In 1872, financial centers in San Francisco, New York and London were agog with the news of a great diamond discovery on an isolated mountain in Colorado.

There was speculation that diamond mines in South Africa and exchanges in Europe would be eclipsed by the great U.S. discovery.

U.S. government surveyor Clarence King was astonished by the diamonds he saw when he visited the mountain that autumn. But he and his Rocky Mountain survey team made a disturbing discovery: Some of the diamonds were already cut.

The diamond field was a hoax. The mountain had been "salted" with low-grade diamonds — some of which had been cut by professional gem cutters.

Salting with gold nuggets was a well-established technique for fooling potential mine investors. But this was new. And the fact that the diamond discovery was in an isolated part of the country added to the allure.

The site — now known as  Diamond Peak — was in Brown's Park in the far northwest corner of Colorado territory.

The hoax itself was born more than 1,000 miles away, however.

In late 1870, two scruffy-looking prospectors, Philip Arnold and his cousin, John Slack, visited financier George Roberts in San Francisco, saying the items they had in a rough leather bag needed to be kept safe.

Roberts persuaded Arnold to show him the contents of the bag — uncut diamonds and other gems. But Arnold and Slack were coy about where they found the gems, and they didn't seem interested in financial partners.

Nonetheless, Roberts contacted his friend William Ralston, head of the Bank of California. The two recognized a potentially lucrative investment, but they wanted proof.

Faced with constant pressure from the financiers, Arnold and Slack agreed to allow their diamonds to be appraised, and a preliminary estimate of $125,000 was given. The two men then disappeared for several months, returning with more diamonds.

The bankers paid them a $100,000 down payment for their claim. It was the first of more than $550,000 that would eventually be paid to the two men.

The two also agreed to take some of their diamonds to Charles Lewis Tiffany in New York to be appraised, then guide a small group to examine the diamond mountain itself.

Joining both efforts was a friend of Ralston named Asbury Harpending, who'd made a fortune mining in the West and Mexico.

Harpending, Arnold and Slack met Tiffany in New York, and he valued the sample of diamonds he was given at $150,000. From that, Harpending concluded the leather bag full of gems owned by Arnold and Slack was worth $1.5 million.

In New York, the group attracted former Civil War Gen. George B. McClellan and Congressman Benjamin Butler to their cause.

In London, financier Baron Rothschild was eager to invest.

But first, on-site verification was demanded. So, in the spring of 1872, Harpending, Arnold and Slack traveled to Brown's Park, accompanied by Henry Janin, a pre-eminent mining expert.

Four days of difficult riding from the railroad at Rawlins, Wyoming, took them to the diamond mountain.

"Everywhere we found precious stones — principally diamonds," Harpending wrote. "It was quite wonderful how generally the gems were scattered over a territory about a quarter mile square."

After two days, Janin determined "the absolute genuineness of the diamond fields," Harpending said.

The group staked out a 3,000-acre claim to ensure they got the entire diamond field, then headed home.

Ralston, Roberts, Harpending and others formed the San Francisco and New York Mining and Commercial Co., with 25 founding shareholders putting up $80,000 apiece.

They paid Arnold and Slack the remainder of their money, and the two hustlers were out of the diamond business.

News of the diamond find spread rapidly, prompting stories of similar discoveries. Diamond fields were reported in Arizona, New Mexico, Utah and Colorado's San Juan Mountains.

Meanwhile, the San Francisco mining company was preparing for a public stock sale of some $10 million in November of 1872 when Clarence King dropped his bombshell.

On Nov. 11, according to Harpending, the mining company received a telegram from King "stating that the diamond fields were fraudulent and plainly 'salted.' "

A meeting of the board of directors was hastily arranged, and the stock sale was suspended. King, who had arrived in San Francisco, guided some company officials back to the diamond mountain to prove the fraud.

By early December, newspapers across the country, including in Salt Lake City and Denver, were reporting on "The Great Diamond Swindle." Diamond fever evaporated across the West.

But one question remained: How did Arnold and Slack trick so many intelligent people?

Arnold, it seems, had worked for a San Francisco drill maker that used uncut diamonds for drill bits. He may have acquired his first diamonds there.

As the scheme progressed, Slack and Arnold, with money from a previous mining venture, made at least two trips to Europe.

They purchased relatively cheap, poor-grade diamonds — some of them cut — and other gems. It's estimated they spent $20,000 for stones that netted them more than half a million dollars.

They used steel rods to push the gems deep into anthills and other spots on the diamond mountain. They also left gems on the surface, in places like rock crevices.

That seemed suspicious to King and his men. So was the fact that diamonds were found so close to rubies, sapphires and other gems, which doesn't occur anywhere else.

But eager investors ignored these facts as they envisioned a diamond bonanza.

Charles Tiffany was reportedly taken in because he was shown uncut stones, while his expertise as a jeweler was based on professionally cut ones.

Mining expert Janin said he believed the reality of the diamond field had been established before he visited.

His only mission was to establish the boundaries of the field and estimate its value, he claimed.

The fallout from the hoax affected the principals differently:

Harpending lost his initial investment but recovered financially and moved to Kentucky. He was accused of participating in the fraud, but it wasn't proved. He wrote his version of the diamond-hoax story in 1913.

Ralston paid off all the investors, much of it with his own money.

His Bank of California failed in 1875 and Ralston drowned in San Francisco Bay soon thereafter. Many people believe he committed suicide.

Philip Arnold was sued by several investors for $350,000. He denied he had swindled anyone, but agreed to pay $150,000.

He opened a bank in Kentucky and died a few years later after being shot by a business rival.

John Slack disappeared after the hoax, having received little of the diamond money. He died in 1896 in New Mexico.

Clarence King, the hero of the diamond hoax, became a national celebrity and the first head of the U.S. Geologic Survey. But later mining investments destroyed his finances. He died poor in Phoenix in 1901.

Sources: "The Great Diamond Hoax and Other Stirring Incidents in the Life of Asbury Harpending," Asbury Harpending; "The Great Diamond Hoax of 1872," Robert Wilson, Smithsonian Magazine, June 2004; "The Great Diamond Hoax," Russell Quinn, Gold! magazine, 1970; Uintah County Regional History Center, Vernal, Utah.

Bob Silbernagel's email is bobsilbernagel@gmail.com.

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