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The Great Diamond Hoax of 1872

By John Koster
6/14/2017 • Wild West Magazine

Knowing that diamonds are an investor’s best friend, two prospecting cousins, Philip Arnold and John Slack, pulled off a sparkling con game and never looked back.

In late November 1870 two grizzled, weather-beaten prospectors visited San Francisco financier George D. Roberts, whose own fortune had started in 1850 when he struck gold while working as a lumberman. Philip Arnold, the leader of the two men, had once worked for Roberts as a prospector. The other man was Arnold’s cousin John Slack. The visitors were not there to talk gold. They produced a grubby-looking leather bag that contained uncut diamonds and other gems worth an estimated $125,000— supposedly picked up not in India or South Africa but in the American West. Roberts quickly shared news of the find with his Ohio-born friend William Ralston, who had become rich off Nevada’s Comstock Lode and founded the Bank of California. Roberts and Ralston knew little about diamonds but plenty about opportunity. It didn’t take much to get them hooked on Arnold and Slack’s diamond field, wherever it was, and to make a deal that promised big profits for everyone involved.

Arnold, born in 1829 in the same Kentucky county as Abraham Lincoln, was a Mexican War veteran with a spotty education but plenty of experience as a prospector. Cousin Slack, born in 1820, was also a Hardin County native. Roberts and Ralston brought in another investor, William M. Lent, who had helped finance the Comstock Lode silver mining operations. The three San Francisco investors contacted Asbury Harpending, who, like Arnold and Slack, was a Kentuckian who knew something about prospecting. A would-be Confederate swashbuckler paroled by President Abraham Lincoln for his part in a scheme to raid Union merchant shipping along the Pacific coast, Harpending had earlier volunteered to soldier for freebooter William Walker in his attempts to wrest control of several Central American countries (the young Kentuckian never got there to join Walker in front of a Honduran firing squad in 1860). Harpending was in London, trying to raise funds for a California mining venture, when Ralston cabled that he must rush back to San Francisco to join him in the diamond business. Harpending’s 1913 memoir contains perhaps the most detailed account of the early 1870s Western diamond venture.

“I had some knowledge of the prospectors,” Harpending wrote. “Arnold generally had borne a good reputation among the mining fraternity. Slack seemed to be a stray bird who had blown in by chance, probably picked up by Arnold because of a marriage relationship. It seemed they had told a straight enough story. It was impossible to tangle them in any detail.” But Harpending and the three well-to-do investors were in for the surprise of their lives—and the surprise was anything but pleasant.

Even before Harpending arrived in San Francisco to join in the quest in May 1871, Arnold and Slack had offered to return to the mysterious diamond field and bring back another load of gems before discussing a deal with the investors to form a mining coalition, the San Francisco and New York Mining and Commercial Co. The three investors, holding the leather bag of gems as collateral, handed them a $50,000 grubstake. In August Harpending met the prospectors at the Lathrop, Calif., train station on their return from the second expedition. “Both were travel-strained and weather-beaten and had the general appearance of having gone through much hardship and privation,” he noted. “Slack was sound asleep like a tiredout man. Arnold sat grimly erect like a vigilant old soldier with a rifle by his side, also a bulky-looking buckskin package.”

Arnold and Slack told Harpending they had struck a spot rich in diamonds and other gems, dug them up and stuffed them into two buckskin bags—a haul worth some $2 million by their estimate. On the way back, the men claimed, they hit a stream in flood stage and cobbled together a raft to cross, losing one bag of gems when the raft tipped. “As the other contained at least a million dollars’ worth of stones,” the men told Harpending, “it ought to be fully satisfactory.”

Harpending handed the trusting prospectors a paper receipt for the surviving bag, and the Kentucky cousins left the train at Oakland. Back in San Francisco, Harpending took a waiting carriage home and called together the potential stockholders. “We did not waste time on ceremonies,” he recalled. “A sheet was spread on my billiard table. I cut the elaborate fastenings of the sack and, taking hold of the lower corners, dumped the contents. It seemed like a dazzling, many-colored cataract of light.”

