On November 26, 1872, the Great Diamond Hoax, one of the most notorious mining swindles of the 19th century was exposed with an article in the San Francisco Evening Bulletin.
Fraudulent gold and silver mines were common in the years following the California Gold Rush of 1849. Con-men swindled inexperienced and unsuspecting miners by using particles of gold dust to make the mines they were selling look profitable. However, few con men were as daring as Philip Arnold and John Slack, who convinced San Francisco capitalists to invest in a worthless mine in the northwestern corner of Colorado. Arnold and Slack played their con perfectly. They arrived in San Francisco in 1872 and tried to deposit a bag of uncut diamonds at a bank. When questioned, the two men quickly disappeared, acting as if they were reluctant to talk about their discovery. Intrigued, a bank director named William Ralston tracked down the men. Assuming he was dealing with unsophisticated country bumpkins, he set out to take control of the diamond mine. The two cousins agreed to take a blindfolded mining expert to the site; the expert returned to report that the mine was indeed rich with diamonds and rubies.
Joining forces with a number of other prominent San Francisco financiers, Ralston formed the New York Mining and Commercial Company, capitalized at $10 million, and began selling stock to eager investors. As a show of good faith, Arnold and Slack asked for only $600,000, a small amount in comparison to the supposed value of the diamond mine. Convinced that the area must have other major deposits of diamonds, at least two dozen other diamond exploration companies formed in the subsequent months. Clarence King, the leader of a geographical survey of the 40th parallel, finally exposed the cousins' diamond mine as a hoax. Back in San Francisco, King exposed the fraud in the newspapers and the Great Diamond Hoax collapsed. Ralston returned $80,000 to each of his investors, but he was never able to recover the $600,000 given to the swindlers. Arnold lived out the few remaining years of his life in luxury in Kentucky before dying of pneumonia in 1878. Slack apparently squandered his share of the money, and moved to New Mexico. King's role in exposing the fraud brought him national recognition and he became the first director of the United States Geological Survey.
Michael Thomas Barry is the author of Murder & Mayhem 52 Crimes that Shocked Early California 1849-1949. The book can be purchased from Amazon through the following link: