Stories from Everybody's Magazine Part 3

"ADJOINING" MINES--GOOD BAIT

Then there is the same old argument about wonderful properties "adjoining" such and such a dividend-paying property. Very often the properties are miles apart. They might be within twenty-five feet of each other, and one still might be worthless and the other rich. The profits of old and famous properties very frequently are given in advertising literature of this cla.s.s, "to show what money there is in mining." The "property" sold may be a ten-foot hole in a sand-bank two thousand miles from any of these; yet this absurd argument is sufficient to extract coin from the pocket of the American buyer. You can use Michigan to tout him on to Arizona; Utah to land him in California; Mexico to interest him in Alaska. Is it not true? There is no law against it.

Again, the appeal to your mining pocket may come, not through the advertising page, but in the proper person of the promoter or owner himself. For instance, not long ago a gentleman from California came into my office. He owned a mine on the old and well-traced Mother Vein, of Tuolumne County, California. It had been well opened, and showed, in development, according to a reputable engineer's report, three million dollars' worth of ore in sight, with many tons of the best ore already in the dump, stuff which would run very high in value.

At the proper time the gentleman carefully produced from his pocket a little ingot of pure gold, product of one test-mill run.

He gave the best of references as to his responsibility. He offered to guarantee ten per cent. dividends on all money invested, and declared that he had a banking proposition and not a mine.

WHEELBARROW VS. $72,000

"My Christian friend," said I to him, "you seem to have a good thing. How far is it from your mine dump to the nearest bank?"

"About five miles," he answered.

"In that case," said I, "it seems to me you don't need to sell a hundred thousand dollars' worth of stock to build a stamp-mill.

You need only enough to buy yourself a good, strong wheelbarrow.

In two or three months you can thus build your own stamp-mill and pay for it with ore, and still have your mine all in your own hands."

He could not see it that way, and, pursuing his own method, he took $72,000 in two weeks out of the city of Chicago, from some of the best business men of that city. Now, perhaps he had a real mine. I have no right to doubt that he had; but the point of interest to the small investor is this: NEITHER HAVE I ANY RIGHT TO BELIEVE THAT HE HAD. The thing for me to do, had I wished to invest in this way, would have been to send an expert to see the property personally.

ENTER THE FINANCIAL AGENT

In this game of plucking the dollars of the poor and the ignorant, there has been a gradual improvement in methods. The constant aim has been, first, to increase the amount of the harvest; second, to reduce to a minimum the risk the reapers run of detection and punishment by the authorities. Experience in most lines of commercial activity has shown that the middlemen often gather in the largest profits and have the smallest losses.

Many of those working the mining game--and by this is meant selling stocks on wind and water--have made use of this fact.

To-day in the majority of cases we have, in place of the prospector or the company selling stock direct to the suckers, the financial or fiscal agent. He operates either under the name of a banking firm or as a security company, which is generally a registered trade-name intended as a cloak to cover the names of individuals not desirous of publicity.

The financial agent of this description is in reality the organizer and promoter of the mining company whose stock he sells. But should trouble come along, he is the first to a.s.sert that he has been deceived as well as his customers. He sells the shares of the mine on a commission basis so large that practically nothing is left for development. He takes out of the money secured large salaries and the entire expense of advertising and carrying on the exploitation. He prepares all the literature. One of the advantages he claims for his proposition is the wide distribution of the stock as a safeguard against a.s.sault by wicked Wall Street interests.

CULLED TWO MILLIONS IN FOUR YEARS

In this wide distribution, however, lies one of his own greatest safeguards against either criminal or civil prosecution.

Scattered over the country are his investors--the mill hand, the poor seamstress, the humble artisan, whose total investments, comprising perhaps all their savings, seldom exceed one hundred dollars each; and, with their savings gone, there isn't money left to pay carfare to the office of the financial agent, let alone to undertake a civil suit or enlist the aid of the authorities. The poor seamstress has no way of knowing any of her fellow unfortunates. Hence the utter impossibility of cooperation in seeking to get back their savings.

