Chapter III: The Brewing of a Saturnalia of Speculation (2)

I soon recouped these stock-market losses. At about four o'clock one afternoon, a few days afterward, a miner who had been at work during the day on the Loftus-Sweeney lease of the Combination Fraction, called at the office of the trust company and asked me to buy 1,000 shares of Combination Fraction stock for him. He divulged to me that just as he was coming off shift he had learned that a prodigious strike of high-grade ore had been made at depth. Combination Fraction had closed that afternoon on the San Francisco Stock Exchange with sales at $1.15. I went out on the street and proceeded to buy all the Combination Fraction in sight. In half an hour I had corralled about 60,000 shares at an average of $1.30. An hour later the owners of the lease obtained the information on which I was working, and by eight o'clock that night, when the Goldfield Stock Exchange began its evening session, the price had jumped to $1.85. Within a week thereafter the price sky-rocketed to $3.75, and at this figure I took profits of nearly $150,000. Had I held on a little longer I could have doubled that profit, for Combination Fraction a few weeks later sold at higher than $6.

The Combination Fraction strike was followed by a number of others, and the boom gathered force. By October, Goldfield Silver Pick had advanced to $1 per share, up 600 per cent. Goldfield Red Top was selling at $2, Jumbo at $2, and Mohawk at $5, showing profits of from 2,000 to 5,000 per cent. Others had gained proportionately. In fact, there were over twenty Goldfield securities listed on the exchange that showed the public a stock-market profit of anywhere from 100 per cent. to 5,000 per cent.

Mining machinery of every description was being shipped into camp, and for half a mile around the Combination mine the landscape of assembled gallows-frames resembled a great producing oil field. There were signs of mining activity everywhere. For four miles east of the Combination mine and six miles south every inch of ground had been located. Claims situated miles away from the productive area were changing hands hourly at high figures.

The Sullivan stocks kept pace in the markets with the other booming securities, and it was plain that the trust company was riding on a tidal wave of success. Our profits exceeded $1,500,000 at this period, and we were just eight months old.

In a single fortnight the Sullivan Trust Company promoted the Lou Dillon Goldfield Mining Company at 25 cents per share, a valuation of $250,000 for the property, which cost $50,000; and the Silver Pick Extension, which cost $25,000, at the same figure, netting several hundred thousand dollars' profit on these two transactions. Options to purchase the Lou Dillon and Silver Pick Extension, which were situated within 500 feet of the Combination mine, had been in possession of the Sullivan Trust Company for months, and had increased in value to such an extent that on the day the subscriptions were opened in Goldfield for Lou Dillon at 25 cents per share, a prospector named Phoenix, who had received $50,000 from the Sullivan Trust Company for the entire property, subscribed for 100,000 shares, or a tenth interest in the enterprise, paying $25,000 therefor.

It was the rule of the Sullivan Trust Company to open subscriptions in Goldfield on the day its advertising copy left the camp by mail for the East. Newspaper publishers were always instructed to publish the advertisements, which were generally of the full-page variety, on the day following receipt. In the case of Lou Dillon it became necessary to telegraph all newspapers east of Chicago not to publish the advertisement because of oversubscription before the copy reached them, and in the case of Silver Pick Extension the orders to publish the advertisements were canceled by telegraph before the mail carrying the copy reached Kansas City. San Francisco, Los Angeles and Salt Lake subscribed for 50 per cent. of the entire offering of Lou Dillon and Silver Pick Extension, and Goldfield for 25 per cent. As a matter of fact, had we desired, we could have sold the entire offerings in Goldfield, Tonopah and Reno without inserting any advertisements, so great was the excitement in the State itself.

At this period the combined monthly payrolls of the mining companies promoted by the Sullivan Trust Company totaled in excess of $50,000, and excellent progress was being made in opening up the properties.

It was early Autumn in Goldfield, warm, dry and dusty, and never a cloud in the sky. I was at my desk eighteen hours a day, and liked my job. Things were coming our way.

