There is, in fact, gold in seawater. And that is the kernel of truth upon which two men from Martha’s Vineyard would build the greatest financial scandal of 1898, the New England gold hoax.
The two boyhood chums, one with connections and the other with guile and charm, would turn the financial world on its ear in 1898. And they put the name Lubec, Maine, on the tips of people’s tongues as they tried to understand how and why the million-dollar New England gold hoax had occurred.
At its essence the whole episode boiled down to simple greed. But in its details, it’s a fascinating story of lust for money overtaking personal principles. The scam showed how even the crudest of tricks can convince people to see what they desperately want to see.
Prescott Ford Jernegan
The idea behind the swindle probably started with Prescott Ford Jernegan. Born in Edgartown, Mass., Jernegan spent two adventurous years as a toddler, along with his sister Laura, on his father’s whaling ship before settling in to life in Edgartown.
Despite his privileged upbringing, by 1896 the 30-year old Rev. Jernegan found himself embittered by the hand life had dealt him. His chosen profession as a minister did not satisfy his idealism.
Minister to the Poor
In 1892 Jernegan served as pastor of the First Baptist Church in Middletown, Conn. Arthur B. Ryan, a well-known jeweler and city councilor, had heard Jernegan preach and brought him to the church. Jernegan then tried to direct the church toward serving the poor, but his efforts went unappreciated.
Early in his tenure, he launched a broadside at the Trinity Episcopal Church in town. That church, he declared in a sermon, had turned away a man at the church door because he wore overalls. It shocked the town.
He went on to employ homeless men to work in the church and declared that the pews in the church would be free. He even eschewed a salary, saying he would accept what the people of the congregation thought his work was worth. That arrangement did not last long, and he soon negotiated a salary.
Jernegan’s constant hectoring of the congregation eventually put him on the outs with the church, and he moved on. He preached for a time in Newburyport, Mass., and in DeLand, Fla. His wife and childhood sweetheart, Betsey Evelyn Phinney, returned to Edgartown. When he visited her there in 1896 he was stricken with typhoid fever.
His frame of mind was bleak. He had major money worries. Later he would tell a newspaper: “My health had been at times very bad, and my wife was semi-invalid…
“I had always been hanging on to the ragged edges of things—a man of educated tastes, of delicate health, forced to exist on the pittances of a day laborer.
“All my life I had existed on the husks. I had been patronized by illiterate snobs. I had been underpaid, my mind had become embittered by a thousand acts of injustice.”
As he grew stronger, he began telling friends that he had a bizarre dream while in a fevered state. In the dream he witnessed seawater being turned into gold. And so the seeds of the gold hoax were planted.
Charles Fisher was, like Jernegan, a sea captain’s son. Also from Edgartown, he and Jernegan were childhood friends until both went on their separate ways.
Fisher would claim that he left the country to serve in the English Army. His military bearing seemed to support this, and on the strength of his personality he procured a job at the A.I. Namm & Son dry goods store in Brooklyn in 1893 as a floorwalker.
During nearly three years at the store, its manager became convinced that Fisher was a schemer, but a useful one. He would deploy Fisher to look into any suspected cases of employee theft, and invariably Fisher found the truth. He used his style to smooth over disgruntled customers. And though his boss suspected Fisher of dishonesty, he had no proof.
While floorwalkers had no access to cash, they did have the power to approve returns. Soon after hiring Fisher the store noted a spike in returns.
The store manager became concerned that Fisher was approving returns for items that were never purchased (and possibly never existed), with the proceeds coming back to Fisher through an accomplice. The store changed policy and required verification of all returns. The number of returns brought in by Fisher dropped dramatically.
Essentially a Schemer
“Fisher you must remember was essentially a schemer. I think he regarded the daily round of business here as humdrum and monotonous,” the manager told a newspaper. “He always had schemes in his head and seemed to like the excitement of them. He seemed to be fitted for that sort of thing rather than for the legitimate business which requires plodding, persistence and energy.”
Before Fisher quit in 1897, the store manager noticed two other strange things about Fisher. One, he began getting frequent visits at the store from a private investigator, William Phelan. And two, Fisher frequently disappeared for two or three days at a time, and he never talked about his whereabouts.
Fisher’s last visit to A.I. Namm was in early 1898 as a customer. He ordered enough furnishings to outfit a household and had them shipped to Lubec, Maine.
New England Gold Hoax at Full Speed
By the time Fisher shipped the goods to Lubec in 1898, the gold hoax was well underway. William Phelan, the private investigator, would later tell the story of how the scam started. Phelan eventually walked away from it, but not before helping it get rolling.
Whatever he was or wasn’t, Fisher was definitely a trained diver, and that was key to the plan. Though it sounds preposterous, what he and Jernegan planned was devilishly simple. Jernegan had contacted his old patron from the Middletown church, Arthur Ryan. Ryan, in turn, had contacted businessman A.N. Pierson, in Cromwell, Conn.
