NOVEMBER 2019

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Saturday, April 06, 2019

THE GREAT DIAMOND MOUNTAIN Chapter FIve

I believe it was pure luck that Philip Arnold and John Slack, the co-conspirators in the Great Diamond Hoax, had arrived in Amsterdam at just the right moment in history. The supply of new uncut diamonds from India had slowly dried up beginning after 1800, and output from the newer Brazilian mines had shrunk by 1860 to a mere 5,000 carats a year. But beginning in about 1867, the influx of 20,000 carats a year from South Africa had revived the market. By 1870, along Tulpstraat (Tulip Street) there were seventy companies employing some 12,000 people in the grading, polishing and cutting of diamonds from South Africa. There was so many diamonds about that most of the lesser quality stones were sold at a discount in lots to the lesser talented cutters in Antwerp, Belgium and London, England. And it was at just at this propitious moment, in the fall of 1870, that the two Kentucky con men made their entrance upon the stage.
If you are going to salt a diamond mine, the first thing you need are diamonds. Most of the Dutch dealers read the Kentuckians as stereotypical 'nouveaux riches' Americans with more money than taste. And by carefully picking through the stockpiles of discarded stones from dozens of different companies, Arnold and Slack were able to turn their carefully hoarded $25,000 life savings into enough rocks to impersonate a diamond mine - if no one who looked at them had any experience with diamonds in the  rough. And that was unlikely as the industry was almost completely operated by insular ultra conservative Hasidic Jews – another lucky break for Arnold and Slack. But, as insurance, the Americans picked up a few hundred trash-heaped sapphires as well.  Having completed their shopping trip, Arnold and Slack sailed for Halifax, Canada. By avoiding American ports they greatly reduced their chances of meeting anyone who might know them, now or in the future.
We know that the pair had worked mines in Arizona, and that Philip Arnold had examined other mining claims for Ralston's bank, mostly in California and Nevada. But either man could have heard about the odd “conical” shaped mountain overlooking a worthless claim along the Utah, Colorado and Wyoming border. During the long summer of 1871 Arnold and Slack carefully “salted” their claim with a heady selection of diamonds and sapphires. Then they waited for winter, when harsh weather in the Nevada fields forced prospectors to stay close to San Francisco. And in February of 1872, just when the rock hound's cabin fever would be reaching its height, the two con men floated into the bars of San Francisco and created rumors of a big find.
As the Kentuckians anticipated, Ralston (above) eagerly took the bait and insisted on having his own experts examine the claim. Arnold and Slack made a show of reluctantly agreeing to take David Colton and Major George Roberts to the claim, in exchange for a $50,000 cash investment. And with tha  money in their pocket, they had their investors on the hook. Now they were going to reel them in. 
It was to be expected that neither expert on this March expedition knew anything about diamonds, since nobody in California did. There are no diamonds in California. And since both Colton and Roberts were also investors in the mine it was easy to convince them they were about to become fabulously wealthy. All they had to do was be greedy. And greed makes you stupid. In Oakland, on the return from the claim, Arnold and Slack collected their initial payment and then hurried off again. Ralston was told they were returning to work on the claim. In fact the pair was headed back to Europe, to fetch more diamonds.
During the spring and early summer of 1872, while Asbury Harpending was in New York, receiving Charles Tiffany's glowing appraisal of the diamonds and sapphires salvaged from the disposal bins in  Amsterdam, Philip Arnold and John Slack were in London, repeating their performance. Things went quicker this time because there was less of a language barrier. But there were also fewer cutters to chose from. This time the Kentuckian con men were more knowledgeable about what they needed. Also, with their scam approaching its apex, there was less need for secrecy. Again they sailed from and to Canadian ports – a five day sail to and from Halifax, Nova Scotia.
