The Great Nugget Scam
You know an asset class is hot when the scam artists start coming out of the woodwork. Such was the case during the real estate bubble of this century's first decade, as those selling mortgages packaged them in ever more complex vehicles, many of which are now known to have been utterly fraudulent.
Is gold where real estate was?
No, not quite. But the notion that we are approaching the same ballpark seems borne out by one of the more creative scams we've seen recently. And we're not talking about all those hucksters now trying to separate you from your old jewelry for a fraction of its value.
We're talking about the great nugget scam.
Some readers who follow all things gold may remember the story. In February of 2010, a California landowner named James Grill was walking his property near Washington in Nevada County, California. Using a metal detector, he unearthed a 98-ounce gold nugget in an unmined ancient stream bed adjacent to the south fork of the Yuba River.
It wasn't the biggest nugget ever discovered - the largest known from California weighed a whopping 54 pounds and was found in 1859 in Butte County - and good-sized ones have turned up in Australia in recent years. But nothing similar had been found in the Golden State in a very long time. And the older biggies have almost all been melted down and sold. The Smithsonian's top sample weighs 80 ounces.
This find caused quite a stir, leading to a frenzy of speculation as to what would happen to it, and what price it might fetch if sold. The nugget could be expected to command a premium from a collector who wanted to own the biggest pristine hunk of California gold still in existence.
All questions were answered on March 15 of this year, when the Washington nugget was auctioned in Sacramento. After a short but frantic bidding war among a half dozen anonymous buyers, the piece went for $460,000, well over three times melt value at the time.
Now we have to revise that last paragraph. All questions were answered but one: where did the nugget come from?
The answer to that one is now up for grabs. On June 4, a Melbourne prospector named Murray Cox came forward after seeing a photo of the Washington nugget in a mining magazine, and claimed that it is actually the Orange Roughie nugget (for its fish-like shape), an exact match at 98 ounces, which he discovered in Australia and sold in 1989. He provided a Stockton TV station with a 1987 newspaper article from the Melbourne Sun detailing the find. In side-by-side photographs of the two nuggets, they appear to be identical.
(Of some further suspicion is the fact that after the original "discovery," a website appeared seeking investors to help develop a commercial mining operation called the Lost Scotchman Mine, on the 180-acre property. The nugget was prominently displayed, with the suggestion that it might be just the "tip of the iceberg." The property is landlocked, and federal court documents show that Grill has been involved in a long-running legal battle with the United States Forest Service to gain road access.)
At first, Reno auctioneer Fred Holabird, who handled the sale of the Washington nugget, stood by its authenticity. Now he says, "I got taken as bad as anyone," although he expressed surprise that no one recognized it while it was on public display for three months prior to the auction. He's still willing to pay for scientific testing that'll definitively verify the nugget's origin, but hopes to avoid the expense and effort by encouraging Grill to come clean.
How the buyer will take all this is unknown at the moment. Holabird said he has contacted the Irvine-based Spectrum Group International, a precious metals broker that represented the anonymous buyer, but he has not yet heard back from the company. Legal wrangles are almost certain to ensue.
As we said at the beginning, this apparent scam is indicative of the exploding interest in gold. It won't be the last, you can be sure. But we prefer the straight dope on the subject, which you can get monthly here.
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