Preface
With some variations, mining stock float scams in the 19th century – Ralston was by no means the first or the last – were akin to what today would be called “pump and dump” stock frauds. These are defined as investment schemes which:
“attempt to boost the price of a company’s stock through false and misleading promotions or highly exaggerated statements.”¹
For this type of scam to work, the perpetrator has to act swiftly and follow a basic plan which involves the acquisition of a large amount of essentially worthless stock. This stock is held primarily by him/her and a few select insiders/accomplices. Today, this large stock-holding is usually acquired in a pre-existing company. The mining stock scams of the 19th century however usually involved companies that were incorporated by the fraudsters themselves, and who issued their own stock certificates.
The holding of this large amount of stock by a select handful of people creates a great deal of interest amongst the general stock buying public, interest which is fueled by promotional campaigns and reports on just how valuable the stock is, with the (desired) result that everyone wants to acquire their share, and is willing to pay a high price to do so.
The principal stockholders then begin to sell some of their holdings, in very limited quantities. The price of the stock has, of course, risen dramatically due to the high demand for the strictly limited quantities available. Eventually, once the price of the stock has risen yet again due to the glowing reports and the rare opportunity to buy, the instigators decide to release all of the remaining stock for sale to whoever can afford it; the price now of course having reached a peak. The end result is that investors are left holding expensive stock which they quickly come to realize is, in reality, practically worthless , while the perpetrators of the scheme have made a handsome profit.
Let us look at one example of this type of scam from the late 19th century. For this we have relied heavily on Lingenfelter.²
In September of 1880, “an unpretentious little man with a big round head, a quick eye, and a pleasant smile” bought a mine called the “State Line” in California’s Death Valley. Prior to completing the purchase he had dispatched two associates to the mine to inspect it. They were fully conversant with his requirements; they provided a favorable report on the property, despite the fact that it was over-priced, furnished only low quality ore, and had no water supply. The purchase went ahead, paid for partly in cash and partly in promissory notes. The property was then incorporated in the sum of $20 million and sub-divided into four separate companies – State Line Gold Mining Companies Nos. 1, 2, 3 and 4. The purchaser of the mine held 199,994 out of the 200,000 shares issued for each of the four companies.
Next came the promotional campaign. A flock of “experts”, whose neutrality and objectivity was, to say the least, questionable, provided copious testimony as to the wonderful quality of the ore at the “State Line”; how, with a minimum of expense and effort it could easily be extracted and processed. There was also a full supporting cast of those only too willing and able to supply and erect the necessary machinery, and pipe work to bring water to the site. Just as at the Virginia Mining District ten years before, the mine was promoted as having an almost unending supply of exceptionally rich ore.
The new owner was busy himself, too; there was no time to be wasted in the development of this fabulous property. He tasked the company’s General Manager with the purchasing of a stamp mill and pipe work for the planned water transportation system. Work on the ditch in which the pipes were to be laid was commenced, and pipes actually began to be laid.
All of this had the desired effect – a rapidly growing body of frenzied would-be investors; frenzied all the more by further timely releases on the mine’s astounding worth and potential, and by the owner’s repeated refusal to release any his stock onto the market. When the fever was adjudged to be at its peak, he began to offer up that stock for sale.
Next came what Lingenfelter refers to as:
“the stall, that unexpected occurrence that seems to temporarily block the goal, that annoying trifle that would appear to momentarily thwart the start-up of the mill and the opening of the door to expected riches.”³
In this case the stall came in the form of the news that the pipe work, crucial to the operational ability of the mine, was leaking and would have to be replaced. Once again, expert testimony played its role by reassuring investors that there was no need to worry; the mine would be up and running as soon as this minor problem was fixed, and then they would all soon be reaping the vast profits being made on their investments. Meanwhile, knowing what was to come, the mine’s owner was discretely disposing of his own stock at “special deal” prices – prices which, together with the profits of his earlier sales, are estimated to have netted him around $3 million. So discreet were his sales that he had disposed of practically all of his stock before the majority of investors became aware of the fact. There followed a flurry of activity in which they too scrambled to dispose of their interests before the value of the stock hit rock bottom. This was little under a year after the purchase of the mine. It was not quite over yet though. One of the two men who had originally been sent out to appraise the mine prior to its purchase attempted to save the investors from losses. He organized a new Board of Directors for the mine, with the result that some of the investors decided to hold on to their stock in the hope that the mine would yet prove profitable. Of course, this was a false hope. Despite another far less polished attempt to pump the value of the mine and its stock, the “State Line” affair was all but over. At the end, shares in the companies could be bought for as little as a nickel each, down from a high of $14 at the height of the frenzy.
The “State Line” fraud was later referred to as “the most barefaced operation of the year”, and as nothing more than “downright robbery”,⁴ though perhaps one has to admire the elegant manner in which it was carried out. This elegance however, was not something which had been achieved overnight; it had been acquired and developed over many years, well-practiced, and honed to perfection. The “State Line” fraud was perhaps the pinnacle of a long career which would continue on almost until the time of its instigator’s death in 1901.
But it was one of the earlier frauds carried out by this person and his “assistant” that interest us the most; his name was George D. Roberts, and that of his “assistant” was Asbury Harpending. The fraud was that of the Ralston silver mines in 1870.
©2007-2024 Jim & Erica Parson
REFERENCES FOR THIS INSTALLMENT
¹Pump And Dump – Stock Fraud. Http://www.bustathief.com/pump-and-dump-stock.fraud/ Accessed on September 14, 2009
²Lingenfelter, Richard E. (1986) Death Valley & The Amargosa. A Land of Illusion. Berkeley: University of California Press.Chapter 3. Pages 143-161.
³Ibid.
⁴Ibid.
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