Mining was one of the main reasons for Nevada’s significant population growth throughout its state history. Vast mountain ranges provide lodes upon lodes of precious metals and materials, offering both wealth and infrastructure to budding cities and towns. Many mining companies started up at the slightest prospect of precious ore. Owners would quickly sell stock to help support their endeavors.
Some companies made valid and financially transparent attempts to strike it rich across the landscape. Some made it big while others came up short. The threat of financial failure was always present. In fact many operations ended with more money invested in equipment and laborers than earned through mined and processed ore. An unfortunate circumstance, but such is the nature of mining: high risk, high reward—or extreme loss.
However, there was another risk at that time. While some companies were honest, others abused the public’s enthusiasm for bonanzas within the stock trade. With the non-digital communication methods of the day, many people relied heavily on word-of-mouth and press material to know when and where to stake a claim or buy stock, especially those that lived far away from these mining towns. Promoters of mining companies often exaggerated the amount and value of ore from any one property in their advertisements. Scam artists and fraudulent companies became prolific, making false declarations of the mining claims they owned just to take advantage of people’s ignorance. The stock itself would also be manipulated by those who were mining company owners or board members, ballooning the share prices through mergers and subsequently plummeting the value of their competitors.
Mining, for everyone involved, has always been a gamble. But for those choosing to invest in these operations, the question at hand tended to be: which companies would bear honest reward, and which ones would just take hard-earned money and run?
Taking Advantage of Bonanzas
The Comstock Lode in the Virginia Mining District saw its fair share of stock manipulation. The discovery of silver ore on the eastern slope of Mount Davidson (in the Virginia Range) was made public in 1859, leading to the greatest mining rush since the California Gold Rush of 1849. But with the “Comstock Lode” came a frenzy of investing and trading of shares. In 1862, the San Francisco Stock and Exchange Board had been organized to help facilitate these exchanges. Given its role in financing mines, the stock exchange could be a location of fraud. Meanwhile, a few hours east in Nevada, there was misuse of stockholder shares through rampant bribery from mining company owners to public officials.
[IMG: George_Augustus_Sala_-_A_Panic_at_the_San_Francisco_Stock_Exchange_-_(MeisterDrucke-396484).jpg]
A Panic at the San Francisco Stock Exchange. George Augustus Sala, 1873. Image Source: https://www.meisterdrucke.us/fine-art-prints/George-Augustus-Sala/396484/A-Panic-at-the-San-Francisco-Stock-Exchange.html.
The Comstock Lode was not the only bonanza. Gold was discovered in the Goldfield Mining District in 1902, with the first claims staked by Billy Marsh and Harry Stimler on Columbia Mountain. This sparked rapid growth at the townsite, and by 1908 it was the largest city in Nevada, with a population of 20,000. It became a hotspot for scam companies, many of which did not last more than a year or two before they disappeared altogether. A few of these companies included Goldfield Fortune Mining Company, Goldfield Mutual Prospecting and Development Company, Vulture Mining Company, and Nevada Goldfield Lease Company, which were later confirmed to be fraudulent by a federal investigation conducted in the 1910s.
[IMG: ]
Goldfield Fortune Mining Co., Incorporated in South Dakota, 1904-1905. Image courtesy of Clark County Museum, Henderson, NV.
In 1917, H.C. “Cal” Brougher discovered gold in the Tonopah Divide Mining District, also known as the Gold Mountain Mining District. By 1919, the district had spawned a multitude of mining companies. The brief existence of these firms is illustrative of how fast a mining boom could rise and fall. Some of these companies, many of which were incorporated in 1919 or 1920, never existed past 1925. Most were legitimate businesses, like the Royal Divide Mining Co. and the Silver Divide Mining Co., though their mines were not as fruitful compared to other claims. Other companies were likely created just for stock-selling scams, where they would set up machinery and equipment at a mining claim, but no work would be conducted.
[IMG: Tonopah Divide Mining Company Tonopah Divide Mine 1919.jpg]
Tonopah Divide Mine, operated by the Tonopah Divide Mining Company, 1919. Image Source: https://www.tonopahdivideminingco.com/about-ushistory.
My Adventures with Your Money
No discussion about stock-selling scams is complete without addressing one of the most well-known, notorious con artists in southwestern history: George Graham Rice, born as Jacob Simon Herzig of Manhattan, New York.
[IMG: georgegrahamrice Goldfield Historical Society.jpg]
George Graham Rice. Image Source: http://www.goldfieldhistoricalsociety.com/george-grahm-rice/.
