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.

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.

Recommended

Profit from patience
Advertisement Feature

Profit from patience

Smart investors will reap the rewards by staying focused on the long-term, research from Alliance Trust shows.
9 Dec 2022
Is it time to buy Gilts?
Government bonds

Is it time to buy Gilts?

Gilts offer a higher yield than most savings accounts and could be an attractive alternative for those with a large lump sum to invest.
8 Dec 2022
Key dates for 2023: here are the dates you need to know when it comes to your money in 2023
Personal finance

Key dates for 2023: here are the dates you need to know when it comes to your money in 2023

There is no shortage of important dates to be aware of next year – which are likely to affect your financial health. We run through the key dates in 2…
6 Dec 2022
Investment scams are infiltrating Facebook and Instagram
Investment strategy

Investment scams are infiltrating Facebook and Instagram

Research from Which? found hundreds of investment ads on Facebook and Instagram that could be misleading investors into potential investment scams.
6 Dec 2022

Most Popular

Is it cheaper to leave the heating on low all day?
Personal finance

Is it cheaper to leave the heating on low all day?

The weather is getting colder and energy bills are rising, but is it really cheaper to leave the heating on low all day or should you only turn it on …
1 Dec 2022
Radiator vs electric heater – which is cheaper?
Personal finance

Radiator vs electric heater – which is cheaper?

We compare the costs, pros and cons of radiators and electric heaters and see which one will help keep your energy bill as low as possible.
28 Nov 2022
The pros and cons of smart meters – should you switch?
Personal finance

The pros and cons of smart meters – should you switch?

A smart meter can help you keep tabs on your energy usage, but is it better than a regular meter? We take a look at smart meters vs regular meters.
2 Dec 2022