The Great Diamond Hoax of 1872
The Story
Two prospectors, Arnold and Slack, walked into the Bank of California and deposited a bag of uncut diamonds. They claimed to have found a massive deposit but refused to reveal its location. They eventually agreed to lead a blindfolded expert, hired by a group of investors including the founder of Tiffany & Co., to the site in Wyoming. The expert confirmed the field was rich with gems. The investors paid $660,000 for the rights. The 'gem field' had been expertly 'salted' with low-value diamonds purchased from London and South Africa.
🚩 Red Flags
- Refusal to disclose the location of the discovery
- A deal that seems too good to be true
- Rushing the due diligence process
- The 'discoverers' being unsophisticated but finding a world-class deposit
- Gems found on the surface, not embedded in rock
⚖️ The Fallout
The hoax was exposed by geologist Clarence King. By the time the fraud was revealed, Arnold and Slack had vanished with the money. Arnold was eventually tracked down and settled for $150,000, keeping the bulk of his ill-gotten gains.
📚 Lessons Learned
Even experts can be fooled by a well-executed con. Always verify the source of the asset independently. The practice of 'salting' mines remains a classic scam in resource extraction.
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