(Note: This post refers to the Diamond Hoax of 1872, a story on our Secrets, Scandals, and Scoundrels of San Francisco tour. Click to learn more about that tour, or sign up today!)
In 1872, William Ralston was the richest man in California. After missing out on the California Gold Rush, he had struck it rich in the Nevada Silver Rush ten years later.
The Gold Rush and Silver Rush happened in such quick succession that the United States was primed for the next big thing. So when two prospectors showed up on the doorstep of a local banker carrying a mysterious satchel, the stage was set for a big strike.
One evening in 1872, these two prospectors named Phillip Arnold and John Slack showed up at the bank of a George Roberts. They had valuable cargo, they said, and they wanted to store it in the bank’s vault. But they wouldn’t say what was in the satchel. The talkative Arnold mentioned something about “rough diamonds.” But they refused to say any more. And they made Roberts promise not to say anything.
Roberts couldn’t keep his mouth shut. He talked to William Ralston, who then approached Arnold and Slack. Ralston wanted to see the diamonds, and find out where they had mined them. But the prospectors wouldn’t say. Ralston wanted to trick these simpleminded prospectors into selling their mining rights to him at a big discount. Arnold and Slack showed him their satchel of uncut gems—and not just diamonds, but rubies and sapphires as well.
Ralston was ecstatic. He gathered up prominent businessmen all over the city to raise money for the investment. The consortium agreed to give Arnold and Slack some money as a down payment. $50,000 now, and $50,000 later, depending on the size of the mine. The pair agreed, and they promised to show Ralston and the others where the mine was. But first, they said, they had to go back home to Kentucky for a while. They left the diamonds as collateral.
Arnold and Slack left town on a train. But rather than go back to Kentucky, they sailed off to Europe to visit London and Antwerp to visit diamond merchants. There, they bought all the roughest, most worthless diamonds they could find. Because, you see, Arnold and Slack weren’t prospectors at all—they were con men!
The businessmen offered Arnold & Slack $600,000 for a large stake in the diamond mine. But they said they needed to make sure this was legit. So they gave the pair $50,000 first, and they wanted to inspect their mine before investing the whole amount.
Arnold and Slack spent about $20,000 on these diamonds, and brought them back to the Colorado desert. There, they started placing diamonds everywhere they could find: in mole hills and ant hills, gopher holes, and even holes they dug themselves. They invited the investors out to the site, where they were dazzled by what they found.
The investors brought the gems to New York City to be appraised by Charles Tiffany. Tiffany was an expert with gems, but it turns out that he was only really an expert at appraising cut gems, because he never received raw, uncut diamonds. Tiffany gave the stones his unambiguous approval, and said the bag of stones, purchased by Arnold and Slack for $20,000, was worth about $1.5 million!
Ralston and his consortium were ecstatic. When all was said and done, they would pay Arnold and Slack a total of $550,000 (worth a bit over $8 million today).
The whole scheme came crashing down because of pure luck. While returning to San Francisco, the investors discussed their amazing find, and how much money they would make off it. This came as a surprise to another passenger on the train, named Clarence King. King was the geologist who had been assigned by the US Geological Survey to explore the specific tract of land that the mine was on. He was shocked to hear about the find, and he went to inspect it for himself.
What he found was, of course, copious amounts of diamonds. But he quickly realized that the diamonds were only in previously disturbed ground. Anthills were filled with diamonds, but the anthills had footprints around them, and little holes in the hill. Anthills without footprints or holes in them were (unsurprisingly) empty.
Arnold and Slack were indicted, but the indictment was quickly sealed. We think that the investors didn’t want to have any more public embarrassment or ridicule about the swindle.
Slack would move to New Mexico and spend the rest of his life there, dying at age 76 with an estate valued at about $1,500.
In a hilarious plot twist, Arnold took his share of the money and actually became a banker himself! But after only a few years back in Kentucky, he got into an argument with a rival banker that ended in a gunfight in which he was shot and killed. Several hundred thousand dollars was never accounted for.
San Francisco history is full of tales like this one! So come out and join us sometime for our Secrets, Scandals, and Scoundrels of San Francisco tour (or one of our many other tours!)
