The Diamond Scam That Cost The Nation’s Wealthy A Fortune

By Debra Kelly on Monday, May 26, 2014
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“If you’re a frog, turn yourself into a prince.” —De Beers diamond advertisement

In A Nutshell

Hot on the heels of the California Gold Rush came the Great Diamond Hoax. Two Kentucky grifters managed to swindle some of the country’s most powerful businessmen, all by proclaiming they had found a patch of undeveloped land that was strewn with precious jewels. The jewels—which they bought with investors’ money and planted themselves—convinced unwitting investors to establish a company and then buy out the grifters in a scam that cost them millions in today’s money.

The Whole Bushel

In 1870, a Kentucky grifter, miner, and bookkeeper named Philip Arnold and his cousin, John Slack, approached San Francisco businessman and entrepreneur George Roberts with a mysterious bag. Acting appropriately secretive about the contents of the bag, the pair eventually let it slip that the bag contained a small fortune in uncut diamonds—diamonds that they had found in a location that they absolutely were not about to disclose. The pair swore the businessman to secrecy and—as they had predictably planned—he absolutely did not keep their secret.

The first in on it was the founder of the Bank of California, a man named William Ralston. Then another businessman with the epic name of Asbury Harpending was also brought into the deal.

Once these two were on board, Arnold and Slack revealed their second bag of gems, which they said had been appraised at $600,000. Cleverly resisting a quick payoff from the interested investors for a reveal of the location where they had found the jewels, they asked for only $100,000 to make a return trip to their secret location.

That return trip was actually a trip to London, where they purchased about $20,000 in real, uncut gems. When they returned to San Francisco, they first headed to Wyoming and took part of the gems and spread them out on a patch of land that they planned on using as their diamond- and riches-filled claim.

The rest of the gems were given to their newfound friends. Before dumping any more money into the scheme, they wanted to know just how much money they were looking at, so they recruited the legendary jeweler Charles Tiffany to examine the stones that Arnold and Slack claimed to have found. Under the approving gaze of Horace Greeley, General George B. McClellan, and General Benjamin Butler, Tiffany proclaimed that the gems were all but flawless, and at his estimation, they were worth thousands.

Tiffany, (who wasn’t all that familiar with the uncut versions of the gemstones his company would become so famous for dealing in), would have been better off letting someone else take a look.

With Tiffany’s approval, Arnold and Slack made their move. They took their investors on a meandering, roundabout journey through Wyoming, leading them to the spot that they claimed they had stumbled upon their gemstones. Once they were there, the investors and the professional miner that they had hired began finding gemstones upon gemstones—diamonds, rubies, and emeralds . . . exactly where the grifters had left them.

Almost immediately, the investors started breaking their quickly formed company down into shares. By the time Arnold sold out his shares, he netted around $550,000 (in today’s money, that’s about $8 million.) By that time, Slack was already gone, leaving the supposedly gem-rich site that he was supposed to be guarding and disappearing into obscurity.

The hucksters had cashed out, and by the time their investors called in a geologist to check the site, they were long gone. The geologist, Charles King, pointed out what probably should have been obvious had the men not been so blinded by gemstones. Those that they found on the site were conveniently placed on the top of the ground, scattered in loose dirt, and there were always suspicious footprints in the surrounding areas.

The fallout for the investors was devastating, ranging from political and professional ruin to lawsuits. Slack’s fate is largely unproven, though some assert that he moved to New Mexico and lived alone until dying in 1896.

Arnold, however, bought a house and 500 acres of land in Kentucky. He was ultimately indicted for fraud, but settled out of court. Afterward, he decided to start his own bank and was eventually caught in the middle of a gunfight and shot in the shoulder. He died from pneumonia caught while recovering.

Show Me The Proof

Smithsonian: Great Diamond Hoax of 1872
SFGate: Great Diamond Hoax of 1871 has lingering mystery