The Sullivan Trust Company was in politics. Mr. Sullivan was popular with the miners, and Governor Sparks was a large asset of the trust company because he had been allowing the use of his name as president of all the mining companies promoted by it. Nevertheless, when the State election approached, the Governor had no money for campaign expenses. He telegraphed the trust company from Carson:

"I will not stand for renomination."

We replied: "You are certain to be elected, and you will be renominated by acclamation if you accept."

"I won't run unless you guarantee my election," he telegraphed.

We answered: "We guarantee."

The Governor was renominated by the Democrats. The Republicans placed in nomination J. F. Mitchell, a mining engineer and mine owner, who was very popular among mine operators.

There were thousands of miners domiciled in Goldfield. The Western Federation of Miners dominated.

"Sullivan," I said, "isn't it a certainty that the miners will vote the Democratic ticket because Mitchell has been put forward by the mine owners? Is it necessary to spend any money with the Western Federation?"

"Not a dollar!" replied Mr. Sullivan. "There's a meeting of the executive committee to-morrow. I'm going to be around when they meet. Without spending a cent I'll bring home the bacon. Watch me!"

Sullivan reported to me the next day that he had succeeded in his mission.

"I didn't attend the meeting," he said, "but I did see the main 'squeeze.' He told me that a contribution to the Miner's Hospital would be gratefully accepted, but that even that was not necessary, and that Sparks would win in a walk."

The only campaign money advanced by the Sullivan Trust Company was given to Mr. Sullivan to go to Reno. He asked for $1,000, and he used it in conducting open house on the first floor of the Golden Hotel, meeting people and greeting them. Reno appeared to be a Republican stronghold, and Mr. Sullivan, by baiting the Catholics against the Protestants, succeeded in holding down the Republican majority to an extent that was wofully insufficient to overcome the Democratic majority rolled up in Goldfield with the aid of the miners. Governor Sparks was reëlected by a handsome majority. Had the occasion demanded it, we would have "tapped a barrel." But it was not necessary.

THE STORY OF GOLDFIELD CONSOLIDATED

Rumors were rife in Goldfield of a merger of mammoth proportions which was said to be on the tapis. Great as were the gold discoveries in camp, they did not justify the terrific advances being chronicled in the stock-market, and it was apparent that something extraordinary must be hatching to justify the market's action.

George Wingfield, who had enjoyed a meteoric career, rising within five years from a faro dealer in Tonopah to the ownership of control in the Mohawk and many other mining companies and to part ownership of the leading Goldfield bank, John S. Cook & Company, which was then credited with having $7,000,000 on deposit, was said to be engineering the deal. The names of the properties were not given, nor the figures. It occurred to me that in any merger that was made the Jumbo and Red Top, because of their central location, must be included. I sought out Charles D. Taylor, who with his brother, H. L. Taylor, and Capt. J. B. Menardi, owned the control of these properties. He asked $2.50 per share for his stock and that of his partners--all or none. Mr. Taylor had walked into the camp as a prospector. Most of his nights were spent at the gaming tables, and he was reported to be an easy mark for the professionals. His losses were constant and heavy. I put Mr. Sullivan on his trail. Mr. Sullivan reported to me that Mr. Wingfield was hobnobbing with Mr. Taylor.

"Get an option on these properties from Taylor and be quick," I told Mr. Sullivan.

Next morning I met Mr. Sullivan. He held in his hands 20,000 shares of Jumbo, selling at $1.75 per share on the Goldfield Stock Exchange.

"I won it in a poker game last night with Taylor and Wingfield," he said. "I have an oral option on the property good for three days at $2.50, but if you leave it to me, I'll win these properties from him playing cards."