But something held them up on this trip, and  they did not have time to salt the mines. Instead, carrying  about $35,000 worth of low grade diamonds and sapphires, they were forced to return directly for San Francisco .  But there was no need to worry, for in their absence, “Billy” Ralston had been dreaming again. He thought that, as usual, his victims were playing by a different set of rules than he was. But this time the Kentucky con men were playing the same game Ralston was.  But better.  On their return, Ralston offered the two Kentucky con men $660,000 and a percentage of future profits for the precise location of the claim, and a quit claim, once the value was confirmed by yet another expert. Any concern Arnold or Slack may have initially felt on hearing about this additional inspection was dissipated when they met the final expert who stood between them and a fabulous fortune.  He was not some mysterious South African or Brazilian diamond expert. He was Henry Janin.
From the moment he boarded the train that August, Henry Janin was like a child being read his favorite story book. He wanted to believe. He knew the plot so well, he could almost say the lines before they were read to him. What he expected to see, Janin saw. Arnold must have known the man from their decades in San Francisco mining circles. Slack must have recognized the amazing avarice that drove Janin. Once Janin was picked, both men must have known the already in $330,000 in escrow and the $330,000 promised upon revelation, was as good as theirs.
The mystery of the 36 hour train ride, the darkened “abandoned” station, the blindfolds, the almost biblical wandering four day journey across the desert, everything about the trip seemed to be calculated to inspire mystery and romance. It was a perfectly calculated performance, except for Philip Arnold's final trip to “get his barrings”. On that fourth morning he must have rode off in desperation, and spent a hurried few hours salting the claim. Perhaps this is why the second trip from the railroad to the diamond mountain took twice as long as the first. But Arnold need not have worried. Greed makes people stupid. And even so obvious a slip in their veil of conspiracy failed to awaken the would be millionaires from their slumber. Arnold returned in time to lead his audience directly to a camp site at the foot of the diamond mountain, and any lingering doubts evaporated at the first glint of bling.
Ashbury Harpending (above) had almost blown their happy ending when he had heard the train whistle on the wind. But  Philip Arnold quickly assured him that the railroad was a hundred miles away, when in fact it was only twenty – just over the horizon. Lucky again, for the Kentuckians, the  western trains were still burning wood to supply their steam. Wood smoke is white, and seen from a distance might be a cloud on the horizon. In another decade the tiny deserted station at Rawlings Springs, where the party had left the railroad, would be a very crowded place, the skies above it darkened with a constant pall of thick black smoke, as the transcontinental trains were switched to burning coal, found in great quantities by Professor King's 40th Parallel Survey a mile or so north of the station.
It was Arnold and Slack who took over the panning duties for Janin. And this allowed them to magically  produce diamonds and sapphires with even a clumsy slight of hand. Half hour of dull unrewarding work would have discouraged any of the more zealous members of the party from panning themselves. And having been relieved of the real work, the robber baron want-a-bees could concentrate on the more enjoyable task of building castles in the air. They split up, each man wandering off to look for his own personal fortune, like Janin and his claim on the water rights. It was a storybook voyage to a fantasy island within  a desert mirage. The only person who did not seem to enjoy the trip was John Slack. It appeared he was cursed with the confidence man's worst enemy – a conscious.
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Friday, April 05, 2019

THE GREAT DIAMOND MOUNTAIN Chapter Four

I would say that William Ralston (above) had scaled the summit of delusion. In order to stand atop the very precipice of his fallacy, this founder of the Bank of California, owner of much of the Comestock Silver Lode and respected member of the monetary elite, had sold $10 million in shares in his new diamond company in a single morning, and had then, with the ruthlessness efficiency he was respected for, had duped the two Kentucky country bumpkins into selling him their lucky find for little more than a half a million dollars. And having done all of that, he had now ascended his ultimate tower of fantasy phantasm. And he was now poised to come plummeting back to earth.
It is easy to see how Ralston had reached his precarious perch. The entire nation was tripping on inflated  dreams, even if they weren't their own. The Alta California newspaper reported, “We have seen a report written by Henry Janin, a mining engineer of an established reputation, who had visited the mines, examined them and reported favorably on them. He has accepted the position of superintendent and has expressed the opinion that with twenty-five men he will take out gems worth at least $1,000,000 a month...Most of the diamonds found by Mr. Janin are small, weighing a karat. One obtained previously weighed over 100 karats... Some of the sapphires are as large as pigeon eggs....The diamond mines are the property of the San Francisco and New York Mining and Commercial Company, which has...100,000 shares of stock and they have been selling at $40, making the present market value of the whole property $4,000,000.”