Rice’s start in mining began in 1904, when he moved to Goldfield and started the Nevada Mining News Bureau. It served to advertise mining stocks, particularly those in which he had ownership stakes. Around the same time, he created the L.M. Sullivan Trust Company alongside Larry Sullivan. This firm issued stocks for activities in Goldfield, Manhattan, Rhyolite, (all Nevada), as well as Greenwater, California. During the Panic of 1907, a nation-wide financial crisis that saw the New York Stock Exchange plummet nearly 50% from the previous year, people withdrew all of their funds from the banks and Rice’s trust company collapsed. Soon after, Rice fled to Reno to continue as a promoter for the Nevada Mining News Bureau.
[IMG: ]
Nat C. Goodwin Mining and Leasing Co. stock certificate, 1908. Image courtesy of Clark County Museum, Henderson, NV.
However, the stock manipulation didn’t stop there. Nat C. Goodwin & Co. (also known as the Nat C. Goodwin Mining & Leasing Co.) was founded by Rice alongside actor and comedian Nathaniel Carl Goodwin. Through this company and the Nevada Mining News, Rice turned his sights on Rawhide and its brand-new mines, claiming that it would become the next “Virginia City”. Unfortunately, over-promotion and stock-selling scams prompted the town’s downfall. The ore was not as plentiful as anticipated and could not support the droves of miners flocking to the town thanks to Rice’s sensational news articles. In two short years, Rawhide would drop from its population peak at 7,000 people in 1908 to less than 500 in 1910.
[IMG: ]
Grutt Hill Coalition Mines Co. stock certificate, 1908. Owned by one or both of the Grutt brothers (Fred and Eugene) that had owned mines in the Rawhide District; part of the Goodwin and Rice scheme. Image courtesy of Clark County Museum, Henderson, NV.
By 1911, Rice’s dealings had caught up to him. He pled guilty to mail fraud and was sent to prison for one year. While incarcerated, he wrote his autobiography, “My Adventures with Your Money”, which was later published in 1913. After his release, Rice continued to various schemes, leading to a laundry list of felonies which included grand larceny in 1920 and mail fraud in 1928. During the latter, he would be tried for tax evasion in 1931, acting as his own attorney. Surprisingly, he was acquitted, having claimed that he was too poor to hire a lawyer and that his income was a meager $5,000 a year salary.
Trying to Solve a Nationwide Problem
One way to combat the consistent swindling of stock shares was through the implementation of state-level “blue-sky” laws. The first such law was enacted in 1911 in Kansas, by Kansas Supreme Court Justice Joseph Norman Dolley. The term itself derives from Dolley’s statement that this law was directed towards "speculative schemes which have no more basis than so many feet of 'blue sky'". The Kansas law would become the model for many other states—except for Nevada.
In 1919, there had been an attempt to develop a federal “blue-sky” law, proposed by Congressman Edward T. Taylor. This proposal was drafted with counsel from the Capital Issues Committee and supported by the Federal Trade Commission. Presented before the Committee on the Judiciary for the House of Representatives, this proposed law would regulate interstate commerce and the control of security issues at a federal level.
[IMG: Congressman Edward T Taylor Library of Congress.jpg]
Congressman Edward T. Taylor, U.S. Representative from Colorado, 1915-1941. Image source: https://www.loc.gov/pictures/item/2016861347/.
It was an attempt to handle the proliferation of scam companies and stock manipulation across the nation, especially after World War I. At the time of this hearing, hundreds of millions of dollars of hard-earned money and Liberty bonds were stolen through the sale of fraudulent stocks. Companies would have headquarters in one state, incorporate themselves in another, and then sell stock in yet another state.
Eventually, a nationwide organization would help to mitigate these stock-selling issues. The U.S. Securities and Exchange Commission (SEC) was developed out of the Wall Street Crash of 1929 as an independent agency, and tasked with the reduction of market manipulation. It revolves around a three-part mission: protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation. Numerous mining companies involved in fraudulent stocks would be held acountable for their crimes at the hands of the SEC.
[IMG: ]
Rosetta Mines Co. stock certificate, 1935. Incorporated in Nevada, Mines in Churchill County, 1920-1938; caught on fraudulent charges. Image courtesy of Clark County Museum, Henderson, NV.
Though gone are the booming days of gold and silver bonanzas, stock fraud is still present and the methodologies behind the scams are largely the same. Falsified or omitted information, manipulated revenue and financial statements, sensational news articles—anything and everything to ‘get rich quick’. Legal procedures are slow-moving, so much of the weight falls on investors to stay smart with their money before the scam can ever happen. Thankfully, the SEC has a Guide to Identifying and Avoiding Securities Fraud [LINK: https://www.sec.gov/about/reports-publications/investorpubsidentavoidfraud] which provides a multitude of resources for safe investing.
