William Sharon and the Bank Ring fleeced the stockholders of every mine they controlled in similar fashion. By directing a diluted ore product from publicly owned mines to his privately owned mills and billing the mines for the privilege, Sharon pumped money from public companies into his personal pockets.
Opportunities to work the mines for the profit of the controlling combination extended far beyond the milling racket. William Sharon ran the Bank Ring’s Comstock operation from his plush office. Wearing his trademark suits of black broadcloth, Sharon seldom ventured underground, but he did have the sense to know that he possessed no meaningful mining knowledge. The top-notch mining engineer Sharon employed at a handsome salary made up his deficit. On Sharon’s authority, the man roamed the mines unchecked, examining drift faces and stopes, taking rock samples wherever he thought best, and reporting the assay results privately to William Sharon. Keeping Sharon abreast of all underground developments—and their portents—was the man’s sole responsibility. He laid a report describing the condition of all the Comstock mines on Sharon’s desk every day at 5:00 p.m., and Sharon held the information like state secrets. In addition to his personal mining engineer, Sharon employed the best geologists, consultants, and assayers. He assured their loyalty with generous salaries—and by having other men crosscheck their work. With reams of inside information and a war chest stocked by the large accounts mines kept on deposit at the Bank of California, Sharon began “mining the Comstock from the other end”—operating in the San Francisco stock markets, a battlefield on which he held decisive advantages. Sharon knew about upcoming assessments and dividends long before the public, and aside from his early, accurate, and exclusive insider knowledge of underground conditions, many rival stockbrokers kept their accounts at the Bank of California. Sharon reviewed their ledgers whenever he needed knowledge of their operations. The large quantity of mining stock deposited at the Bank of California as loan security gave Sharon a huge temptation to run short-selling operations—sell the shares in mines with faltering ore deposits before the news became public, release unfavorable reports or levy assessments to “bear” the stock (or both), and then repurchase the same number of shares at lower prices. Sharon pocketed the difference. Falling share prices also allowed him to demand more collateral from creditors whose mining stock secured their loans. The new collateral often came in the shape of additional mining stock, which in turn strengthened his control of mine management, for as always, he insisted on receiving proxies to vote the shares.
Playing the other side of the coin, Sharon received first word of optimistic underground developments. That gave him the opportunity to close out any short positions he held in the lucky mine, buy its stock before the public caught the news, and capture profits on the inevitable rise. Sharon might not have ever worked a day underground, but he was a wizard in the equity and finance markets that backed the industry.
Sharon found many other nefarious opportunities to squeeze profit from the Comstock Lode. Virginia City and Gold Hill assayers did business with Bank Ring mines at William Sharon’s pleasure. He therefore had little trouble corrupting their results. At Sharon’s suggestion, assayers understamped the value of bullion bars they tested on behalf of Bank Ring mines. Thus, a bar worth $1,100 might be stamped as being worth $1,000 and was sold to the bank—the Bank of California, of course—and credited to the account of the mine that had raised it and financed its reduction at the stamped valuation. Stockholders of the mine never knew they’d had the 10 percent they lost to the Ring. Nor did any record prove its prior existence.
To sate the mines’ voracious appetite for timber and cordwood fuel, Bank Ring associates acquired pine-covered mountainsides in the eastern slopes of the Sierras, incorporated timber and lumber companies and sawmills, clear-cut thousands of acres of old-growth forests, built dams that diverted water into lumber flumes, shot lumber down to the valley bottoms in the flumes, and sold the wood products to Ring-controlled mines—at substantial profit to themselves.
Water gave the Bank Ring another opportunity to extract monopoly rents. Drainage from the mouths of old adits bored into the face of Mount Davidson constituted the entirety of the local supply. The Virginia and Gold Hill Water Company bought the rights and flumed the water to small cisterns and reservoirs and then piped it to the thirsty town and mills—for a price, of course. (Legal warfare to control the water supplies mirrored that fought over the mining claims.) The vile-tasting water emerged from the tunnels saturated with minerals. Comstockers joked that only diluting a tablespoon of water in a glass of whisky rendered it safe to drink. It was, however, the only local supply. Sharon bought control of the water company and not only made profits from monopoly-priced water sales, but also assured that the mills he owned distant from the Carson River wouldn’t do without in dry years. He fought—and won—legal battles with Carson Valley ranchers to forbid them from diverting river water to irrigation. He employed “regulators” to ensure compliance.
