History: Nevada County’s high-grading scandal of 1936-37 | TheUnion.com
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History: Nevada County’s high-grading scandal of 1936-37

 

Editor’s note: The term “high-grading” dates from the Gold Rush. Originally, it meant the selective theft by miners of only the highest grade of gold, but came to mean gold regardless of its quality.

Although the Gold Reserve Act of 1934 boosted the price of gold from $20.67 per troy ounce to $35, it prohibited private ownership or sales. The only legal owner became the federal government, and that led to an increase in fraud by lawfully registered gold dealers who sold high-graded gold to the U.S. Mint using notarized documents of questionable authenticity.

On Sept. 27, 1936, four Nevada County residents were arrested by federal agents for violations of the Gold Reserve Act. Three days later, a fifth suspected high-grader was arrested here. Then came the shocking news that three prominent Nevada City assayers had been arrested.



By early 1937, seventeen people with local connections had been implicated, making Nevada County the epicenter of a federal effort aimed at eliminating use of the U.S. Mint in San Francisco as a de facto “fence” for illegal gold sales — some involving schemes requiring what federal prosecutors called a “daisy chain” of accomplices.

For example, a miner would steal gold-laced ore from their employer’s mine and sell it for $17-$19 an ounce to someone who could mill it. The milled gold would then be sold for $20-$22 an ounce to a legitimate gold buyer, who would smelt it and sell the bar to the Mint for $35 an ounce while providing fraudulent affidavits naming a mine from which the gold was supposedly extracted and affirming under oath who owned the mine.



Of the seventeen charged with Gold Reserve Act violations here during the 1936-37 Treasury Department sweep, twelve were convicted or pleaded guilty, and five were acquitted or had charges dropped. The three local assayers charged with conspiracy to defraud the government were Emil Ott, George Nihell and Ben Bost. Ott and Nihell were tried for minor sales; Bost for five larger transactions.

Nihell freely admitted in federal court that he occasionally bought incidental amounts of gold from “snipers” and combined those purchases to cast small bars, telling the jury it was a common practice among licensed gold buyers. “They do not take the trouble to record the name of each person from whom they buy gold,” he explained. “They simply collect enough to make up a small bar and turn it in (to the Mint) under their own names.” Ott offered a similar explanation for his falsified affidavits.

Attorneys for Nihell and Ott argued that although their clients might be guilty of lax record-keeping, neither assayer attempted to defraud the federal government. The jury agreed and both men were acquitted.

Bost, however, faced a tougher challenge. His explanation — both before and during the trial — lacked plausibility, and on Nov. 27, 1937, he was convicted on five counts of filing false affidavits with the San Francisco Mint. Bost was sentenced to five years in federal prison and a $5,000 fine, but allowed to post bond pending an appeal. The appeal, denied in April 1939, described a very different scenario than what Nihell and Ott admitted to when their cases were heard.

The five Bost affidavits in question claimed that gold he sold to the U.S. Mint in 1934 and ’35, (mainly nuggets), had come from the Lucky Gravel Claim, located in Cougar Canyon, El Dorado County. He claimed he owned the mine and three men were leasing it for a share of what they found. When federal agents visited Nevada City in June 1937, investigating the suspected fraud, Bost explained that he had visited his mine only once, in 1935, and had no clear memory of how he got there or how to find it.

When investigators returned to Nevada City in August, they told Bost there was no record of a Lucky Gravel Claim mine in El Dorado County, nor Cougar Canyon, nor the three men Bost claimed were leasing the operation. Conviction soon followed, then the appeal — denied by U.S. Circuit Court Judge Francis Garrecht, who said, “the story was so inherently improbable as to be utterly unworthy of belief.”

His appeal denied, Ben Bost was taken to McNeil Island Federal Prison, southwest of Tacoma, Washington, to serve his five-year sentence. Unfortunately, the 74-year-old Nevada City assayer was already in failing health and died in prison six months after being incarcerated. Emil Ott died a month later; George Nihell in 1943 — both 84 at the time of their respective deaths.

On Dec. 31, 1974, Gold Reserve Act ownership and sales prohibitions were repealed.

Historian Steve Cottrell, a former Nevada City Council member and mayor, can be contacted at exnevadacitymayor@gmail.com

Ben Bost (arm resting on the back of a chair in this 1913 photo) was a longtime Nevada City assayer with a business at 125 Broad Street, where the freeway overpass now stands. In 1936, Bost was arrested and later convicted of violating the Gold Reserve Act.
Courtesy Searls Historical Library
Nevada City assayer Ben Bost, pictured here during his 1937 trial, was convicted of violating the Gold Reserve Act of 1934 and sentenced to five years in federal prison.
Courtesy McClatchy Publishing

 


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