There’s Gold in Them There Oceans

In 1897, a minister named Prescott Ford Jernegan and his buddies fleeced investors out of millions of dollars by convincing them that they had developed a revolutionary way to extract gold from the seawater off the Lubec coast. They secured financing, set up an operation, and then abruptly disappeared with the money just before the whole scam was exposed.

To this day, it is viewed as one of the finest examples of a man fleecing some of the smartest, wealthiest people in New England – and smoothly getting away with it.

Note: this is not the last time that the Passamaquoddy Bay Tides would be used to generate money. About 30 years later an ambitious attempt (championed by FDR) was made to generate electricity from the Fundy tides. Read about that story here.

There Actually is Gold in the Ocean

A 2017 Forbes article estimated that there was about 20 million tons of gold worth approximately $771 Billion just floating in the ocean. The problem is that it exists in such faint amounts, measuring in the parts per trillion, that there is no known way to profitably extract it. But that certainly hasn’t stopped people from trying – or in one Maine-tastic way, pretending to try.

Wet Gold is Discovered

In 1866, Henry Wurz suggested that the oceans likely contained more gold than all of the gold that had been previously discovered. Then in 1872, British chemist Edward Sonstadt performed some experiments off the Isle of Man and indeed discovered traces of gold in seawater. But the amounts were so tiny that it would be cost prohibitive to extract it at a large scale. Both would ultimately be referenced by Jernegan in his gold investment prospectus.

Reverend Jernegan

The chief architect of the scam was Reverend Prescott Ford Jernegan (1866-1942). Jernegan, the son of a ships captain, was a smart, motivated young man. He attended Philips Andover and graduated from Brown. He was ordained a Baptist Minister and led a church in Middletown Connecticut before being forced out. He moved onto a church in Newburyport, then on to one in Deland, Florida.

The “Seed” Scam

There are multiple origin stories about how the idea for the scam began. The most commonly told version is that Reverend Jernegan came home to Edgartown in 1896 and was stricken with Typhoid fever. While lying in bed recovering, a nurse read from the local newspaper to him about the British chemist Edward Sonstadt’s 1872 discovery of gold in the ocean. He had a vision of how to use this to his advantage. Since there already was gold in the ocean, and experts had proven it, it would be easy enough to conceal more gold and convince the rich to hand him money when he miraculously pulled out more gold. This was commonly known as a “seed” scam and was often used in mining operations.

A Man of the Cloth Turns to Crime?

Jernegan was a broken man and a bit desperate. In the middle of his 6 week recovery, his wife returned to Edgartown and told him she wanted a divorce. He had already been forced out of multiple churches, was low on funds, and bitter that he hadn’t achieved much in life. He had spent a fair amount of time with wealthy parishioners and was quite jealous of their wealth. He saw the seed scam as a way to become “something out of nothing.” Later, he would say that he thought he could be be like Robinhood and steal from the rich to give to the poor.

Partners

Jernegan needed help so he contacted a boyhood friend named Charles Fisher who just happened to be at least as devious, an accomplished diver, and also quite broke. They also hooked up with a William Phelan, a Private Investigator, who would ultimately help bring down the whole operation.

The First Accumulator

For four months, Jernegan and Fisher tried to come up with a convincing scientific method to pretend to extract gold from water. The contraption they arrived at was a small lead-lined box containing a copper plate and a thin layer of quicksilver (mercury) along with a “secret ingredient.” He called it an “accumulator” and it would collect gold as the changing tides forced water over the box and the mercury would attract the gold. At some point, they decided to add a small electric current to the mercury to make the whole thing look more convincing. Electricity + Chemistry = Gold.

The First Demonstration

Jernegan started drumming up interest using his connections from his Connecticut church days. One was a wealthy jeweler named Arthur Ryan. He claimed he could prove it through demonstration. So he had Ryan and another potential investor meet him on a pier in Providence, Rhode Island during the Winter of 1897. He had asked them to bring some quicksilver (mercury) of their own to prove he wasn’t cheating. In a small hut at the end of a pier, he placed their quicksilver in the magic box and lowered it into the water. He turned on the current and then sat with the men all night to prove he couldn’t tamper with the box.

When they pulled the box up the next morning, the mercury certainly looked like it contained some gold. They brought the contents to an expert who confirmed that a small amount of gold was indeed mixed in with the mercury.