In fact there was no 100 karat diamond. Janin was not the new superintendent. In fact that gentleman had recently been forced to sell his 1,000 shares in the claim for $40,000, to maintain his expensive lifestyle. Still Janin had faith in the venture. So perhaps the first man to realize that Raliston was actually a man on the verge of disaster was Mr. Clarence King (above). But then it was easy for Clarence to see the Diamond Mountain  for the fraud that it was because he had no money invested in it.
As a trained geologist, Clarence King knew from the second he read those lurid headlines that the diamond mountain was a fraud. He knew that diamonds and sapphires (above) are never found together,  because diamonds are formed at temperatures and pressures which would crush and melt sapphires.  This was  common knowledge even in 1872.  Only later would it be established that diamonds were made of carbon while sapphires were corundum, a form of aluminum.  That would explain why you can cut a sapphire with a diamond, but not the reverse.  But more than all of that, Clarence King knew the area around the alleged diamond mountain as few other people in the world could know it.
What made the 30 year old Professor King such an expert was that he had just completed (pun alert!) his groundbreaking work on the 40th Parallel Survey. This massive seven volume catalog of the natural resources made accessible by the transcontinental railroad, had only been completed in September of 1872. As its centerpiece it produced a topographical geological map centered on the 40th east /west parallel, and covering 50 miles on either side, on a scale of four miles to an inch. And nowhere on this map or in its thousands of pages of supporting geological and biological compendiums, was there even a hint of such a place as Ralston's diamond mountain.
Over dinner at the Pacific Union Club in San Francisco (above), King carefully grilled Henry Janin about the claim. He was stunned to discover that even now Janin was not sure of the exact location of the mine. “I was taken a long distance on a train, about 36 hours. Then we left the railroad at some small station where there was no attendant. We were brought out of the station blindfolded and put on horses” For two days, explained Janin, they had ridden with the sun in their faces.
The consulting mining engineer described the claim itself as a curious place, “...a desert with a conical but flat topped mountain rising right out of it, and on the mountain you find everything from garnets to diamonds!” Familiar with the country, King realized that 36 hours on the train would have taken Janin into eastern Utah territory or Western Wyoming territory. And the sun in his face for two days, meant Janin had been ridding south from the railroad. After lunch, King consulted his maps.
And 36 hours later he arrived at the agentless railroad station of  Rawlings Springs, Wyoming.  King  hired an aging German emigrant prospector and together they set off for a mountain he had surveyed just the year before, in what is today northwestern Colorado. On 2 November, 1872 they crossed a creek with a sign marked, “Water Rights – Henry Janin”.  Immediately, King began to set up camp while the prospector went off exploring.
King was hardly finished pitching the tents when the old prospector came back holding a gem. He proudly announced, “Look, Mr. King. This diamond field not only produces diamonds,  but cuts them as well!”
The two men working together quickly became adept at finding gems. They had only to look for tool marks on the surface, to find a diamond pushed into the ground, or a sapphire jammed into a crevice in the rocks. And indeed, many of the gems showed signs of having been worked over by lapidary tools. It appeared that the great diamond mine had been “salted”.
The term was an invention of the colonial American frontier. At a time when salt was vital in the preservation of food, poor farmland could still be sold at a premium if the seller poured salt down a well on the property, to give the impression of a “salt lick” or mineral deposits just below ground level.  Gold and silver claims were even more easily salted, with a shot gun loaded with the appropriate mineral dust. But salting this diamond mine had required a more labor intensive approach.
A week of examining the property provided King with all the evidence he would need. On 6  November  1872  the two men headed back toward the railroad, barely 20 miles away. (It seemed Mr. Harpending had actually heard the Union Pacific engine's whistle, after all!) King did not wait for a scheduled stop at Rawlings Spring, but flagged down a passing freight train, parting  company with the sharp eyed prospector. Along the way he composed a  cable addressed to William Ralston, which he dispatched from  the next station. The message was short and sour. The great North American Diamond Mine was a hoax.
