Colorado Diamonds Daring Fraud 1871

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Colorado Diamonds- The American West was the land of opportunity, so why not diamonds? It ended in tears for many.
By James St. JohnDiamonds (State Line Kimberlite Field, Colorado-Wyoming border area, USA) 2, CC BY 2.0, Link

The Colorado Diamond Rush: A Fiasco Fueled by Greed

Colorado Diamonds – Discoveries of everything from gold to timber were making millionaires overnight in California and Colorado and in 1867, diamonds were discovered in South Africa that in just a few years produced more diamond wealth than India had in the previous 2000 years. The American West was the land of opportunity, so why not Colorado Diamonds ?

In 1871, cousins Philip Arnold and John Slack traveled to San Francisco and reported the discovery of Colorado Diamonds. They found an eager class of investors and they slowly let on about their find.

The investors hired an engineer from St. Louis and Slack and Arnold led them blindfolded for 4 days across the Wyoming frontier to the hide the location. They led them to the site of Diamond Peak.

The thing is, there were no diamonds at diamond peak. There never were. The whole thing was a hoax. They had purchased $35,000 worth diamonds from the diamond barons in Africa and salted the claim with them.

Their list of ‘investors’ was a who’s who of the time including William Chapman Ralston, General George S. Dodge, Horace Greeley, Asbury Harpending, George McClellan, Baron von Rothschild, and Charles Tiffany. Adding the big names just increased their credibility and their ability to add more investors.

This was going to be big. Arnold and Slack ended up selling their interest for $660,000 ($16.8 million today) and retired. The investors sued, but all settled for undisclosed sums to keep it out of the press. No criminal charges were pressed, and both moved on to other careers. Somehow they both survived. Arnold became a banker in Elizabethtown Kentucky and Slack became a casket maker and undertaker in White Oaks, New Mexico.

 

Colorado Diamonds- The American West was the land of opportunity, so why not diamonds? It ended in tears for many.
A close-up of colorful Colorado diamonds.
Courtesy of the Denver Museum of Nature & Science |

This was the end of the story of Colorado Diamond mining in Colorado for over 100 years. Then in 1976, diamonds were discovered in the Stateline Kimberlite district on the Colorado – Wyoming border.

There were 9 kimberlite pipes and 2 were found to be diamond bearing. There was great interest in developing the property but it took until 1996 to settle the ownership issues and to open the Kelsey Lake Diamond mine.

Kelsey Lake never was profitable and it shut down in 2001 but it and what is now the Crater of Diamonds State Park in Arkansas remain the only two attempted commercial diamond mines in the US.

The Kelsey Lake site was fully recovered in 2006 and the Crater of Diamonds parks is the only diamond mine on the planet that is open to the public where you can keep what you find.

The tale of the Colorado Diamond Rush is a fascinating, albeit cautionary, chapter in American history. It’s a story brimming with ambition, deceit, and the allure of overnight riches. While the 1871 Kelsey Lake debacle wasn’t the first or last diamond-related scheme to unfold in the state, it stands out as a grand illusion that duped prominent figures and exposed the vulnerabilities of a booming frontier.

Before the Bust: A Land of Opportunity

The embers of the Civil War still smoldered when a wave of prospectors descended upon the American West, lured by the promise of wealth. Tales of gold strikes in California and Colorado fueled a national obsession with riches unearthed from the rugged terrain. News of the 1867 diamond discoveries in South Africa, which quickly yielded a fortune surpassing India’s 2,000-year diamond haul, only intensified the fervor. In the eyes of these fortune seekers, the West wasn’t just a frontier; it was a land where diamonds, the ultimate symbol of luxury, could be the next big find.

Enter Arnold and Slack: Masters of Deception

Enter Philip Arnold and John Slack, two cousins from New York who saw an opportunity to exploit the West’s diamond fever. In 1871, they concocted a scheme so audacious it would leave a lasting mark. Their plan? To fabricate a diamond discovery in Colorado and lure in a who’s who of investors.

The Salting Scheme: Diamonds Planted, Investors Hooked

Their method was as cunning as it was simple. First, they purchased a significant amount of diamonds, estimated at $35,000 (roughly $16.8 million today), from South African diamond merchants. These stones would be their key to deception. Next, they identified a gullible group of investors, including prominent figures like William Chapman Ralston (financier), General George S. Dodge (Civil War hero and railroad magnate), Horace Greeley (newspaper editor and politician), Asbury Harpending (paleontologist), George McClellan (Civil War general), Baron von Rothschild (banking family), and even Charles Tiffany (founder of Tiffany & Co.).

To heighten the illusion, Arnold and Slack employed a classic confidence trick. They blindfolded their investors and led them on a four-day, seemingly arduous journey across the Wyoming frontier. This charade served two purposes: to create an air of secrecy and to make the supposed diamond location appear remote and difficult to find. Finally, they unveiled their Colorado Diamonds “discovery” – Diamond Peak, a carefully chosen site devoid of any real diamonds.

Diamonds in the Rough: A Facade Crumbles

The brilliance of their scheme lay in its simplicity. By strategically “salting” the claim with the purchased diamonds, they created the illusion of a genuine diamond deposit. This elaborate ruse, coupled with their carefully curated list of investors, lent credibility to their fabricated discovery. News of the “find” spread like wildfire, attracting even more investors eager to get in on the potential bonanza.

The Payoff and the Fallout

Arnold and Slack’s Colorado Diamonds scheme proved immensely successful. They managed to sell their interest in the phony diamond claim for a staggering $660,000, equivalent to a whopping $16.8 million in today’s dollars. They retired from the spotlight with their pockets lined with ill-gotten gains,  Arnold became a banker in Kentucky, and Slack opted for a career in the death industry, working as a casket maker in New Mexico.

However, the truth, like a stubborn weed, eventually pushed through the cracks. As investors delved deeper and the lack of genuine diamonds became undeniable, the elaborate hoax unraveled. The fallout was significant, but surprisingly subdued. Instead of facing criminal charges, the deceived investors chose to settle out of court, likely to avoid the public humiliation of being duped. The details of these settlements remain shrouded in secrecy.

A Century Later: A Glimmer  Hope (and Reality)

The Colorado Diamonds Rush story lay dormant for over a century. Then, in 1976, a glimmer of hope (or perhaps a reminder of the past’s allure) emerged. Diamonds were discovered in the Stateline Kimberlite district, straddling the border between Colorado and Wyoming, on land owned by the Union Pacific Railroad. This discovery, unlike the one perpetrated by Arnold and Slack, was genuine. Geologists identified nine kimberlite pipes, volcanic vents known to host diamonds, and two of them indeed contained diamonds.

However, the dream of a commercially viable diamond mine in Colorado proved elusive. Legal wrangles over ownership rights delayed development until 1996, when the Kelsey Lake Diamond Mine finally opened its doors. Unfortunately, the mine’s story mirrored the fabricated one of Arnold and Slack – it never turned a profit.