The Quicksilver Swap

While Jernegan and the suckers were sitting in the hut, likely having a little nip to stave off the cold, his partners Fisher and Phelan were actually making the magic happen. An accomplished diver, Fisher walked out to the box following an underwater guide line manned by Phelan where he then dumped out the “clean” mercury and replaced it with some gold-laden mercury. The seed was planted.

Investment Time

The men were so convinced that they agreed to invest heavily in a large scale operation. Jernegan incorporated the Electrolytic Marine Salts Company in Maine with Ryan as President. The company was authorized to sell $10 Million worth of stock (equivalent to $400 Million in 2025).

He created a fancy prospectus that laid out the origins, the scientific proof of the existence of gold, and to tease at the vast fortunes that smart investors could partake in if they invest.

The prospectus stated “One is at a loss to comprehend the enormous wealth thus floating in solution in the ocean. At the
lowest estimate, a cubic mile of sea-water contains gold
to the value of $65,000,000. It is probably nearer the
mark to place it at $100,000,000.”

And further:

“There is enough gold in the waters of Long Island Sound to pay off the National Debt and leave a larger gold reserve in the Treasury than the Government has yet possessed.”

Capitalized

The promotion worked. Most of the stock was sold and the nascent company, flush with capital, now needed to setup the actual operation.

Lubec

They chose remote Lubec Maine as the location for the operation, supposedly due to the extreme tides that forced more water through passages than anywhere in the world. While that certainly helped sell the story, it was likely also chosen for availability of cheap land and lack of prying eyes. They setup shop in an old grist mill in North Lubec that they named Klondike Plant Number 1. They hired hundreds of men to build out the mill and construct 114 accumulators that “ran” night and day extracting gold.

A Steady Flow of Gold

The gold was harvested daily, which meant that Fisher had a lot of work to do each night seeding each box with gold. The 114 accumulators were supposedly producing a decent amount of gold per day. The gold was brought to Boston for weighing and confirmation, then was secretly returned to a hiding spot in Fisher’s house in Lubec where it was ultimately placed in the accumulators again and the cycle repeated itself.

News of the success in Lubec caused the stock to take off. Close to a million shares were sold and the stock price soared. Newspapers from Lubec to New York covered the story helping their cause, dubbing it “Gold From Briny Deep” and “Klondike in the Sea.”

Supposedly, some of the largest investors bought houses in Lubec so they could sit and watch their fortune be hauled up from the ocean in person. You can picture them rubbing their greedy hands together watching the workers haul up the prize from the deep.

At some point, Jernegan smartly cashed out his 45% share of the stock sales.

We’re Gonna Need a Bigger Klondike

It was clear to the stockholders that the mining operation needed to be expand to generate more money. So the board demanded a massive expansion of the operation. The existing site could only handle so much growth, so they chose a new location in North Lubec. In the meantime, workers expanded Klondike I to accommodate an additional 250 accumulators while plans were made to build a new Klondike II with up to 20,000 accumulators.

As word spread of the success and of the planned expansion, many headed to Lubec in search of work. It became hard to find available beds in town because over 700 laborers became involved in the construction. Italian immigrants who had been working on the railroad in Machias rushed to Lubec with the promise of higher wages. They lived in two large camps near the site. Lubec became a gold boom town. The waterfront was busy with ships carrying construction materials arriving daily. Lubec ended up adding a telephone line, a new bridge over the canal for Klondike II, and a steam launch, named The Gold Bug.

Blackmail

The William Phelan that I mentioned earlier, who was one of the original founders of the scam and held the underwater guide line, was supposedly not happy with his meager share of the scam. He demanded more money and threatened to disclose the truth to the newspapers unless they paid up.

The Crooks Make a Break for It

Jernegan and Fisher realized that there was no way they would be able to salt thousands of accumulators each night once Klondike II was completed. Also, the Board had voted in July that no more payments to Jernegan and Fisher be made until Klondike II came online.

They knew they were eventually going to be exposed and that no more money would come their way until Klondike II was producing gold. That, coupled with the threat of exposure by Phelan, must have caused them to panic.

One morning, the workers arrived to find that Jernegan and Fisher had disappeared with all of the papers and money. The foreman had them pull up the accumulators and of course found no gold.

Another account says that they arrived, found the electricity cut and the accumulators damaged and only Fisher missing – and that Jernegan offered to try to find him.

It turns out that Fisher fled to Australia with $100,000 and a new wife, and Jernegan and his family fled for Havre, France under an assumed name with $175,000.

The Scam is Exposed

Phelan made good on his threat. The Sunday, July 31, 1898 edition of the New York Herald broke the story wide open with an expose under the headline “A Gigantic Swindle” where they referred to the perpetrators as the “Sea Water Gang.”