The cataract was soon on public display, and potential stockholders bought in frantically. Roberts, Ralston, Lent and Harpending decided to hold on to three-quarters of the stock and offer shares to prominent and influential men of business. They hoped to assemble $10 million in capital and to locate and purchase the entire diamond field through what Harpending blandly described as legal chicanery—“a plan to facilitate the passage of a law whereby a great territory of mining land could be taken up so as to ensure to ourselves the entire field, no matter what the extent.” The partners offered a share to Maj. Gen. Benjamin Franklin Butler, a U.S. congressman from Massachusetts widely loathed for his toughness as military commander of New Orleans during the late Civil War but now a useful ally in keeping the great diamond field in as few hands as possible. The partners also agreed to take a large sample of the diamonds to Charles Lewis Tiffany in New York City for a thorough appraisal. Lent (the new president), Harpending (the general manager) and two other stockholders set off with prospectors Arnold and Slack for New York City on the transcontinental railroad.

The partners had retained New York attorney Samuel L.M. Barlow as general counsel. In October 1871 they met Tiffany at Barlow’s house in the presence of General Butler, Maj. Gen. George B. McClellan, Brevet Brig. Gen. George S. Dodge, newspaper editor Horace Greeley and notable bankers. Tiffany looked over the gems—diamonds, emeralds, rubies, sapphires —sorted them into little heaps and held them up to the light. “Gentlemen, these are beyond question precious stones of enormous value,” Tiffany said. “But before I give you the exact appraisement, I must submit them to my lapidary and will report to you further in two days.”

Two days later Tiffany issued the private appraisal: The gems he had examined, just one-tenth of one bag, were worth about $150,000. “The hardier class of plungers were only too eager to get aboard even at this early stage of the game,” Harpending recalled. Arnold was no doubt more pleased than anyone to hear how much his gems were worth.

Prospectors Arnold and Slack agreed to take an expert— albeit blindfolded on the last stage of the journey— to actually look over the diamond field. Some of the stockholders proposed San Francisco–based mining engineer Henry Janin, who had reportedly examined more than 600 mines and never made a mistake that cost the owners a dime. Janin’s best terms were $2,500, all expenses paid, and an option to buy 1,000 shares of stock. Lent found this excessive, but he was overruled. Thus in early June 1872 Janin set out from NewYork for the diamond country with Arnold and Slack, General Dodge, Harpending and Alfred Rubery, an English adventurer and friend of Harpending.

“The country was wild and inhospitable,” Harpending recalled. The prospectors seemed to have gotten lost several times on the zigzagging four-day excursion from the railroad junction to the diamond field, although it was only about 20 miles as the crow flies. Rumor placed the field in Arizona Territory or Wyoming Territory, but it turned out to be in Colorado Territory. Arnold and Slack pointed out their initial diggings, and the investors quickly tethered their pack animals and got out their picks and shovels.

“Everyone wanted to find the first diamond,” Harpending noted. “After a few minutes Rubery gave a yell. He held up something glittering in his hand. It was a diamond, fast enough. Any fool could see that much. Then we began to have all kinds of luck. For more than an hour diamonds were being found in profusion, together with occasional rubies, emeralds and sapphires.…Mr. Janin was exultant that his name should be associated with the most momentous discovery of the age, to say nothing of the increased value of his 1,000 shares.…Two days’ work satisfied Janin of the absolute genuineness of the diamond fields. He was wildly enthusiastic.…Janin pointed out that this new field would certainly control the gem market of the world and that the all-essential part of the program was for one great corporation to have absolute control.”

The investors staked out claims they hoped would hold up in court and left Rubery—despite his initial protests— to guard the diamond field along with prospector Slack. They telegraphed ahead and, perhaps through the work of bribed telegraphers, soon learned the entire financial world had heard about Janin’s confirmation of the diamond field. The Rothschild banking house, which had recently loaned Great Britain the money to buy the Suez Canal from France, was more than interested. Janin estimated that 20 diggers could wash a million dollars a month out of this unique diamond field in Colorado, and there were plenty of Chinese idling about after the completion of the Central Pacific Railroad. Ralston decided that while investors were impressed with the Rothschilds—Rothschild agent Albert Gansl was added to the board of directors—the Americans themselves could probably raise $10 million in San Francisco alone. A dozen Western and New York financiers joined Lent, Ralston, Barlow and General McClellan on the board of directors.

