Who was in on the Great Diamond Hoax?

It was the perfect crime, brilliantly conceived and executed.

No widows and orphans were created in the making of this crime. No little old lady lost her life savings. Only the high and mighty were brought low.

In late 1871, Phillip Arnold and John Slack, two weather-beaten miners, appeared with a small leather sack at George Roberts’ office, asking him to keep the sack in his vault. They reluctantly revealed the sack contained uncut diamonds and showed a few samples, but swore Roberts to secrecy.

Roberts soon told Bank of California President William Ralston about the find, and Ralston summoned the miners into his office and offered to buy the claim. Arnold, who did all the talking for both miners, refused but later agreed to sell a small interest in the mine for $100,000. As part of the negotiations, Arnold allowed two investigators to accompany them to the mine. The investigators returned to Ralston with glowing reports and a handful of diamonds and rubies.

At this point Ralston asked his friend, Asbury Harpending, to take charge of the new enterprise. Harpending’s life was even more interesting than his name. Born in Kentucky in 1839, Harpending made his first fortune mining in California in the 1850s. During the Civil War, he joined a conspiracy aimed at pirating ships carrying gold to the U.S. Mint and taking them to the Confederacy. He was caught and served a brief jail sentence. After the war, he made another fortune in railroads and in the stock market. Harpending was in London selling shares in a silver mine when Ralston’s telegram reached him. Harpending returned to the U.S. just in time to meet Arnold and Slack in Reno. They had returned from another trip to the mine with a bag containing $1 million worth of gems, which would be security for the $100,000 interest in the diamond fields.

Harpending took the bag and went to his house where, in front of Ralston and other investors, he poured the bag’s contents onto his billiard table. Diamonds, emeralds and sapphires scattered onto the table in front of the dazed observers.

Matters moved quickly after that. Ralston told Arnold and Slack that the miners lacked the resources to develop the claim. After some debate Arnold agreed to sell 75 percent of the enterprise for $600,000, and the miners received $200,000 in cash. Harpending then had Tiffany’s in New York evaluate a sample of the stones. Tiffany’s estimated their value at $150,000. Next a small party, including mining expert Henry Janin, were taken to the diamond fields. The party found diamonds and other precious gems in profusion. Janin’s enthusiastic report clinched the deal, and Arnold, who had Slack’s power of attorney, received the final $300,000 of the payment.

The San Francisco and New York Mining Corp. was formed with a who’s-who list of partners, including England’s Baron Rothschild and Gen. George McClellan. Twenty-five friends of the Ralston Group were allowed to buy stock for $80,000 each and were deluged with offers to sell their stock at a huge profit.

Then, as the corporation prepared to sell shares to the general public, disaster struck. The partners received a telegram from Clarence King, a U.S. government geologist. King had been heading a federal mapping expedition when he met a returning diamond hunter, who told him of the discovery. King correctly deduced the location of the mine and led his survey team to the diamond field.

Courtesy photo

King said the mine was a colossal swindle and that the area had been “salted” with industrial grade diamonds. A detective agency found that Arnold had purchased $30,000 worth of poor grade South African diamonds in London in 1870.

Arnold and Slack had played the bankers emotions like Jascha Heifetz played the violin — with perfect timing, touch and tonality.

The press had a field day with stories of how the big shot financiers were hoodwinked by the old miners, but it was hard to fault the bankers’ research. They had the diamonds examined by the country’s leading jeweler and hired the nation’s leading mine expert to examine the mine. Except that Tiffany’s expertise was in finished gems, not raw stones. And Janin was an expert in gold and silver mining, but knew nothing about the geology of diamond mining.

By the time the fraud was revealed, Slack had disappeared. But Arnold was located in Kentucky, where he had purchased a substantial house and land. Arnold accused the big California bankers of trying to cheat him, and his Kentucky friends closed ranks around him. The bank’s attorney, realizing the futility of winning a case in Kentucky, accepted a $150,000 settlement. When Arnold died of pneumonia six years later, more than $200,000 was missing from his estate.

Some suspected that Harpending might have been involved, but he always denied it. In 1916, Harpending wrote “The Great Diamond Hoax,” which has become the standard text on the case. But he might have left something out.

In 1944, some of Harpending’s old correspondence came to light. One of the letters, written in 1871 by a close friend, refers to a Mr. Arnold of Kentucky and asks, “Can you send me one of the African rough diamonds?”

Take a look at the photo of Harpending. I think I see a $200,000 twinkle in his eye.

Paul Drexler is a crime historian and director of Crooks Tour of San Francisco, www.crookstour.com.CrimecriminaldiamondDiamond HoaxhistoryhoaxillegalSan FranciscoSFswindlers

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