As an example of the fiscal agent, there may be cited the concern of Douglas, Lacey & Company, already mentioned, a concern which in four years, through its operations in this country and in Canada, culled from the people of this country, according to its own statement, over $2,000,000 in exchange for stock certificates in more than forty varieties of mining companies. Here is a letter written to a woman by this concern four years after she had invested all her savings in the stock of one of these companies through this concern, showing the advantage of the fiscal agency plan:

DOUGLAS, LACEY & CO.

Financial Agents 66 Broadway.

New York Cable Address "Douglacey"--Anglo-American and Bedford McNeil Codes Telephone, 790 & 791 Rector

DEAR MADAM: June 2, 1908.

Replying to your favor of June 1st would say that we do not find in our files any recent letter from you, and your letter addressed care of 44 Wall Street has probably gone to the Dead Letter Office, from which you will in time receive it.

Now, in reply to your question, we think if you are at all familiar with business procedure, you will see that it would be impossible for the fiscal agents of any of the companies to return money which had been paid for shares and which had been turned over by the fiscal agents to the treasury of the various companies and expended in development work on the different properties.

It is true that we have sold stock for our customers at various times and we are glad to do so when it is possible. At the present time, however, as this company is in process of reorganization, there would be no market for its stock and for this reason we are unable to help you in the way you request.

Very truly yours Douglas, Lacey & Co.

In pursuing this method, few promoters have had the success of Dr. John Grant Lyman. He is credited with having gathered in a half million dollars in his International Zinc operations. This company was supposed to have valuable zinc properties in the Joplin district of Missouri. To unload its stock on the people of this country Lyman organized the firm of Joshua Brown & Company, Bankers, incorporated under the laws of West Virginia. Through them the stock was sold until the collapse of the scheme in 1901, when the investors found that what property it did own was heavily mortgaged. While the firm was taking in the money, Lyman maintained a racing stable, had a reputation as a daring automobilist, and even invaded the sacred precincts of the New York Stock Exchange.

LYMAN'S SCHEME TO GET STOCKING SAVINGS

Three years ago the papers throughout this country were filled with the advertis.e.m.e.nts of the Union Securities Company, selling the stock of the Boston Greenwater Copper Company. It was stated that the mine had cost $200,000 and that so much ore was in sight that an offer of $400,000 had been refused. The Union Securities Company, with offices in New York and in Goldfield, Nevada, started the stock at forty-five cents and lifted it to a dollar.

It was merely another name for John Grant Lyman. Not only did the Union Securities company sell the stock to the public, but it also offered it to brokers at thirty-seven and a half cents, on their guarantee that it would not be sold by them at less than forty-five cents. The brokers began getting contracts for the stock and then were told that the Union Securities Company was all sold out.

Shortly thereafter, confederates of Lyman came to these brokers and offered stock to them at fifty cents a share; and the Union Securities Company at the same time telegraphed the brokers that it wanted all the shares it could get at sixty cents. That forced the brokers to buy of confederates; but when they shipped on the stock to the Union Securities Company, expecting to get sixty cents a share for it, Lyman was gone. It had not cost him much.

He owed the newspapers of this country $150,000 for advertising, which went unpaid. He reaped $300,000 profits. Boston Greenwater Copper stock can still be found in many a stocking--of humble folk.

"SALTING" WITH A CIGARETTE

It is not, however, always the city promoter who furnishes all of the crookedness. He himself may be deceived by those who sell him the mine. Some of the most thrilling stories in literature might be written about salted mines. The sale of the Bear's Nest Mine, and the special train expedition to the salted Bear River placer field; the sale of the Mulatos Mine to a set of Chinamen, and scores of other instances in American mining history, have been regarded rather as big jokes than as great lessons. And as to such large jesting we advance in finesse. The old way of salting a placer or a quartz vein with a shotgun is now antiquated.

A little while ago a party of capitalists bought a Nevada placer on what they thought to be strictly a "cinch" basis. With their own hands they collected the specimen dirt from all over the claim, and they watched a Mexican miner pan the dirt at the creek. The pans showed up beautifully. They bought the claim.

Later, it proved worthless. Afterward they remembered that the Mexican smoked cigarettes all the time he was panning, and that he was careless in expectorating, as well as in knocking the ashes off his cigarettes. The truth was that the highly intelligent Greaser was using the cigarette trick in salting the pan. There was much fine gold in his cigarette and under his lip!

