ODDS’N’SODS — The great diamond fraud of 1872 (3)

(The following is the concluding instalment of a 3-part story.)

Now wholly convinced by Henry Janin’s US$4-million evaluation of their play, the backers were determined to take the thing public. The San Francisco investors’ main concern now was that “diamonds may be found in such an abundance as to destroy their value.”

The San Francisco and New York Mining and Commercial Co. was duly incorporated with a capital of US$10 million. At noon on July 11, 1872, the stock was offered to a packed room of whiskered and watch-fobbed gentlemen. So overwhelming was the response that by 2 p.m., the directors decided to curtail sales and take the remaining stock for themselves.

Philip Arnold, meanwhile, had been paid US$150,000 to sign a quit claim and waited in San Francisco for his final US$200,000. J.R. Roberts decided he would see his investment for himself and headed out for the fields with nine others.

A few days after the departure of the Roberts party, it was cabled from London that, several months previously, diamond merchant L. Keller & Co. had sold several lots of rough stones to two men who were supposed to be Americans. The Times reported: “The purchasers were evidently unacquainted with precious stones; they purchased without reference to size, weight or quality, the lot including diamonds, rubies, emeralds, etc., to the value of over $15,000.”

The report was dismissed as a trick of the trade but aroused enough suspicion that Arnold prudently left for his native Kentucky as soon as he received payment. He said he would return once he had assembled a work crew of 20 freed slaves.

Suspicions were aroused in other quarters, too. U.S. government geologist Clarence King had been astounded by the diamond discovery. He had just completed a geological survey of the 40th Parallel and could not believe he had missed finding the diamonds.

When he learned that his own survey marker had been found on the mesa, King was beside himself. He immediately left for the fields, to arrive Nov. 2. In a letter addressed to the company directors, King said: “I have hastened to San Francisco to lay before you the startling fact that the new diamond fields upon which are based such large investment and such brilliant hope are utterly valueless, and yourselves and your Engineer, Mr. Henry Janin, the victims of an unparalleled fraud.”

King only found diamonds where the ground had been disturbed. Outside a certain area, or deeper than a certain depth, there were no stones at all. On Nov. 25, 1872, the diamond company was dissolved.

Arnold by now was home-free in Kentucky. Protected by his own private army of ex-Confederate soldiers, not well predisposed to Yankee process servers, he lived like a potentate, setting up his own bank and a general store. In all, Arnold and his pals had absconded with US$650,000-750,000. After salting expenses, they netted well over half a million dollars. Edward Slack, his partner in crime, had vanished without a trace. J.B. Cooper would turn stool pigeon, but a grand jury investigation would fizzle out, probably quashed by a few prominent politicians with dubious roles in the business.

William Lent would eventually regain about US$100,000 of his money; the rest were too embarrassed to press the matter. However, justice did eventually catch up with Arnold. A few years later he was shot in the back after a questionable banking deal.

So ended North America’s first diamond rush and the career of one of mining’s most colorful and creative characters. It may be that, a few years later, when Samuel Clemens (Mark Twain) defined a miner as “a liar with a hole in the ground,” he had a particular Southern gentleman in mind. — The author is a consulting geologist who lives in Brampton, Ont.