Almost as an afterthought the managers dipped into the $2 million in cash already in hand and paid Arnold and Slack, the all-but-forgotten discoverers, $300,000 for all rights to the diamond field. With the diamond samples already sold off, Arnold and Slack cleared about $600,000. Arnold lost no time in heading home to retirement in Kentucky, while Slack seemingly vanished. Meanwhile, independent investors quickly organized three maverick mining companies to exploit any gems that might be found outside the Roberts-Ralston-Lent-Harpending claim staked out with the help of Arnold and Slack.

The sky caved in on November 11, 1872. Clarence King, a respected geologist and surveyor with almost a decade of federal employment, sent a telegram from a small railroad station in Wyoming to the office of the San Francisco and New York Mining and Commercial Co. that the “diamond field” prospected by Arnold and Slack was “fraudulently and plainly salted.” Arnold and Slack had deliberately planted gems in the ground to dupe gullible investors. The whole thing was a hoax, according to King, who had been suspicious from the first.

King held a doctorate in chemistry from Yale and knew, among other things, that emeralds, rubies and sapphires don’t usually turn up in proximity to diamonds. All precious stones are crystallized carbon formed under great pressure, and each group tends to stratify with gems of similar color: rubies with rubies, emeralds with emeralds, diamonds with diamonds. King himself had coled a federally sponsored geological survey (40th parallel) of the same general region and hadn’t seen anything that looked even vaguely like good diamond country. Diamonds are usually found in rock. The Colorado field looked like a dry potato patch. On his own initiative King set out with a couple of sidekicks who also knew something about gold and silver prospecting to have a look for himself at what all the fuss was about. If there were actually diamonds in the lands King had surveyed, and he had overlooked them, his reputation would be damaged.

Harpending, who didn’t like King for obvious reasons, said that some of King’s travelogue adventures seemed hyperbolic and that the actual hero—as Harpending only learned later—was an anonymous German prospector King had dragged along with him. Two prospectors who knew about the Roberts-Ralston-LentHarpending claim showed King, the middle-aged German and the other field geologist to the claim. “Both [King and the German] began washing for diamonds and naturally enough found what they were looking for,” Harpending recorded. “In fact, the geologist [King] came very near being fooled as badly as anyone else —wanted to leave instantly and thought of going to San Francisco to have a talk with the directors of the company.” The fortuneless German disagreed and wanted to stay and pocket a few more diamonds, and a few more after that. But then, recalled Harpending, “he came on a stone that caught his eye and filled him with wonderment. It bore the plain marks of the lapidary’s art.”

“Look here, Mr. King,” the German said. “This is the bulliest diamond field as never was. It not only produces diamonds but cuts them moreover also.” King grabbed the half-cut diamond from the sarcastic German, and the whole thing was as clear as day. The geologists rummaged around and found more evidence of salting: King had arrived on November 2, and by November 10 he was back at the railroad sending the telegram.

King stayed on-site until a party of the investors, including the mortified Henry Janin, arrived a few days later by train. With the field’s credibility compromised, the hoax became glaringly obvious. “Mention has been made of ant-hills sparkling with minute but veritable diamond and ruby dust,” Harpending reflected. “Perhaps because they were so pretty, no one had ever disturbed them.…They weren’t anthills at all. They were fakes; the work of a sinful man, not of the moral insect. They were also works of art; no one would have suspected guile from looking at them.”

The investors found three small holes bored in the ground, each with a large gem nested inside. The salters had forgotten to fill in these holes, as they had obviously closed the others, but as Harpending pointed out, “In such extensive operations a little reckless work was likely to slip in.” Harpending capped off the evidence: “Finally, on the top of a large flat rock, several rubies and diamonds were found pressed into crevices to hold them in place. This was so grotesquely raw that it seems incredible and led to a story that some of the diamonds were in the forks of trees. Unfortunately for the story, there weren’t any trees in the neighborhood.”

The Associated Press wired the hoax story around the world, and the company principals—Janin having glumly confirmed the findings of King and the anonymous German— admitted they too had been fooled by Arnold and Slack. During the subsequent hearings in San Francisco a man named James B. Cooper turned up and claimed credit for having given Arnold and Slack the idea. Arnold had served as bookkeeper Cooper’s assistant at a company that made diamond-tipped drill bits. The salting of gold claims, Cooper had explained to his two cronies, had been overdone. Prospectors who wanted to sell pay dirt to greenhorns sometimes blasted small nuggets into the earth from shotguns or smoothbore muskets and sold the claims to the gullible as soon as the smoke had drifted away. Diamond salting, he said, was a challenge, but he knew where he could find some small diamonds of the type used for drill tips. Arnold and Slack had slipped out of town and never gave Cooper his share of the money. Cooper was indignant.

