons, they are very accurately portrayed the village fools, dressed in a too short and tight pants and jackets in disbelief glancing at everything they saw in the big city. No one would have believed that these unsophisticated provincials could fool the most experienced and cynical businessmen of his time. And when Harpending, Ralston Rothschild and even acknowledged the existence of veins, to anyone who would be doubted, had cast doubt on the mind of the most successful businessmen in the world.

As a result, Harpending reputation has been irrevocably destroyed, and Rothschild learned his lesson and will never again become a victim of fraud. Slack had my share and disappeared, it could not be found. Arnold went home to Kentucky. In the end, the paper for the sale of rights to land were authentic and legitimate buyers hired the best consultants, and if you lived exhausted, it was not his problem. With the money Arnold turned his farm into a great economy and opened its own bank.

The exposure of fraud

The history of the great diamond fraud in 1872 was widely publicized, not only in the US, but also European publications. As soon as this business took journalists to the surface once it began to emerge some very interesting details scam.

• Arnold worked as an accountant in the company "Diamond Drill" (San Francisco), which is engaged in the production of drill bits of industrial diamonds. Apparently, these stones (mixed with cheap raw rubies and sapphires), he used to collaborate with Slack scam.

• Part of the money from the amount that Ralston Slack paid as an advance, the prospectors spent on the purchase of a London dealer another batch of rough diamonds. It is these stones Tiffany and his assistant was estimated at 150 thousand dollars.

The fate of scams and Clarence King

Philip Arnold and John Slack was able to earn a scam 650 thousand dollars. The money, which they would be enough until the end of life, they were divided in half, and on the left. Arnold moved to Kentucky, where he bought 200 hectares of land for farming. When the authorities finally tracked him down, for the settlement of all claims against him he paid 150 thousand dollars. The remaining money from the scam Arnold opened his own bank. Six years later he was wounded during a shootout with a rival banker. Six months later, Arnold died of pneumonia.

About judge Slack little is known. A portion of the money he pulled away, after which he was forced to work first undertaker in Missouri, and after - the director of a funeral home in New Mexico. Slack died in 1896. His acquired property was estimated at $ 1,600.

Due to the exposure of fraud, Clarence King significantly advanced the career ladder; in 1879 he became deputy head of the US Geological Service (Eng. U.S. Geological Survey). After a couple of years, King has decided to leave the office and start breeding. Unfortunately, his business failed. He died in 1901 without a penny to his name.

Fool's Gold

The most successful of all the characters of the story turned out to be a mining engineer Henry Janine. Scam is not particularly strong blow to his reputation. Moreover, to expose her, he had to sell their shares to another investor for an amount four times higher than their real value - 40 thousand dollars. Janine was not a crook, he was just lucky.