Case File #0094
The Diamond Hoax of 1872
"The field had been salted"
When gold deposits were found at Sutter's Mill in Coloma, California in January 1848 it began the American Gold Rush, which brought thousands of people through-out America and abroad into California in search of their fortune. So when two grizzled prospectors made their way into the Bank of California in 1872 and deposited a bag full of diamonds they claimed to have found whilst prospecting, it came as no surprise that local businessmen and tycoons flocked to learn more. But even they couldn't have foreseen that the diamond field was not at all what it seemed and these men were far more shrewd than anyone could imagine.
In the summer of 1872, two veteran prospectors, Philip Arnold and John Slack travelled to San Francisco. They walked into the Bank of California and requested the teller deposit a drawstring sack into the banks vault. Then the men declared they were off to get drunk in one of the many saloons in the city. As they left, the teller could not help but look inside the contents of the sack and saw a handful of sparkling diamonds. He immediately rushed into the office of the founder of the Bank, William Ralston.

Philip Arnold

Ralston was a powerful businessman who had invested hundreds of thousands of his own money into local building projects. He built the California Theatre in 1869 and his latest project was the construction of the Palace Hotel, into which he had invested millions of dollars from his own banking empire. Because of his financial greed he immeditately began looking for the two prospectors, and after a three day search he loacted them in a drunken stupor in one of the saloons. Once sobered up, the two men refused to tell Ralston where they had found the diamonds, and revealed only bits and pieces of their story. All they would tell him was that this diamond field was bigger than Kimberley's diamond mine and refused to tell Ralston the location because they had not acquired the title to the land.

Palace Hotel

Ralston offered his financial backing if the men would agree to lead a party to the site, but they had one condition. They would only take a group to the site if they agreed to be blindfolded for the journey. Ralston agreed and sent his mining engineer, David Colton with Arnold and Slack. The two cousins led Colton and other investigators into western Wyoming where they disembarked from a railroad stop and were led for several miles before their blindfolds were removed. When Colton returned to Ralston three weeks later he was wild with excitement and brought back a handful of diamonds he had collected.
When Colton made his report, more businessmen expressed their interest and wished to invest. Ralston was the first to fund the venture, giving the prospectors $50,000 and set aside another $300,000 for them to begin using and promised another $350,000 when the diamond field began producing profits. Others who contributed towards the funding was Baron Anthony de Rothschild, of the famous Rothschild Banking Family, General George S. Dodge, Charles Tiffany of the Tiffany and Co. jewellery business, the editor Horace Greeley and General George C. McClellan and financer Asbury Harpending. Tiffany's evaluated the stones as being worth $150,000 and the investors attempted to persuade Arnold and Slack to reveal the location of the diamonds, but the two men were still reluctant and refused, however they did offer to take another party of investigators to examine the field and see for themselves.
They led a party of men, including mining engineer Henry Janin and geologist E. W. Emmonds from the railroad at Rawlings, Wyoming, into wild rangeland where they finally arrived and were allowed to take off their blindfolds. The men were astonished by what they saw, the valley before them shimmered with diamonds, rubies and an assortment of other precious gems. When they returned with their report, Ralston's greed overcame his common sense and he decided to "convince" the two old men to accept a cash settlement and hand over control of the diamond field to his prospective new company. He threatened them with complex threats and bullied them with incomprehensible legal manoeuvres. Arnold and Slack believed they could not hope to compete with such a ruthless businessman such as Ralston, and they accepted his offer and sold their interest for $660,000. They then promptly left California.

William Ralston

Ralston and the other investors established the San Francisco and New York Mining and Commercial Company to process the expected mining and wealth of the diamond field and appointed New York attorney Samuel Latham Mitchill Barlow as their legal representative. Barlow then established a New York corporation known as the Golconda Mining Company with capital stock of $10,000,000. To further their plans they appointed Benjamin F. Butler to the legal department and paid him one thousand shares of stock in the new company. This was to reward Butler who had amended the terms of the General Mining Act of 1872 to include “valuable mineral deposits”. This would allow Ralston's company to claim legal mining claims in the diamond fields and was officially endorsed by the Attorney General George H. Williams on 31 August 1872.
The first hint that something might not be right, occurred when the eminent geologist E. W. Emmonds voiced his doubts about the story, because during his career he had never heard of diamonds being located anywhere in Wyoming. Emmonds along with Government geologist Clarence King retraced the trail he had taken and eventually discovered the diamond field. Upon closer inspection, they found the various gem deposits showed signs of lapidary tool, and had been planted. They notified the investors... the site had been salted. It is believed Arnold and Slack had simply led the blindfolded investigators around in circles until they were satisfied they had walked a sufficiently long distance, then took them to the salted field.

Newspaper Article

When Ralston received the news, his new diamond venture lay in ruins. The investors launched an investigation and discovered Arnold and Slack had visited London and Amsterdam before seeting up their con-trick, where they bought cheap gem cast-off diamonds from South Africa for $35,000 and then scattered them across the Wyoming soil. Both the prospectors gained public sympathy neither of them were prosecuted for the hoax. Ralston and the other investors successfully sued Philip Arnold who settled the case for an undisclosed sum and he eventually returned home to Kentucky and subsequently became a successful businessman and banker. He later died from pneumonia after being wounded by a rival businessman during a shootout. John Slack moved to St. Louis where he started his own casket-making company and lived quietly for the rest of his life, eventually dying in 1896. Ralston's Bank of California collapsed in August 1875 and he was found the next day, his body found in the San Francisco Bay where he had died from either a heart attack or suicide.

Written by Nucleus