Charles Tiffany can only have been embarrassed when word came back from London that the diamond specimens from his appraised lot of $150,000 were coarse, almost worthless, originally mined in South Africa and part of a lot sold to Arnold in London more than a year before. With the mystique of the diamond field dissipating, a new appraisal revealed that the total worth of all the stones in hand was about $30,000. Arnold and Slack, perhaps advised by Cooper, had obviously secured some cheap industrial diamonds used in drill tips or watches for their first visit to Roberts, then used the $50,000 grubstake generated by the disclosure to buy some better but still mediocre stones in London for the second salting—some still bearing the telltale marks of the diamond cutter’s chisel.

On November 27, 1872, the San Francisco and New York Mining Co. held its final meeting, confirmed that the diamond field was a hoax and refunded whatever money was still on hand. Asbury Harpending and William Lent chivalrously bought back the 1,000 shares from the hapless Henry Janin, whose consulting business probably suffered more than any of the bankers did. None of the conspirators, not even the talkative Cooper, was indicted.

Philip Arnold, who had returned to Elizabethtown, Ky., in late 1872 and bought a handsome farm, was there when the bubble burst. Lent soon filed a suit to recover $350,000. Arnold denied everything, said someone else must have salted the field and accused the “California scamps” of having sullied his reputation.

“Did Arnold suffer any in the estimation of his compatriots by reason of the grave accusations preferred against him?” Harpending asked dryly. “Rather the reverse. They gloried in what they were pleased to call his ‘spunk.’ The old [Confederate Brig. Gen. John Hunt] Morgan raiders and thousands of their way of thinking looked with pride, almost with reverence, on one of their kind with nerve and wit enough to make a foray into Yankeedom and bring away more than half a million in spoils. To tell the truth, Arnold was the very hero of the hour, for the old war feeling was still rampant.”

Lent and Harpending headed for Kentucky to negotiate a settlement. In March 1873 Arnold agreed to return $150,000 to them in exchange for immunity from further litigation. The unreconstructed residents of rural Kentucky perceived him as something of a hero, which in turn aroused envy among some of his peers. Slack, the lackluster cousin, remained at large.

Arnold used most of his remaining spoils to open a bank in Elizabethtown that did a thriving business in Hardin County. He even loaned money to a struggling rival bank. But the rival refused to repay the interest on the loan, and in June 1878 Arnold’s bank filed suit. Soon after, one of that bank’s clerks, Harry Holdsworth, called into question Arnold’s banking practices. Arnold responded by cane-whipping the clerk on the public square. Running into one another again in town that August, the two men exchanged words, blows and then gunfire. Arnold had a six-shooter but missed with all of his shots. Holdsworth had a doublebarreled shotgun and blasted a charge of buckshot into Arnold’s shoulder. Local physicians despaired of his survival, and on February 8, 1879, Arnold, 49, died from complications of his wounds compounded by pneumonia. Holdsworth stood trial two months later and was found not guilty. Going over Arnold’s books, Lent and Harpending found that Slack had received about $30,000 of the ill-gotten gains, while most of the rest of the money remained in the safe at Arnold’s bank or secured in real estate. Everything beyond the $150,000 quit-claim purchase went to Arnold’s heirs, and Ralston, assisted by Roberts and Harpending, paid off the second tier of stockholders at 100 cents on the dollar. “Mr. Ralston had the receipts in full of the various parties neatly framed,” Harpending wrote, “and I am told that it was one of the mural decorations of his private office in the Bank of California.”

Mortified by his unwitting role in the great diamond hoax of 1872, Harpending sold off all his property holdings and investments in San Francisco and along the Pacific coast, cleared well over a million dollars, returned to Kentucky and invested in farmland—none of it said to hold any gold, silver, or diamonds. While neighbors respected him, disenchanted investors continued to suggest the plot had been conceived “in the active brain of Asbury Harpending”—a charge, he said, easily disproved by a look at the paperwork.

In a story in The Times of London, British investors accused Harpending’s friend Alfred Rubery, the first to find a (salted) diamond at the Colorado diamond field, of complicity. The Englishman promptly sued for libel and won a judgment of 10,000 pounds (U.S. $45,000 at the time) from his detractors. Officially cleared, Rubery nevertheless bore the stain of the libelous accusation in Britain as Harpending had in the United States, and that stigma eventually drove him to immigrate to Australia, where friends lost track of him.