The sound reverberating out of San Francisco that day was that of a massive ego suddenly deflating. How had so many and such wise men been so completely duped?
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Thursday, April 04, 2019

THE GREAT DIAMOND MINE Chapter Three

I suppose the simplest way to describe Henry Janin (above - not him) would be to call him a “hale fellow, well met.” His fellow mining engineers described him as “Cool as a cucumber...self-reliant, determined, and confident”. However the same publication hastened to point out, “He is not a stayer...his brilliant work, genial temperament and brilliant wit made him the “spoiled child” of many a social circle...with his extraordinary talents and accomplishments he might have been great; but at least he always remained dear.”.
Said another publication, “He accommodates himself gracefully to a given situation; lives well...drinks only the best of wines, and smokes only the best of cigars. Aristocratic in his tastes, gentlemanly in demeanor, and careless of the opinions of those he does not esteem, Mr. Janin (above - still not him) enjoys the confidence of those who appreciate merit and worth “ Still, somehow, amongst all that praise, it is difficult to find either profile as positive toward his talents in his life's work. That ambivalence seems to stem at least in part from his work at Diamond Mountain. He was, all things considered, the worst possible man to evaluate this claim. 
Henry Jannin took William Ralston's (above) job offer at his standard fee  ($2,500), and an option to buy 1,000 shares in the venture at a greatly reduced price.  As soon as half of the final sale price ($660,000) had been deposited in an escrow account, Philip Arnold and John Slack agreed to lead Jannin to the claim, along with Asbury Harpending, General Dodge, one of the builders of the transcontinental Railroad, and...
...for some reason, a gadabout Englishman named Alfred Rubery (above), whose only claim to fame up to this time was having been convicted of outfitting a raider for the Confederacy in a San Francisco, and having been  sentenced to ten years in prison for this,  Shortly there after President Lincoln pardoned Rubery and had him expelled from America. He had come back after the Civil War, and now claimed to be "on vacation".  But if this were another time and place, I would suspect "Ruby" of being a secret agent of the British government.
On 20 August, 1872, Arnold and Slack were once again on a train bound for their Diamond Mountain, this time leading the party of investors and Henry Jannin.  At Rawlings Springs station they left the railroad, hired horses and pack mules, and headed out across “ a mass of clay or sand and alkali--a horrible and irreclaimable desert”. According to Harpending (above) their four day journey was hindered, because “At times our leaders seemed to be perplexed, to have lost their way. At times they climbed high peaks, apparently in search of landmarks....The party became cross and quarrelsome. At last, on the fourth day, early in the morning, Arnold set out alone, to get his bearings, as he said. He returned about noon, said everything was all right, and we set out again with high hopes. By four o'clock we pitched camp on the famous diamond fields.”
It was, said Asbury Harpending, “...a small mesa...littered here and there with rocks comprising about thirty or forty acres (above), through which a small stream of water ran. It was located in one of the most unfrequented parts of the United States....once...on a very still day, I thought I heard something in the far distance that sounded like the ghost of a whistle. When I mentioned this to Arnold, he merely smiled. The railroad was at least a hundred miles away, he said.”
The party could barely contain their greed, and wasted little time making camp before they began their search for jewels. “We all went to work with our primitive mining implements- picks, shovels and pans. Everyone wanted to find the first diamond. 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.”
There wasn't the usual row over who should cook supper, who should wash the dishes, who should care for the stock, which little incidents of camp life had brought us to the verge of bloodshed during the three previous days. On the contrary, good will and benevolence were slopping over...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; while General Dodge, Rubery and myself experienced the intoxication that comes with sudden accession of boundless wealth.”
