Advertisement

Great frauds in history: Prescott Jernegan’s gold hoax

Prescott Jernegan claimed to be able to extract gold from seawater. He couldn't, of course. But he persuaded an awful lot of people that he could

Prescott Jernegan was born in December 1866 and as a toddler spent a few years on his father's whaling ship before his family settled in Edgartown, Massachusetts. Jernegan later graduated from Brown University and briefly worked as a schoolteacher before attending Newton Theological Seminary and becoming a Baptist preacher. His preaching proved controversial and he struggled to earn enough money.

Advertisement - Article continues below

One day, while recovering from typhoid fever, he had a dream about seawater turning into gold. Hooking up with childhood friend Charles Fisher, he later claimed to have found a way to extract gold from seawater at a reasonable cost. (Seawater does in fact contain gold, but in such low concentrations that extraction is uneconomic.)

The pair set up the Electrolytic Marine Salts Company in 1897 and raised $900,000 ($28m in today's money) to set up a "gold extraction factory' in Lubec, Maine.

What was the scam?

As Jernegan would later admit, the company's scientific apparatus was an elaborate sham intended to give the impression that something was going on, rather than producing any actual gold. In order to give the impression that gold was being extracted from the seawater, gold flakes were covertly added to the early samples produced by the machine. Later, to keep the deception going, the duo would spend $2,000 a week on gold, which was sent to the Boston offices of their company, to be mixed in with the material produced from the Lubec factory.

What happened next?

The scheme came to a messy end when William Phelan, a private detective who had been involved in setting up the original scam, attempted to blackmail the duo. When they refused to pay him, he revealed in The New York Herald how they had gone about deceiving investors, causing Fisher and Jernegan to flee to France. Initially Jernegan pretended that he was searching for Fisher, who was needed to operate the machinery. He then vanished, though not before returning $150,000 that he had taken from the company before his disappearance.

Lessons for investors

Thanks to Jernegan's fit of conscience and the sale of land and equipment, thousands of investors managed to recover around a third of their original investment. Those who bought shares in the company at the peak of the market would lose much more. The scam was fuelled by the publicity generated by the Alaskan Gold Rush of 1896-1899) a lesson that bubbles and booms provide fertile ground for scams and deception.

Advertisement
Advertisement

Recommended

Don’t panic about Iran – but don’t sell your gold either
Gold

Don’t panic about Iran – but don’t sell your gold either

Markets have reacted calmly to the tension between the US and Iran. But don’t get too complacent. It’s still a good idea to hold on to some gold as in…
9 Jan 2020
Here’s how gold could rise above $7,000 an ounce
Commodities

Here’s how gold could rise above $7,000 an ounce

That the gold price could hit $7,000 an ounce is a logical and plausible possibility, says Charlie Morris. Here, he explains how it could get there.
30 Dec 2019
Gold is in a bull market – and it could have much further to go
Commodities

Gold is in a bull market – and it could have much further to go

Many investors forget that gold is still the best-performing asset of this century, says Charlie Morris. It could also have much further to go.
27 Dec 2019
All the gold in China: money and power goes east
Economy

All the gold in China: money and power goes east

China has far more gold than official figures suggest – as much as America, in fact. He who owns the gold makes the rules, says Dominic Frisby.
15 Nov 2019

Most Popular

Eagle Lightweight GT: the reincarnation of the E-type Jag
Toys and gadgets

Eagle Lightweight GT: the reincarnation of the E-type Jag

Jaguar’s classic E-type sports car has been reinvented for the modern age. The result – the Eagle Lightweight GT – is a thing of beauty.
7 Aug 2020
Should you take advantage of the UK’s new breed of domestic holidaymakers?
Buy to let

Should you take advantage of the UK’s new breed of domestic holidaymakers?

With Britons choosing to holiday in the UK this year, the owners of the country’s holiday cottages are cleaning up. Should you buy in, too? Merryn? So…
10 Aug 2020
The pound has been trending higher against the dollar – will it last?
Sponsored

The pound has been trending higher against the dollar – will it last?

Sterling has been rising against the dollar. Dominic Frisby sets his trend lines in the charts to see where the pound is heading next.
10 Aug 2020