Inspired by the 1870 diamond rush in South Africa, the Kentucky-born cousins Philip Arnold and John Slack came up with a plot to “find” a diamond mine in the United States. They settled on the frontier territory of Colorado. So later in 1870s, Philip and John tried to deposit a bag of uncut diamonds at a San Francisco bank. But upon questioning, they quickly left.
The director of the bank, William Ralston, heard about this. And he got exactly the idea the cousins wanted him to get: Ralston decided to buy the “diamond mine” that must have produced those uncut diamonds. To help convince Ralston, the cousins salted (placed diamonds inside) a Colorado mine, then pretended to dig the diamonds up.
Convinced by their trickery, Ralston founded the New York Mining and Commercial Company and invested $600,000 in the cousins. This company was comprised of prominent individuals such as the founder of Tiffany & Co., a former commander of the Union Army, and a US Representative. In total, New York Mining Commercial Company ended up selling stock totaling $10 million. And diamond fever spread, too. Convinced that the American West must have many other major deposits of diamonds, at least 25 other diamond exploration companies formed in the subsequent months.
In 1872, things fell apart. A new-to-the-scene geologist Clarence King began to investigate, first finding the secret mine, then going through its deposits. King noticed that the seemingly random layout of diamonds and rubies was too neat to be natural. Plus, the jewels were only found in areas where the ground had previously been dug. No diamonds or rubies were found in untouched parts of the mine. Those two factors, put together, were enough to convince King that he had uncovered a hoax.
Apparently the cousins could not buy King off, because on November 26, 1872, The San Francisco Chronicle published a letter from King, explaining his findings. King became the first director of the United States Geological Survey thanks to his part in uncovering the hoax, so things turned out well for him.
But Ralston was only able to return $80,000 to each investor in the company, and the cousins disappeared with the $600,000 down payment the company had paid for the mine. Arnold lived out the few remaining years of his life in luxury in Kentucky before dying of pneumonia in 1878. Slack apparently squandered his share of the money, for he was last reported working as a coffin maker in New Mexico.