Tuesday, October 18, 2016

Broken Hills: Much Ado About Nothing

     One of the sad realities of Nevada’s mining past is that in many instances, the perpetuation of a fraud was at the heart of a mining boom. Such was the case with the mining camp of Broken Hills, the site of which is located about 27 miles north of Gabbs via State Route 361 and a dirt road.

Broken Hills was established in 1913 by two English prospectors, Joseph Arthur and James Stratford, who discovered modest amounts gold in the area. The two worked the claim for about six years, pulling a reported $68,000 of gold from the ground.

In 1920, the pair sold their claim to George Graham Rice, who would later become known as the “Jackal of Wall Street” because of his stock manipulation schemes and frauds.

Rice, whose real name was Jacob Herzig, was born to a financially successful family in New York in 1870. After stealing money from his family’s business, he was sent to reform school, where he befriended an elderly convict named Willie Graham Rice (and later appropriated part of his name).

Rice soon found success as a racehorse tipster, helping to fix races, and, after serving time in jail in New York, headed out to Nevada, where he became extremely successful promoting worthless mining stocks.

Using a Reno-based company he called the Fidelity Finance & Funding Company, Rice began aggressively promoting Broken Hills and selling stock in the mine.

Rice took out large advertisements in western newspapers that claimed, “It is probable that no mining discovery of recent years in Nevada has received such favorable endorsement by public officials, banking men and mining experts as has the Broken Hills.”

The smooth con-man was even able to entice Nevada Governor Emmet D. Boyle to sign a statement saying that after a personal examination of the mine, “the showing is the best I have seen in any new territory in Nevada for many years.”

Rice formed the Broken Hills Silver Corporation, with a stated capitalization of 3 million shares, and named Ed Malley, Nevada’s state treasurer, along with Gilbert C. Ross, Nevada’s state bank examiner, and other prominent businessmen to the company’s board of directors.

Perhaps not surprising, Malley later became embroiled in one of the largest political and financial scandals in state history. He, along with State Controller George Cole, embezzled more than a half-million dollars from the state treasury in the 1920s.

They took the funds and invested in mining and oil company stocks, saying they intended to return the money when they struck it rich. Unfortunately, the investments went bust and the two lost everything. In 1927, both were convicted of diverting state funds for their own use and went on to serve four years in prison.

During most of 1921, Rice creatively promoted Broken Hills. In an article in the Deseret News on February 22, 1921, it is reported that “Great excitement prevails here over the bonanza values carried in a foot and a half vein of heavy black silver-sulphide ore recently discovered on the Broken Hills property.”

Additionally, about a month later, Rice’s associates submitted a bid to host a fight between Jack Dempsey and Georges Carpentier, the European champion. According to news accounts, a syndicate from Broken Hills offered a guarantee of $800,000 to secure the fight for Broken Hills.

On April 21, 1921, the Desert News, which reported a number of times on Broken Hills, noted, “Every pan shows flake and wire gold . . . miners and prospectors from all around the country are headed for the new camp.”

According to the Mines Register of 1922, by April of 1921 Rice had sold about $161,900 in stock and invested some $80,000 in developing the community. But since the Broken Hills Silver Corporation owed $380,000 to Rice’s Fidelity Finance for the mining property, the company was unable to meet its debt obligations and soon folded.

Stockholders, however, launched an investigation of Rice, who, eventually, was convicted of fraud. In 1929, he was once again sent to jail, serving four years, where he shared a cell with Al Capone.

While a headframe and some other buildings, including a one-room schoolhouse, were constructed at Broken Hills, the community didn’t really ever amount to much. The last residents moved away by the mid-1950s.

Today, the metal headframe remains as does an old grave (a wooden board is inscribed with the name “Matt Costello”) and some assorted pieces of wood and cans but not much else.

An excellent book about Rice is “My Adventures with Your Money: George Graham Rice and the Golden Age of the Con Artist,” by T.D. Thornton, published in 2015.

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