Everywhere we found precious stones - principally diamonds - although a few sparklers of other kinds were interspersed. It was quite wonderful how generally the gems were scattered over a territory about a quarter of a mile square and of course we were only doing surface examination. No one could tell what depth might produce...Two days' work satisfied Janin...The important thing (he said) was to determine how much similar land was in the neighborhood...this new field would certainly control the gem market of the world and (it was)...all-essential...for one great corporation to have absolute control. So we started on a widely extended prospecting trip. We staked off in a rough way an enormous stretch of the country, (and) set up notices of claims....”
Unnoticed by the civilians, Henry Jannin managed to stake a private claim to one of the few water ways which bisected the incredible diamond Mountain, a feat which, if upheld in a court of law, might have given the engineer a strangle hold over the entire operation. He was probably not alone, but with his favorable report, the second half of the $660,000 was paid to Slack and Allen, and the first half held in escrow was released. Jannin's report was made public on 3 September, 1872, in the Engineering and Mining Journal. The respected engineer claimed to have washed a ton and a-half of gravel off the plateau, which produced 1,648 carats of diamonds, and 7,200 carats of rubies “"I do not doubt that further prospecting will result in finding diamonds over a greater area...and that I consider any investment at the rate of $4,000,000 for the whole property a safe and attractive one".
What Jannin neglected to mention was that he had no practical experience at panning, either for diamonds, sapphires or gold. So he had left that back breaking, tedious work to the only practical miners in the group - Philip Arnold and John Slack. 
In retrospect it seemed the investors were so busy trying to cheat each other, they made it easy for the professionals.
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Wednesday, April 03, 2019

THE GREAT DIAMOND MOUNTAIN Chapter Two

I don't suppose most people have ever heard of Henry Comestock (above). And the few who know he was the namesake of the 1859 Comestock Lode silver strike, probably do not know he had acquired his share in mines worth $14 million in gold and $21 million in silver, not with a pick and shovel but by trading a blind horse and a bottle of whiskey for a mining claim.  But even fewer know that within a few weeks he sold out his shares for less than $20,000.00,  Ten years later,  in September of 1870,  Henry was flat broke again and was forced to take advantage of the poor man's retirement plan. He shot himself.
William “Billy” Ralston (above), aka “The Magician of San Francisco”, founder and manager of the Bank of California, had no intention of suffering a similar fate. In 1864, almost by slight of hand, he had convinced twenty-two of California's Gold Rush millionaires to finance his new bank. He used their capital to make predatory loans to miners in the Comestock Lode. And although Ralston did not invent the idea of giving his mining partners the shaft, he did practice it on an industrial scale. He carefully hid inflating payments in his loan documents, and used them ruthlessly, to ensnare miner after miner, seizing mine after mine until he was one of the richest and most powerful men in California.
He invested his profits in wool mills, cigar factories, hotels and theaters. And he gave money to the needy so willingly that it seemed at times as if Ralston wasn't interested in money, so much as he had an insatiable hunger to be richer than he was. And that was why in the spring of 1872 he jumped on the diamond mountain with such enthusiasm. And having jumped, he wanted to quickly squeeze the original founders of the strike, Philip Arnold and John Slack, out of the deal completely.  But his problem in this case was that to properly exploit the diamond mountain Ralston figured he would need $50 million, far more cash than even he possessed.  He needed lots of investors, and lawmakers to protect his share of the investment.  Ralston sent his good friend and sometime business partner, the magically named Asbury Harpending to New York City via the transcontinental railroad,  with a bag of gems and instructions to get them valued by none other than the “King of Diamonds”, Charles Lewis Tiffany.