I did not see Mr. Sullivan again for a week. Next I heard of him he had "fallen off the water-wagon" and was reported to be celebrating the event in Tonopah. While Mr. Sullivan was "kidding" himself about his poker-playing ability, Mr. Wingfield had come to terms with Mr. Taylor and had bought the control of Jumbo and Red Top at an average price of $2.10 per share. That explained Mr. Sullivan's lapse. However, I blamed myself. Mr. Sullivan was no match for Mr. Wingfield. In any game from stud-poker to marketing mining stock Mr. Wingfield can outwit, outmaneuver and outgeneral a hundred like "Larry."

Both companies had been capitalized for 1,000,000 shares. The sale required that a fortune be paid over. Mr. Wingfield paid a small sum down, and Mr. Taylor placed the stock of both of these companies in escrow in the John S. Cook & Company bank, the balance to be paid a month later.

The purchase of control of the Jumbo and Red Top by the firm of Wingfield and Nixon signalized the beginning of a stock-market campaign for higher prices that stands unprecedented for audacity and intensity in the history of mining-stock speculation in this country since the great boom of the Comstock lode in 1871-1872.

The market for all listed Goldfield stocks was made to boil and sizzle day in and day out until Jumbo and Red Top had been ballooned from $2 to $5 per share, Laguna from 40 cents to $2, Goldfield Mining from 50 cents to $2, and Mohawk from $5 to $20. Within three weeks the advance in market price of the issued capitalization of this quintet alone represented the difference between $8,000,000 and $26,500,000.

A few days before top prices were reached, it was officially announced that the merger of Mohawk, Red Top, Jumbo, Goldfield Mining and Laguna into the Goldfield Consolidated Mines Company had been made on the basis of $20 for each outstanding share of Mohawk, $5 for Red Top, $5 for Jumbo, $2 for Goldfield Mining, and $2 for Laguna. It was also given out that the promoters, Wingfield and Nixon, had allotted themselves $2,500,000 in stock of the merged companies as a promoters' fee. Right on top of this came an announcement that the Combination mine had been turned into the merger for $4,000,000 in cash and stock, and it was learned that go-betweens had made a profit of $1,000,000 on the deal by securing an option on the property for $3,000,000.

In short, a merger was put through of properties and stocks, the issued capitalization of which was selling in already inflated markets on the day the merger was conceived for $11,000,000, at a valuation of $33,000,000, and in addition the promoters received a $2,500,000 bonus. Had the properties been merged on the basis of their selling prices three weeks prior, the equivalent value of the 3,500,000 shares of merger stock would have been a fraction above $3. As it stood, under the ballooning process, the market value was $10, which was the par.

At the time of the merger these were the conditions that ruled at the mines:

The Mohawk, appraised at $20,000,000, had produced under lease in the neighborhood of $8,000,000, of which less than $2,000,000 had found its way into the treasury of the Mohawk Mining Company, the balance going to the leasers. The leasers had "high-graded" the property to a fare-you-well, and less than $1,000,000 worth of high-grade remained in sight, although it was conceded on every side that the leasers had not attempted, nor were they able during the period of their leasehold, to block out systematically and put into sight all of the ore in the mine. Large, but indefinite, prospective value therefore attached to Mohawk in addition to the tonnage in sight.

The Laguna, for which $2,000,000 had been paid in stock, did not have a pound of ore in sight, and had cost Wingfield and Nixon less than $100,000.

Goldfield Mining, scene of a sensational production during the early days of the camp, appraised at $2,000,000 more, had fizzled out as a producer.

Jumbo, taken in for $5,000,000, for a year previous had produced little or no ore, most of the time being exhausted by the management in sinking a deep shaft, and it had less than $500,000 in sight.

Red Top, valued at another $5,000,000, had in excess of $2,000,000 worth of medium grade ore blocked out.