Banker Ralston, despite his integrity or perhaps because of it, was also a collateral casualty of the diamond hoax. He had reached deep into his pockets to cover the $2 million the second-tier stockholders had invested, and his reputation, while somewhat shaken, apparently survived. Ralston invested the bank’s capital in building the Palace Hotel, at the corner of New Montgomery Street and Market Street in San Francisco. The aptly named Palace cost $5 million, was designed by the renowned architect and engineer John Painter Gaynor and was among the first buildings to feature electric call buttons and “rising rooms” (elevators). Ralston failed, however, in an attempt to buy and then resell the Spring Valley Water Co. and was caught in the back draft of the international financial Panic of 1873. These expanding ripples, likely augmented by the damage Ralston’s reputation suffered in the great diamond hoax of 1872, led to a plunge in the stock value of the Bank of California. On August 26, 1875, Ralston’s bank closed its doors during business hours, leaving what Harpending described as “a packed mass of pale-faced men anticipating ruin” wrapped around the block.

Ralston admitted the precarious state of the bank’s finances but pledged his own considerable holdings to make good any losses. On August 27 the bank’s board of directors called a meeting— but locked out Ralston. He left in a daze.

After heading home to change, Ralston, as was his custom, took a swim at North Beach. “His body did not sink, but he was floating face downward,” Harpending wrote after talking to witnesses. “A boatman was quickly at his side. This boatman declared that the banker was still living. Be that as it may, when he reached the shore with his burden, the once master spirit of the Pacific coast was dead.” Questions lingered over whether Ralston had committed suicide, but he was a regular swimmer who enjoyed exercise, and those who saw the body said his expression was stunned rather than tormented, suggesting a massive stroke. The Virtual Museum of the City of San Francisco [www.sfmuseum.net] says an autopsy showed signs of a stroke. About a third of San Francisco’s 150,000 citizens turned out to watch his funeral procession, and 8,000 turned out at a memorial ceremony in his honor two weeks later. Whether the notoriety of the diamond hoax caused his self-destruction or merely contaminated his fiscal reputation and brought on a stroke through nervous tension is conjectural.

John Slack, the nearly silent partner among the Kentucky prospector cousins, eventually turned up in St. Louis. Perhaps taken with the opportunities presented by planting expensive things in the ground, he operated a casket-manufacturing company, first in St. Louis and later in White Oaks, New Mexico Territory, where he died in 1896, at age 76, solvent but not rich.

Clarence King, the hero of the diamond hoax, was also a collateral victim in a paradoxical sense. He had warned stockholders in time to head off a catastrophe, thus earning the gratitude of some of America’s and Britain’s top financiers. Once satisfied to spend months at a time roaming the West with rough-and-tumble sourdoughs, horse wranglers and packers, King moved into a whole new social milieu when visiting east of the Mississippi, rubbing shoulders with the Prince of Wales and Baron Rothschild as well as friends Henry Adams and John Hay and their wives. All of this cost money, and as King was too honorable a man to dip into the public purse, he couldn’t support his big-ticket socializing. He dropped out of the solid but fiscally stodgy realm of government service as the first head of the U.S. Geological Survey to become a mining speculator and owner-manager. His mines, mostly in Mexico, failed to make his fortune, so he filled in the gaps by serving as an expert witness in mining cases. Worn out and in debt, he died of tuberculosis in Phoenix, Arizona Territory, in 1901, at age 59. Clarence King was a hero rather than a villain of the diamond hoax, but in the end he may have been the final victim of one of the West’s most spectacular frauds.

 

New Jersey newspaperman John Koster is the author of Custer Survivor: The End of a Myth, the Beginning of a Legend. For further reading try American El Dorado: The Great Diamond Hoax of 1872 (2012), by Ron Elliott, who was kind enough to review this article and whose book (which presents the facts of the convincing scheme while employing made-up dialogue) is reviewed in this issue (P. 69); and The Great Diamond Hoax (1913), by Asbury Harpending,edited by James H.Wilkins, which, Koster says, “provides local color but needs to be salted a mite.”

Originally published in the October 2013 issue of Wild West. To subscribe, click here.

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