THE MULATOS MINE SALTING SCHEME

All sorts of methods of salting mines, even to the injection, with a hypodermic needle, of strong solutions of mineral salts into a mining engineer's carefully sealed sample bags, have been worked. The most honest, careful, and expert mining engineers have been deceived time and again, and salted right under their own eyes. Even a bland Chinee may be fooled. Take the instance of the Mulatos Mine: The bunch of Chinamen who proposed to buy it insisted on a mill-run test on fresh-mined ore, taken out BY THEMSELVES, for a five-days' run. They were not taking any chances, in their own belief. The owners of the mine, however--so runs the story--had a platform of plank arranged above the timbers at the top of the drift where the Chinamen brought out their ore cars. On this planking a man lay face downward where he could see each ore car that pa.s.sed. He had a rather hard life for five days on the sandwiches and water which he took up there with him, but he managed to drop a pinch or so of nice gold dust into every car of ore that came trundling under him. The mill-run was an entire success from the viewpoint of the sellers, although not from that of the buyers.

There is no working law, let us repeat, which actually protects the investor against this sort of thing, nor which always protects even the promoter, though he be honest. The game is risky all the way along the line, in spite of state laws against the heinous crime of salting, which latter hath as yet by no means lost its savor.

THE MAIL AND MINING THIEVES

As matters stand to-day, the man selling mining stock on a fraudulent basis fears the Post Office Department much more than he fears the District Attorney. That is the main protection which the public has against such schemes. But to depend upon it is like trying to stop Niagara with a dam of reeds. The man who induces you to take your money out of the savings bank in exchange for stock in a mine, through such operations as have been described, thrives by reason of his use of the United States mails. It is a mail-order business pure and simple.

Let us see what machinery the Government has to protect you and prevent the letter-carrier from bringing daily to your door the flamboyant literature intended to lure your money from the bank.

There are five hundred Post-Office inspectors employed in watching Uncle Sam's mail wherever it is carried, in keeping the vast and complicated machinery of the Post Office Department oiled and working smoothly, in running down Post-Office robbers and mail thieves and, lastly, in keeping the mail free from frauds. Ninety per cent. of this force is required to do the routine work of the inspecting branch; that is to keep the machinery running smoothly and to prevent delays. That leaves just ten per cent. for actual detective work such as is necessary in running down thieves and in tracing frauds. In the New York district, which comprises the state of New York as well as New York City, there is a force of twenty-five men working under a chief inspector. Of the ten men a.s.signed to work in New York City, by no means all have special detective ability, and the time of these is taken up almost entirely in catching actual thieves.

POST-OFFICE PROTECTION INADEQUATE

It is only the biggest and most barefaced scheme that under these conditions can receive any attention whatsoever from the department, and even then its force is hopelessly inadequate and incompetent for the work in hand, work requiring the highest-cla.s.s detective ability.

About twelve years ago the Post Office Department ran down and convicted a swindler, Stephen Balliet, who was selling stock in a mine full of water in Oregon and was known as "the mining genius of the Northwest." He was tried three times, finally convicted, and sent to prison. That case cost the Post Office Department $18,000, took a man's entire time for two years, and required two trips across this continent. The Government has not tried since to get many such convictions.

Perhaps because of the pressure of other work, perhaps for other causes, investigations of this nature are allowed to languish.

Some years ago, when the firm of Douglas, Lacey & Company was reaping its harvest, an inspector was a.s.signed to investigate the concern's operations. He was one of the ablest inspectors of the service, a man with real detective ability and a knowledge of the devious ways of certain kinds of financing. He made a trip to Mexico and subsequently sent in a report to Washington recommending that a fraud order be issued against the concern and that its use of the mails be stopped. He waited a long time and then got word from Washington that more evidence was required. He made another investigation and sent in another report, recommending in even stronger language that the mails be barred and the public protected. While on this work he was constantly a.s.signed also to other matters and finally was shifted to a station in the South. The concern collapsed some years later, leaving thousands of people in this country and in Canada bereft of their small savings. There was no fraud order ever issued against this firm, though shortly before it closed up it was informed that if it continued to sell stock its use of the mails would be stopped.