Wingfield and Nixon were also heavily interested in Columbia Mountain, Sandstorm, Blue Bull, Crackerjack, Red Hills, Oro, Booth, Milltown, Kendall, May Queen, and other Goldfield stocks. No sooner did the five stocks forming the merger begin to show such startling market advances than the ballooning tendency manifested itself in Wingfield and Nixon's miscellaneous list, and all of them showed phenomenal gains. Soon the entire list of Goldfield, Tonopah, Manhattan, Bullfrog, and other Nevada mining securities listed on the San Francisco Stock Exchange and traded in on the exchanges and curbs of the country, felt the force of the terrific rises, and sympathetically they skyrocketed to unheard-of levels.

To convey an idea as to how far the prices of these stocks were moved up beyond their intrinsic worth, as a result of the ballooning process of the merger, I give some comparisons.

Columbia Mountain sold during the boom at above $1.50; it is now selling at 5 cents. Blue Bull, Crackerjack, Oro, Booth, Red Hills, Milltown, Kendall, Conqueror, Hibernia, Ethel, Kewanas, Sandstorm and May Queen sold at an average of 75 cents during the boom; they are now selling at an average of less than 5 cents. A hundred other Goldfield securities, which were in eager demand at the zenith of the spectacular movement at prices ranging from 50 cents to $2.50 can now be purchased at from 1 to 5 cents per share, while many others that were hopefully bought by an over-wrought public at all sorts of figures are now not quoted at all.

AT THE HEIGHT OF THE FRENZY

The difference between the market price of listed Nevada stocks on November 15, 1906, and that of to-day is in excess of $200,000,000. A fair estimate of the public's real-money loss in the listed division is $150,000,000.

Nor was this all of the damage that was done. When excitement in Goldfield's listed stocks reached a frenzy, wild-catters operating from the cities got into harness, and within three months in the neighborhood of 2,000 companies, owning in most instances properties situated miles from the proved zone in Goldfield, or in unproved camps near Goldfield, were foisted on the public for $150,000,000 more.

The fact that Mohawk, which in the early days of Goldfield could have been purchased at 10 cents, had advanced to $20 and had shown purchasers a profit of 20,000 per cent.; that Laguna had advanced in less than two years from 15 cents to $2; that Jumbo and Red Top, selling at $5, could have been purchased a year or two before at around 10 cents; that Goldfield Mining, which had in the early days been peddled around the camp at 15 cents, had moved up to $2, etc., gave the wild-catters an argument that was convincing to gulls in every town and hamlet in the Union. And the harvest was immense. Not one of the 2,000 wild-cats has made good, and every dollar so invested has been lost.

It will be noted from the reckoning as given that about as much money was lost in the listed stocks of the camps as in the unlisted "cats and dogs."

As a matter of fact, veteran mining-stock buyers, in camp and out of the camp, lost as much hard cash as did the unsophisticated. San Francisco, which owes its opulence of years gone by to successful mining endeavor, was probably hit as hard as any other city in the Union. San Francisco thought it knew the game, and it confined its operations to the stocks listed on the exchange where the Comstocks are traded in. But San Francisco did not know the inside of the merger deal as it is now known to every schoolboy in Nevada.

The operation on the inside was this. Wingfield and Nixon owned the John S. Cook & Company bank in Goldfield, and they owned the control of nearly a score of mining companies which were of little account as well as having acquired the control of the biggest mine in camp. During the height of the boom, which they engineered to swing the merger, they disposed of millions of shares of an indiscriminate lot of companies, and used the many millions of proceeds to take over Jumbo, Red Top and their outstanding contracts in Mohawk and other integrals of the merger. They likewise were able during the ballooning process to dispose of much Mohawk at from $15 to $20, much Jumbo at from $4 to $5, much Red Top at from $4 to $5, that cost them very considerably less than this, and in this way were enabled to finance their deal to a finish.

I have just pointed out that in order to accomplish the merger it was necessary that the market in all Goldfield securities, in which the promoters were interested, be stimulated in order to enable unloading by the insiders before some of the very large payments became due. This being accomplished, and the payments having been made, the promoters sought to establish a market for merger shares at or around par. In order to accomplish this the Goldfield bank, in which the promoters were heavily interested, stimulated speculation and managed to spread a feeling of security by announcing its willingness to loan from 60 to 80 per cent. par on merger shares.

