The Great Diamond Mine Hoax

I suppose that, deep down, all of us fantasize about an unexpected fortune falling effortlessly into our laps.  Usually such thoughts stay harmless daydreams.  However, every now and then, someone is offered what appears to be the chance to make such dreams real.  Unfortunately, such an opportunity generally causes these people to take their common sense and throw it into an elevator shaft, with the result that what they most often get is not wealth, but mayhem.

On the bright side, these people tend to find their way into my blog.

Our story revolves around two Kentuckians, Phil Arnold and his cousin John Slack.  In the mid-19th century, the pair went to California to try their luck at prospecting.  They had some success, at one point selling a claim for $50,000.  One day in February 1872, the cousins entered the Bank of California in San Francisco.  Arnold asked a teller to deposit a small leather pouch, just for safekeeping.  The teller agreed, but said he would need to see the contents in order to write a receipt.  The man was stunned to learn that the pouch contained a small fortune in uncut diamonds, rubies, and garnets.

After Arnold and Slack left the bank, the teller told the bank’s president, William C. Ralston, about this unusual deposit.  Ralston assumed their clients had discovered a diamond mine, and, sensing an enticing business opportunity, sent bank employees to track down Arnold and Slack to discuss a possible collaboration.

When the Kentuckians were seated in Ralston’s office, the banker asked about the gems.  The prospectors told him they came from a mine they had discovered in Arizona.  The site held promise of spectacular wealth, but unfortunately, it was located in territory controlled by hostile Apaches.  Ralston informed them that he knew of a group of financiers who were willing to brave the risks and buy the mine from them.  Arnold and Slack expressed cautious interest.  They said they were willing to escort an expert of Ralston’s choosing to inspect the mine, but only if the man agreed to travel to and from the mine blindfolded.  After all, it would scarcely do to have the mine’s exact location become known too soon.  Ralston agreed.

Before long, Ralston’s representative, a miner named David Colton, hit the road with the Kentuckians.  The trio soon arrived in Butte, Montana.  Arnold and Slack explained to Colton that the mine was really in Colorado--they just said it was in Arizona to guard against claim jumpers.  Their journey ended at a mesa in Jackson County, where Colton was finally allowed to remove his blindfold.  His companions invited the “expert” to dig around and see what he might find.

Colton began scooping out sand with his hands.  Imagine his delight when, before long, he uncovered a handful of uncut diamonds.  The Kentuckians suggested that he keep two of the diamonds to be examined.  After he selected two of the gems, he was again blindfolded and led back to San Francisco, no doubt with visions of dollar signs dancing in his head for the entire trip.

The two diamonds were examined by the leading jewelers Sloan’s and Tiffany’s.  Both companies confirmed they were authentic.

Ralston and his fellow financiers wanted to send a second “expert,” Henry Janin, to examine the mine.  They pointed out that while Colton was an experienced gold miner, Janin was a professional mining engineer with a reputation for never having made a mistake.  Arnold and Slack cheerfully agreed.

The expedition with Janin was identical to the one with Colton.  Blindfold.  Mesa.  Dig.  Jackpot!  Janin figured that the mesa could be worth $5 million dollars per acre, and if the land around it was as fruitful, the value could be in the millions.  Naturally, he did not mention these estimates to Arnold and Slack.

When Ralston and his associates heard Janin’s report, they secretly invested $10 million to create the “San Francisco and New York Mining and Commercial Company.”  It had 100,000 shares of stock, none of which was offered to the public.  (Among the investors were Horace Greeley, Charles Tiffany, Nathan Rothschild, and several leading Union Civil War Generals.)

Ralston offered the cousins $600,000 for the mine.  Arnold and Slack did some indignant grumbling about the ridiculously low price, but then, without waiting too long, accepted.  No sooner was the money in their hands that they fled back home to Kentucky.  They left no forwarding address.

Before Ralston’s company could start mining the land, another firm managed to deduce the location of the mesa and began digging.  The more they dug, the more appalled they got.  It soon became clear that the only diamonds in the area were the ones planted there by Arnold and Slack.  A government geologist, Clarence King, examined the area.  He found only a few stray diamonds, in places where they never could exist naturally.  He even found one in a hollow tree stump.  He also noted that the combination of minerals that the mesa supposedly yielded--four different types of diamonds, rubies, amethysts, etc.--was geologically impossible.  It was revealed that in 1871, Arnold and Slack visited Amsterdam and London, where they bought about $35,000 worth of uncut gems.  Some went into the leather pouch, and the rest were given a shallow burial in the mesa.

Ralston’s feelings can be imagined.  Few things are as distressing as thinking you have swindled someone, only to realize that the swindle was really on you.  The financial loss of paying back his investors and the Panic of 1873 combined to bankrupt him.  In 1875, Ralston escaped his troubles by drowning himself in San Francisco Bay.

William Lent, one of the investors in the bogus mine, was angry enough to sue Arnold, but Kentucky refused to extradite.  Lent went to Elizabethtown, Kentucky, where Arnold had settled, to file a civil suit, but his process servers were unable to find Arnold.  (Arnold enjoyed the protection of his townspeople, who took great pride in his ability to con some of the richest men in the land.)  After a good deal of dickering, Arnold finally agreed to pay Lent $150,000, in exchange for future legal immunity.

Arnold was an example of how, despite what we are told, crime can pay very, very well.  He used the rest of his ill-gotten gains to buy 500 acres of prime farmland, a store, and a lavish mansion on 34 acres.  He even became a banker, something that probably did not amuse the unhappy ghost of William Ralston.  In 1878, Arnold got into a business dispute with another banker, Harry Holdsworth.  On August 15, Arnold encountered Holdsworth in a saloon and beat him up.  Holdsworth returned the favor by getting a sawed-off shotgun and shooting his enemy.  The serious injuries Arnold sustained eventually led to his death from pneumonia in February 1879.  (A side note: Arnold’s mansion in Elizabethtown still stands.  It has a reputation for being haunted, but whether the ghosts are Arnold himself or the many people he gulled is unknown.)

As for John Slack, he moved to St. Louis, where he became a coffin maker.  After his company failed, Slack settled in White Oaks, New Mexico, where he continued in the coffin trade, a rich and well-respected man, until his death in 1896.  It is said that he seldom discussed his unorthodox adventures in diamond mining, but when he did, he made a point of how Ralston and his associates tried to cheat him and Arnold.  

“Now tell me,” he would say indignantly, “which group were the thieves?”