The truth was Charles Tiffany had never seen a raw diamond in his life. What he was, was a marketing genius. He had opened his stationary store in 1837 with $1,000 in capital borrowed from his father. Then, when P.T. Barnum had to shoot one of his elephants, Charles Tiffany bought the poor pachyderm's hide and had it sewn into cigar cases, diaries and wallets. When Barnum's Tom Thumb got married, the miniature pony and coach which carried the diminutive bride and groom away from the church, were provided by Tiffany, and beforehand displayed in his store. And when the the first Transatlantic Telegraph cable was completed in 1858, Tiffany bought several hundred yards of the excess wire, sliced it into sections and sold it mounted on plaques. On the first day of sales, the crowds were so large the police had to restore order – or so Tiffany claimed
But it was Gideon Reed from Boston who ran the firm's Paris store, and who invented the diamond engagement ring, to handle a glut of small stones from South Africa then swamping the market. And it was George McClure, the companies' head gemologist, who oversaw the army of designers who created the Tiffany jewelry style. But nobody outside of the diamond industry had ever heard about those guys. Charles Tiffany (above in his 5th Avenue shop) was the public personification of Tiffany and Company. And so when Asbury Harpending stepped off the train in Manhattan's Pennsylvania Station in the spring of 1872, it was Charles Tiffany's valuation of the gems that he was seeking.
Asbury Harpending (above) described Tiffany's dramatic performance, at his lawyer's home. “A number of distinguished men were present to see the gems displayed...General George B. McClellan, Horace Greeley, Mr. Duncan, of the banking house of Duncan, Sherman & Co....(and Congressman) General B. F. Butler...I opened the bag of diamonds....Mr. Tiffany viewed them gravely, sorted them into little heaps, held them up to the light, looking every whit the part of a great connoisseur. "Gentlemen," he said, "these are beyond question precious stones of enormous value”...In an official statement, still available, his valuation on the lot was $150,000....At that figure, we had diamonds enough already in stock to make up a total of $1,500,000 in hard cash, whenever we wanted to turn them into money....The news of the Tiffany appraisal ...soon became common property in New York and made a big stir in speculative circles.”
Thrilled at Tiffany's estimation of the value of the diamonds, back in San Francisco William Ralston officially incorporated the San Francisco and New York Mining and Commercial Company, with so many investors forcing money into his hands the new firm quickly had a million dollars in “working” capital, and 100,000 shares of stock, initially valued at $40 a share. William Lent was named as President, Ralston named himself as treasurer, and David Colton became the general manager. Even the Baron Rothschild bought stock in the new company.
As the addition of the word “Commercial” indicated, Ralston was dreaming big – very big. The board of directors of his new company were empowered not only to dig out the diamonds of Diamond Mountain – where ever that might be – but they were also empowered to cut and polish the stones, and develop the market for them. Less than six months after Allen and Slack had shared the existence of the Diamond Mountain with him, Ralston was planning on transplanting the entire Amsterdam (above) diamond market to San Francisco, replete with cutters, polishers, graders, wholesalers and, of course, customers. Anyone who could be helpful to Ralston's grand plan, including Congressman Butler, was granted shares in the new venture.
What the rotund Congressman Butler (above) from New York delivered were a few words added to the General Mining Act of 1872, approved in record time and with a minimum of debate in either the American House of Representatives or the Senate. The new law took effect almost immediately, ,on 9 July 1872.   This rushed bill established the price of a mining claim on federal land at between $2.50 and  $5.00 an acre, a figure which has ever since resisted all pressure for an increased benefit to the federal purse. Under this landmark legislation, mining claims on public lands were offered at those bargain prices to those seeking gold, silver, copper or, as Butler amended the act, “other valuable deposits”. In short, diamonds.
By the time this loose end had been tied down, Philip Allen and John Slack were back in San Francisco again, with another bag of diamonds and sapphires. By this time, however, William Ralston had managed to convince the Kentucky simpletons to sell their entire claim to him outright. Their price was $660,000.00; half up front and half upon a final examination by a third engineer, picked by Ralston,  and the revelation of the exact location of the claim.
The man Ralston picked for this final and most important appraisal of the diamond mountain was one of the most respected consulting mining engineer's in America, a man whose 600 previous appraisals had been so accurate his clients had never lost a dollar on his jobs; Henry Janin.  His fee was standard - $2,500 in cash, all expenses paid to and from the claim, as well as the price of chemicals required to confirm the quality of the claim, and the right to buy 1,000 shares in the enterprise at a nominal price. It was all boiler plate, industry standard arraignments.  Of course, contained within them were the seeds of destruction for the entire enterprise, and everyone associated with it. At least one person had figured that might be where they were heading, right from the start.
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