Jernegan planned to persuade the two men to back an interesting new venture – extracting gold from the ocean. He would take them to the end of a pier. They would step inside a shack, and Jernegan would show them his specially-built zinc-lined bucket. The men would be invited to pour mercury that they themselves had brought for the experiment into the bucket. Jernegan would then lower it into the ocean and activate a battery that he said would produce the current needed to extract gold from the ocean water.
While underwater, Fisher would guide himself to the end of a pier using a copper line he and Phelan had laid along the sea bottom. Phelan would manage the line and Fisher would spill out the mercury in the bucket replace it with mercury infused with gold. Then he would return to shore.
When the bucket was hauled to the surface, the mercury was given back to Ryan and Pierson, and they had it independently verified. It contained gold, of course, and Jernegan had his backers.
Electrolytic Marine Salts Co.
Using Jernegan’s additional connections in Newburyport from his time preaching there, the two soon finished forming their company. Arthur Ryan served as president. Pierson and Jernegan made up the board along with William Usher, owner of a shoe factory in Newburyport, and A.P. Sawyer, one-time president of the National Capital Telephone Company, also of Newburyport. The Electrolytic Marine Salts Company was in business.
Phelan backed out of the scheme, he said. He initially had some trouble getting paid his expenses, but after that he said he simply watched and listened for word of the gold hoax as it unfolded.
The Investors Rush In
With offices opening quickly in New York, London and Boston, the Electrolytic Marine Salts Company announced its plans to the world. The papers were quick to spread the news that the company was accepting investors and that it would soon harvest tons of gold from the sea.
The company created elaborate prospectuses to entice investors, and Jernegan relentlessly pursued investors among his former schoolmates and acquaintances.
The money poured in, mostly from Massachusetts, Connecticut and New York. The company now had to set up shop and start operations. Looking for a place that would avoid prying eyes, they settled on Lubec, Maine. Its extremely high tides and strong currents, they explained, made it the perfect location. There they leased a grist mill, constructed a series of underwater “accumulators” to harvest the gold, and employed more than 100 men.
In Lubec, Fisher simply repeated his act, slipping under the water and salting the accumulators with gold to be brought to the surface. Then it would be analyzed and shipped to the company’s offices in Boston. As the gold continued to come into Boston, the word spread and more investors were induced to buy shares.
Jernegan and Fisher would use some of the proceeds from the gold to buy more that could be “harvested” and shipped back to Boston. They salted away the rest of the money from the gold hoax.
By summer of 1898, the company had taken in nearly $1 million in investor cash. Even counting the costs of the operation the two men were ahead by several hundred thousand dollars. And they planned to continue operations.
Gold Hoax Ends
The gold hoax came to a halt, however, when Phelan sent word that he wanted more money. If he didn’t get it, he said, he would tell what he knew of the company. Jernegan and Fisher didn’t pay, and Phelan made good on his threat, publishing his story in the New York Herald.
By the time investors arrived in Lubec to demand answers about the gold hoax, Jernegan and Fisher had fled. Fisher was never heard from again. Jernegan went to Europe with his wife and son. When contacted there he explained that Fisher had made off with the secret formulas that made the accumulators work. Jernegan said he was chasing down Fisher so he could get the plant back up and operating.
For several months, plant managers in Lubec were so sure of their process that they continued to try to make the machinery work to harvest gold. Before long, however, all activity stopped – except for police inquiries about the gold hoax.
A.P. Sawyer of Newburyport probably suffered the most from the gold hoax. An otherwise honest man, he became so despondent about steering friends toward the investment that he died within a week after the scandal broke.
Jernegan’s younger brother Marcus, who he had joined in running the gold hoax was briefly detained. He forfeited all the money in his possession. Jernegan had also sold $800 worth of stock to his sister Laura.
Jernegan obtained good legal advice; his lawyers managed to keep him out of court. Jernegan argued that he had taken only his fair share of the proceeds from the gold hoax, and no more, and so could not be charged with embezzlement. And his knowledge of the scheme was not easy to prove. So long as Fisher was missing, Jernegan could claim he was duped.
He traveled from Paris to Austria, and from there, apparently suffering an attack of conscience, sent $85,000 back to the United States to be given to the company’s investors. In his journal, he recalls sending more. In the end backers of the gold hoax were paid 36 cents on the dollar. The money came from company accounts, the funds returned by Jernegan and proceeds from the sale of company assets.
By 1906 Jernegan’s wife had returned to Edgartown, and she divorced him. Jernegan himself spent two years in Washington state before moving to the Philippines. There he became a school teacher and authored several books about the country’s history.
He eventually returned to the United States, living in California and Texas. He had two more marriages, neither stuck, and he returned to Edgartown once to visit his mother. In 1927, he authored the book Man and his God. He died in 1942.
This story about the New England Gold Hoax was updated in 2021.
Images: Middletown Baptist Church By Joe Mabel, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=19412723The gold hoax was one of several that bamboozled New Englanders. Read about them here.