All Goldfield fell for this, and the camp went broke as a result.

Within eighteen months thereafter Goldfield Consolidated sold down to $3.50 in the markets, and margin-traders and borrowers who had put up the stock as collateral to purchase more were butchered. Loans were foreclosed by the bank as rapidly as margins were exhausted. The carnage was awful.

It must be evident that Wingfield and Nixon, both of whom became multimillionaires as the result of their mining-stock operations in Goldfield, were directly and indirectly important factors in the loss by the public of $300,000,000, as set forth above. It is admitted that less than $7,000,000 worth of ore had been developed as a reserve at the time $35,000,000 worth of stock in the merger was issued and a market manufactured to dispose of the stock at this fictitious price-level. It is not of particular interest that Goldfield Consolidated, by reason of sensationally rich mine developments at depth, has since given promise of returning to stockholders an amount almost equal to par for their shares, and that it now appears that those who were able to weather the intervening declines may in the end be out only the interest on their money.

_This fact stands out: Although Goldfield Consolidated owned at
the outset a bonanza gold mine, stockholders had just two chances.
They could break even or lose--break even on their investment if
the mine made good in a sensational way, which was a big gamble at
the time, or lose if the mine didn't. They could not win._

Mr. Nixon was a United States Senator from Nevada. He was also president of the Nixon National Bank of Reno, Nevada. He held both of these positions at the time the merger was made, and it was largely because of Mr. Nixon's political and financial position that the daring ballooning market operations, which were staged as a curtain-raiser for the merger, proved so successful.

In the _Nevada Mining News_ of May 25, 1907, circulation 28,000, an interview appeared with United States Senator Nixon of Nevada, vouched for as follows:

The manuscript of the interview was submitted to, and approved by,
the Senator. Unchanged by one jot or tittle, it is printed just as
it came from his hands. Even now the Senator holds a carbon of the
original manuscript and may brand us with it if we have broken the
faith we pledged.

I quote from the Senator's interview, as it appeared in that issue of the _Nevada Mining News_:

"What do you estimate the ultimate earnings of Goldfield
Consolidated will be?" was asked.

"Consolidated will be a bigger producer, I should say, three or
four years from now than it will be one year from now," Senator
Nixon replied, "and I believe I am conservative when I say that
the property will be eventually earning $1,000,000 net monthly."

"_Then, as an investment, the stock is easily a $20 stock?_"

"_That is a minimum estimate of its future value, I should say_,"
_was the response._

As to that interview:

Mr. Nixon said that within three or four years (the time limit is up), $20 would be a minimum price for the shares. They touched $10 only once since then, or one-half of his estimate. Shortly after the interview was given they sold down as low as $3.50. Recently the market quotation was $4.

He said, further, that the mines would ultimately earn at the rate of $1,000,000 a month. This statement also has fallen far short of fulfillment.

Soon after George S. Nixon, as president of the Goldfield Consolidated Company, gave out this interview for public consumption he, according to his own later admissions, disposed of all of his holdings, and at an average price, it is believed, of less than $8 a share.

This is only a superficial rendering of the big event in Goldfield's history, but it is sufficient to furnish an example of the effect of Get-Rich-Quick influences that radiate from high places and separate the public from millions upon millions, without being called to account.

The dear American public has been falling for this kind of insidious brand of Get-Rich-Quick dope for years. It is being gulled into losing millions through its fetish worship of promoters with millions, who are really the Get-Rich-Quicks of the day that are very dangerous.

Greenwater, a rich man's camp, in which the public sank $30,000,000 during three months that marked the zenith of the Goldfield boom, is another case in point where a confiding investing public followed a deceiving light and was led to ruthless slaughter.