Mines, mills, timber, fuel, water, stock market operations, government—the Bank Ring controlled them all. Pulling the levers of the extraordinarily lucrative combination made William Sharon the greatest power in Nevada. To shape legal decisions and government policy to suit his ends, William Sharon bought judges, tampered with witnesses, curried favor with—and where necessary bribed and threatened—Nevada’s state legislators, governor, U.S. senators, and the state’s lone congressional representative. William Sharon lost no sleep pondering the dubious morality of these endeavors. Twice in his life, sharp operators had cheated him of his life savings. People looked out for themselves. Through aggressive employment of Bank of California assets and influence, William Sharon leeched profit from the Comstock Lode like a poor man boiling sustenance from a beef shank. At the end of 1867, just half a year after the incorporation of the Union Mill and Mining Company, Sharon boasted to stockbroker George Mayre that he’d personally “made all of $250,000” in the preceding six months.
In the years ahead, he would make much, much more.
San Francisco newspapers began referring to William Sharon as “the King of the Comstock.” By late 1867, the only major aspect of the local mining industry beyond his grasp was transportation, and the Hale & Norcross was the only productive mine beyond his control. William Sharon intended to have them both.
• • •
On the first trading day of 1868, Hale & Norcross shares opened on the San Francisco Stock & Exchange Board at $1,350. Comstock observers reckoned its prospects good. Three shifts of eight miners working the 930-foot level at the bottom of the Fair Shaft prospected toward the ledge, making a few feet of westward progress during the eight sweltering, gloomy hours they spent boring blast holes and hacking at the drift face by candle and lantern light.
At one of the shift changes on Thursday, January 9, Hale & Norcross officers “confined” the men finishing work to the 900-foot station. The mine wouldn’t allow them to return to the surface. The eight men who came down on the cages to replace them brought “provisions and other necessaries,” and when their shift ended, management “imprisoned” them, too.
News of the confinement swept the cold, snow-blown streets of Virginia City, as did rumors that the mine had made a big strike. Within minutes, the story was clicking down the telegraph wires to San Francisco. By the end of the day, the Hale & Norcross had all twenty-four miners confined at the 930-foot station.
Confining miners was an old Comstock trick. Ostensibly done to allow managers and owners to snap up shares of the mine before news of a strike broke with the general public, the ruse had also been used in reverse, to generate excitement about a strike when none existed, allowing insiders to unload their shares before prices collapsed. Which tactic the mine intended wasn’t yet clear. “How much of either truth or fiction there may be in these stories is more than we can say,” opined the Territorial Enterprise. “We hope, however, that something big has been found—the country could stand it.”
In
San Francisco, excitement among the Montgomery Street “stock dabblers” soared to “fever heat.” The Hale & Norcross price leaped from $1,400 to $2,200 on the Stock & Exchange Board. The size of the jump surprised even the most optimistic of the Virginia City sports who’d been placing wagers on how big a bump the confinement would provoke “below”—and sparked another round of betting. The sudden climb brutally punished speculators who’d sold the mine short. A few who couldn’t make the margin payments their contracts demanded were “blown up in the rise.”
The next day, the Hale & Norcross management allowed its confined miners to return to the surface at the end of their shifts, but mine leadership still wouldn’t let them leave the premises. An officer met the cages on the shaft landing, marched the arriving miners to the changing room, and once they’d washed the dirt from their bodies and changed clothes, directly to the company office. Superintendent C. C. Thomas confined them within. Guards prevented the miners from communicating with outsiders and permitted no one to enter the mine. The superintendent refused to answer journalists’ questions. “Everything was shrouded in mystery,” lamented the Territorial Enterprise, whose reporter failed to see the object of the proceedings, “unless for speculative purposes by parties in power.”