Back in Lubec, there was panic and confusion. Workers and locals descended on the plant demanding answers. The plant managers tried to run the operation without Fisher, but of course, no gold could be found. Workers were paid their final paychecks, the operation ground to a halt, and the investors were left holding the bag.

The August 1, 1898 edition of The Boston Herald reported:

“Never did a fisherman bait his traps with more alluring or attractive morsels that did Reverend P. F. Jernegan tickle the fancy and stimulate the greed of victims with his brilliant and enticing prospectus of the Electrolytic Marine Salts Company, now a practically defunct organization, with the reverend promoter flown to foreign parts, an alleged swindle of the first magnitude.”

Guilty Conscience?

Jernegan, reportedly suffering from a guilty conscience, sent somewhere between $75,000 and $140,000 (the accounts vary) from France to the company’s treasurer. Combined with liquidated assets, investors eventually receive about 36 cents on the dollar. At some point, his wife returned to the US with his son and eventually divorced him.

A Free Man

Jernegan eventually returned to the US and a trial was held. But the court ruled that he hadn’t actually broken any laws or stolen any money, contrary to all reports. It turns out that because he returned the large sum, the total amount he was left with was legally his because it was less than the value 45% of his stock proceeds. So he was a free man, although his reputation was destroyed – and he was mostly broke.

Fisher’s whereabouts remained unknown. He supposedly had originally fled to New Zealand and then died a few years later in Australia.

A Little Bit of Redemption for the Reverend

After the dust settled, Jernegan moved on to Paris, Brussels, London, Vienna and back to the US in Everett, Washington. At some point while in Europe, he claims to have lost most of his remaining funds to a poor investment. He also claimed that he intended to return every cent that he had taken from the operation.

Jernegan found his way into a fairly lucrative teaching position in Manila, Phillipines where he was well regarded. He lived there from 1901-1910 and even wrote a few books that you can buy at Amazon “A short history of the Philippines” and The Philippine Citizen: A Text-book of Civics, Describing the Nature of Government, and the Rights and Duties of Citizens of the Philippines for use in Philippine schools. He eventually moved to California where lived until his death in 1942.

The Lubec plant was sold, eventually becoming a cannery producing Klondyke brand finnan haddie.

If you want to dig deeper, a book was written in 2013 called “The Great Gold Swindle of Lubec, Maine” that is also available on Amazon.

They Keep Trying

The fact remains that there are loads of valuable resources floating around in the oceans. An not just gold, but other minerals such as cobalt, silver, nickel, copper, manganese, and more. That means that companies will not stop trying to find ways to capture it. Some notable attempts:

After WW1, a Nobel prize-winning German chemist named Franz Haber, in an effort to help pay off Germany’s huge war reparation debt, tried to develop a new way to extract gold from seawater using electrochemistry and centrifuges. His estimates, combined with his reputation, helped him secure a 2 year investment from the German government to proceed. But then he discovered that his calculations were off by a factor of 1,000 and the venture abruptly stopped. He eventually fled Germany in 1933, partially due to his Jewish heritage, and died shortly thereafter, ashamed of his miscalculations.

In the 1930s, Dow Chemical made an attempt. One of their plants near Wilmington, North Carolina, stated that it could collect a “three-quadrillion-dollar hoard” of pure gold, silver and other metals from seawater within a decade. The plant was initially constructed to extract the element bromine from seawater for use in gasoline. They gave up by 1941, having been unable to make any progress.

In 2012, a Texas inventor went on Shark Tank and claimed he had created a way to generate electricity from seawater and a byproduct would be valuable minerals such as gold. Shark Tank passed on the invention.

In 2018, chemists in Switzerland claimed they had created a molecular “sponge” that would attract gold and create nuggets.

Details, Details

While researching this story, it quickly became obvious that, while the overall story remained the same, many of the details were inconsistent. Even Reverend Jernegan’s account that he wrote 30 years later conflicts with some earlier information. For example, when did Jernegan come up with the idea? What role did Phelan have in this? How much money did Jernegan and Fisher flee with? How much money did Jernegan send back? Was there a trial? Did Jernegan actually believe gold could be extracted (one report says that he himself got swindled by the exact scam in England after he fled).

In any case, I attempted to “average out” the bits and pieces as best as I could. It turns out that when you try to figure out a story that involves a whole lot of cheaters, you sometimes can’t find the exact truth.