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Tuesday, July 03, 2007

Maine’s Gold Rush in the Sea

I was raised in Maine, and I'm visiting my old stomping grounds right now. One thing I've always liked about Maine is its rich history. Just about everything has happened here once (and sometimes twice). But for sheer strangeness, you can't beat the gold rush in Lubec, Maine in 1898.

Gold in Maine is found in bedrock, in sediments that were eroded by glaciers, and in stream deposits. Most of the gold in Maine comes from placer deposits in stream beds. These placer deposits were the source of significant gold discoveries in both Acton and Madrid, Maine, as well as smaller finds around the state.

But in 1898, two men showed up in Lubec, Maine, with an astounding idea: An amazing process to harvest gold from sea water.

Now, it helps a bit to know that Lubec is best described as "remote." It's the easternmost town in the US, way up near the Canadian border. That's probably why Rev. Prescott F. Jernegan and his boyhood friend Charles E. Fisher chose Lubec for construction of their "Klondike factory."

The official name of the company was the Electrolytic Marines Salts Company, or EMS. Jernegan and Fisher sold a "secret formula" to their new company in exchange for 45% of sales of company stock. This formula, according to Jernegan, was the end result of over 200 experiments using electricity and chemistry, designed to extract gold from seawater.

Jernegan explained that Lubec was the perfect site for the Klondike factory. Its position on the Passamaquoddy Bay gave it exposure to the huge rise and fall of the tides.

Investors lined up to buy shares of the company. After all …

Jernegan and Fisher came from respected Martha's Vineyards families.

Jernegan was a Baptist minister. His workmen were required to participate in regular Sunday prayer services. He was also a born salesman, with impressive communication skills. As the old timers say in Maine, "He could sell a werewolf a flea collar."

EMS poured money into the project, installing the town's first telephone and electric systems. The company even paid for half the cost of a new steel bridge (great for hauling away the tons of gold EMS was going to be gathering).

A Seductive Mix of Truth and Fiction

Now, there IS gold in seawater, but in very low concentrations – about 1 to 2 parts per 10 billion. But Jernegan and Fisher said their revolutionary process could get around that. Curious would-be investors who came to Lubec for the dog-and-pony show were led by Jernegan through Plant Number One. The tour went down the stairs and into a room beneath a wharf. There, visitors found 250 boxes, each containing a battery, some mercury, and a "secret recipe" of chemicals that would be the envy of Colonel Sanders.

These boxes, called "accumulators," were lowered deep, deep into the tide-churned salt water. Visitors saw the boxes go down. And they saw other boxes brought up after a 24-hour accumulation period. Cracked open like clams, they revealed their treasure – small but valuable deposits of gold and silver.

It seems like Jernegan was doing most of the hard work selling the company, doesn't it? Well, Fisher had a special skill that few knew about, one that made him invaluable to the company. He was a trained deep-sea diver. Just the type of man who could descend through the icy, inky-black depths of the night-time sea and put gold in the accumulator boxes! As one local folklorist recalls: "The next day when it was low tide, they'd take these accumulators out and low and behold, there was gold!"

On May 11, 1898, a local newspaper reported: "Nine shipments have been made from the works of the Electrolytic Marine Salts Mining Co. of East Lubec to date. They are said to have averaged about $1,000 apiece in value."

Of course, nothing of the kind had happened – Jernegan and Fisher were seeding the press stories just like they were seeding the accumulator boxes. But investors fell for it hook, line and sinker, especially because they heard that Plant Number Two would have 5,000 more of the magic accumulator boxes.

By the end of May, the locals – many of whom now had jobs building Plant Number One – were won over. The Lubec Herald gave Jernegan and Fisher a ringing endorsement: "We believe that time will prove these gentlemen of the EMS Co. to be staunch friends and people who will take a warm interest in the town." Locals dug up their hidden cash to get in on the initial cash offering of EMS.

But that local Lubec cash was small potatoes for the EMS boys. They aimed to hook the big money speculators. And man, did they land some whales!

EMS stock was offered at $1.00 per share. The first offering, for 350,000 shares, sold out in three days. By July, 2.4 million shares were sold to investors all over the East Coast, as 800 workers raced to finish Plant Number One.

The Bubble Finally Bursts

But then in July, Fisher left on business. A few days later, locals noticed that Jernegan was also missing. Concerned, workers went to his home, where they found the entire family had vanished, taking their furniture with them. Mysteriously, all of the company books and ledgers disappeared as well.

Now revealed, the EMS gold-from-seawater quickly went from venture to debacle. The July 29 Hartford Courant ran a banner headline: "The Bubble Burst." The stock imploded, tumbling from $1.40 to 30 cents per share. Warrants for Jernegan and Fisher were quickly issued, but they had both fled the country, their bags stuffed with cash. One Lubec local described the affair as "The biggest swindling scheme we ever had in Maine."

But that's not the end of the story ...

Fisher was never seen again, but most reports suggest he died in Australia.

Jernegan was discovered living in France. His wife and son had fled with him, but she later divorced him. Upon discovery, he insisted that he was trying to locate Fisher, who had taken valuable company records. The proper paperwork for Jernegan's arrest warrant did not come through in time for French authorities to arrest him, and Jernegan slipped away, reportedly to the Philippines.

Several stockholders refused to give up hope. Still confident that gold could be wrung from seawater, they kept at it for quite some time before finally throwing in the towel on the Electrolytic Marines Salts Company.

The defunct EMS Plant Number One was converted into a sardine factory. And guess what? The sardine harvest brought more wealth to Lubec than the gold scheme ever promised!

And the people who invested money in Jernegan's scheme shouldn't feel too badly. In 1905 –- just seven years after the Lubec debacle -- the Industrial and Engineering Trust Ltd. proposed to use its "secret process" to extract gold from sea water along the English coast. This scheme actually won the endorsement of Sir William Ramsay, a British winner of the Nobel prize for Chemistry. Like so many others, even the Nobel prize winner was snookered, and the scheme was a total fraud.

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