Although Superintendent Thomas refused to allow the journalists to speak to the confined miners, he told the Enterprise that the confined miners were having a “jolly good time of it” in the company office. “They have all they want in terms of eatables, plenty of whisky, cigars, and cards with which to amuse themselves; and, best of all, get $12 per day,” three times their usual rate. The newspaper described them kept like a jury in a mining suit—and then couldn’t resist adding that they were actually making better money than “honest jurors usually do.”
The Enterprise’s astute reporter (almost certainly William Wright, aka Dan de Quille) sniffed around. Calculating based on reasonable rates of progress from the last known location of the drift face, he concluded that the Hale & Norcross probably wasn’t “within twenty feet of the true vein.” He detected other evidence. The Fair Shaft’s pumps discharged the same water volume as they’d been doing in recent weeks. If the mine had broken into the vein through the eastern clay wall, it would likely have unleashed a flood that would have forced the pumps to work harder. Plus, “reliable parties” told him that the water filling the winzes sunk 50 feet below the 780-foot level of the mine’s old workings showed no sign of subsiding. Reasoning that the quartz body against the Comstock’s hanging wall at 780 feet would likely prove to be contained within the same clay walls as any quartz against the hanging wall 150 feet deeper, the Enterprise’s canny “pencil” thought those winzes would have started draining if miners had struck the true vein on the 930-foot level.
His deductions proved correct. The drift hadn’t reached the vein. A few days later, Hale & Norcross miners broke through the clay wall into the promising quartz and provoked the flood he expected, draining the winzes descending from the 780-foot level in the old works. News that they’d cut “very fine ore” bumped the mine’s stock up another $325.
The Hale & Norcross confinement dominated the local news, but it didn’t stop the lode working, business as usual. Virginia City boys too young to work in the mines enjoyed themselves sledding down Union Street, but the recent snows had brought a much more impressive “coasting course” into condition over the Divide in Gold Hill, where “lots of boys, both big and little,” whizzed on sleds down Main Street from the upper end of town, past the shaft houses and dumps of the Yellow Jacket, Kentuck, Crown Point, and Belcher mines, and shot out of town away down Gold Cañon. The longest runs went for two or three miles.
Undampened by the foul weather, Hale & Norcross stock price continued to escalate, even though few shares changed hands. There weren’t many shares to change hands. The mine only had eight hundred, two for every foot of the four-hundred-foot claim. Tense crowds thronged California and Montgomery streets, galvanized by the same energy and excitement that animated New York’s Wall Street. The Hale & Norcross hit $3,150 at the end of January. On February 11, Hale & Norcross sold for $5,600. Only when sharps noticed that options to buy the stock thirty days later, after the Hale & Norcross’s annual election on March 11, were available for half that price—about the value the mine achieved after news of the strike broke—did it become apparent that two factions were battling to control the mine.
What no one could understand was why the Hale & Norcross had become the “apple of discord” in such a bitter duel. The contest didn’t make sense unless the mine had done a superb job suppressing news of an immense strike. All sensible mining industry experts thought the price completely detached from whatever intrinsic value the mine might hold. A variety of nonsense theories made the rounds. On February 13, one share of Hale & Norcross sold for $7,000 on the Stock & Exchange Board and two went for $7,100. After that, there simply weren’t any available on the open market. The warring factions held tight to every share they owned. “There must be a great prize as the reward for such struggle,” marveled the Daily Alta California.
Although the public didn’t cotton to the reason, there was an immense prize at stake—the right to decide which mills would reduce Hale & Norcross ore. Sharon spent immense sums buying shares, but even after buying eight or nine “stray shares” at “three or four times their actual value,” Sharon’s voting total of owned shares and proxies still fell a few short of the number he needed to control the election. California Street rumors claimed that $10,000 had been paid for one share in a private sale and $16,000 offered for another.
Years later, a San Francisco broker who wrote a history of the San Francisco Stock & Exchange Board recalled that “a prominent banker”—by implication William Sharon or William Ralston—had three feet of the Hale & Norcross deposited at his bank that belonged to an absentee owner. The banker took possession of the shares, and “seemed happy,” for they were the shares that cemented control of the mine. Then the absent owner suddenly appeared in San Francisco and demanded his missing feet. The bank settled the matter “quietly,” presumably for a large sum.
The Hale & Norcross election showed the Bank Ring’s victory. All six of the mine’s new trustees were Bank Ring associates. The Union Mill and Mining Company soon began crushing Hale & Norcross ore.
The day after the election, a share of the mine sold for $2,900.
• • •
Although William Sharon emerged victorious, the Hale & Norcross campaign cost the Bank Ring vast sums. Sharon hoped developments on the mine’s nine-hundred-foot level would justify the investment. Underground, Hale & Norcross miners had continued working from the bottom of the Fair Shaft while the Montgomery Street drama played out “below.” Although the quartz they hit short of the Comstock’s hanging wall had “promised, when first cut, to exceed in value anything that had ever before been found in the mine,” prospecting drifts deflated those hopes. “Porphyry and waste” interrupted the quartz body. Exploring the quartz body up toward the ore being exploited at the 780-foot level of the old works revealed fair but unspectacular ore—definitely not the imagined bonanza that had driven the extravagant battle. In the hope of finding something better at deeper levels, Sharon’s new trustees decided to sink the Fair Shaft another 137 feet.
Knowing they’d soon be levying assessments, the new trustees restructured the Hale & Norcross’s stock from 800 to 8,000 shares. (A $10 per share assessment on 800 shares raised $8,000; the same assessment on 8,000 shares raised $80,000.) Sharon had hemorrhaged money, but he had control of the mine, and he expected to more than recoup his investment contracting with the Hale & Norcross for timber and cordwood and milling the mine’s ore.
Only transportation stood between William Sharon and lock-tight control of Comstock industry. Cordwood fuel to fire the mine and mill engines had to be cut on the eastern slopes of the Sierras and hauled twenty or thirty miles to the Comstock, as did the framing timbers and lumber used underground. S
hipping colossal mine machinery—whether manufactured in San Francisco’s new foundries or abroad—over the Sierras in freight wagons was an astronomical expense, although progress of the Central Pacific Railroad’s largely Chinese workforce blasting, hacking, and grading its way over Donner Summit north of Lake Tahoe and down the Truckee River into Nevada held promise of reduced transportation costs.
Since the early days, an army of independent freight wagons had served Washoe’s transportation needs. They were expensive, occasionally reliable (nearly every teamster kept a whisky jug tucked within reach of the driver’s seat to relieve the stupefying monotony of their work), and frequently paralyzed by foul weather. Plans to replace them with a railroad joining Virginia City to the Central Pacific in the Truckee Meadows had been footed about for years. The route would pass through Washoe Valley and Carson City, where trains could collect timber and cordwood. Although building this “Virginia & Truckee Railroad” was a staggeringly expensive proposition, a functioning railroad would lessen the cost of delivering timber and cordwood fuel to the Comstock and about halve the cost of hauling ore from the mines to the mills along the banks of the Carson River near Empire—mills that belonged to William Sharon and the Bank Ring. Such cost reductions would bring immense tonnages of low-grade ore in the upper works of the Comstock mines within range of profitable extraction, at obvious benefit to Virginia City, Gold Hill, and the Union Company mills. William Sharon had been plotting railroad construction for more than a year. In early March, simultaneously with the climax of the Hale & Norcross battle, Thomas Sunderland, A. Baldwin, W. E. Barron, Charles Bonner, Thomas Bell, J. D. Fry, F. A. Tritle, Darius Ogden Mills, William Ralston, and William Sharon—all Bank Ring associates—incorporated a new company with the intention of building the long-anticipated Virginia & Truckee Railroad. Sharon just needed to figure out how to get somebody else to pay for it.
The Bonanza King Page 29