North Lubec gold swindle scandalized nation

Passamaquoddy Bay’s deep waters have helped float some questionable economic proposals over the decades, including tidal power and oil refineries, fish farms and liquefied natural gas terminals. These ideas have ebbed and flowed like the bay’s enormous tides, often leaving local residents high and dry.

The Electrolytic Marine Salts Co. of North Lubec was in a class by itself, however. At its height in 1898, it employed hundreds of workers and lined the pockets of local merchants. The men behind what became known as the Jernegan Scheme or The Great Seawater-to-Gold Swindle were not mere entrepreneurs or visionaries. They were con artists of prodigious ability such as Maine has never seen before or since. Hundreds of investors, mainly from southern New England and New York, lost hundreds of thousands of dollars when the great Lubec Klondike caper collapsed.

The exact details of the hoax are shrouded in a bit of Down East fog as if the shimmering ghosts of the Rev. Prescott Ford Jernegan and his partner in flimflammery, Charles Fisher, continue to elude surveillance to this day. The story begins on an island where fish and whales had made men rich for generations. Why not mine gold from the sea as well?

Jernegan and Fisher were boyhood friends on Martha’s Vineyard. A graduate of Brown University and Newton Theological Institute, Jernegan held a pastorate in Florida when he had a “dream.” He wrote it down and sent it to Arthur B. Ryan, a successful jeweler and church deacon in Middletown, Conn., where the minister had worked previously.

“My Dear Deacon Ryan: A few nights ago I had a dream during which it was revealed to me that gold can be extracted from the ocean by passing a current of electricity through chemically treated quicksilver. The dream was so vivid. I tried the experiment in a small way, and it works! Now if we could get somebody to finance a factory for doing this work on a big scale, we would soon be millionaires,” Jernegan wrote. Like Ryan, other wealthy investors soon were convinced to invest enough large sums of money to become officers in the company.

Test demonstrations proving the efficacy of a certain secret formula were conducted in Rhode Island, Connecticut and other places. “Accumulators,” which were wooden boxes lined with zinc, were attached to a battery and lowered beneath a dock into a bay. Holes in the boxes allowed tidal water to flow over the mixture of mercury and other chemicals within. The accumulators would be hauled up and taken to a chemist who invariably would find gold worth a few dollars.

Jernegan and Fisher’s “secret” was simple. Fisher, a medical school dropout who had worked as a professional diver, “salted” the mixture in the accumulators with gold after the containers had been dunked in the water and nobody was looking. Fisher has been described as the real “brains” behind the operation, while Jernegan, who recruited potential investors, may have been his dupe until the fiasco was well on its way.

The duo chose a site in North Lubec for the factory. They said the area’s huge tides would produce the maximum amount of gold. An old gristmill was leased in October 1897, and the company was incorporated the next month. This “Klondike Plant No. 1” – a reference to the Klondike River in the Yukon where gold had recently been discovered – was going to be replaced by a much bigger factory involving thousands of accumulators. More land was purchased, and dams, a bridge and other buildings were either built or in the planning stages. Hundreds of laborers were hired. The company installed the town’s first phone line and electric power system. It commissioned a 38-foot power launch and helped finance a bridge.

At the height of the operation, more than 240 accumulators, by then described as “round, kettle-shaped machines, 30 inches across,” were being dipped into the bay and harvested on a monthly basis. Then the bubble burst. Jernegan and Fisher disappeared. There was no more gold in the magic boxes. What precipitated the duo’s flight at a time when the company had plans for major expansion and the accumulation of untold wealth? Employees had discovered the fraud and had started to talk, according to one account. Another said Fisher was having trouble getting enough gold to fix the accumulators. Yet another said Fisher realized he “had a tiger by the tail”: Both he and Jernegan were making all their money by selling their huge allotments of stock in the company, but soon it would be gone and the company could not go on expanding forever.

Fisher left as early as July 20. Jernegan fled to Europe under an assumed name with his wife and son a few days later, after New York bankers became suspicious when he conducted a series of large transactions involving an estimated $100,000 to $300,000 for the journey. Jernigan tried to lay the blame on Fisher in a letter to Ryan, the president of the company. He said Fisher had run off with the secret formula and he was headed for Europe to find him.

On July 30, 1898, The New York Times announced that the company had ceased operations, discharging 600 workers with pay. Only traces of gold were being found in the accumulators, and a few days later none at all.

Fisher reportedly died in Australia a few years later after buying a plantation in the Caroline Islands. Jernegan turned up as a teacher and author in the Philippines and later Hawaii, and died in Galveston, Texas.

On Nov. 20, 1899, it was reported in the Times that the company had paid investors 36 percent on capital of nearly $1 million. That included $75,000 returned from overseas by the Rev. P.F. Jernegan.

A century ago, the Boston Herald sent a correspondent to North Lubec to see what remained of the great swindle. The demolition of the original Klondike Plant No. 1 had just begun, he reported in a story that appeared in both of Bangor’s daily newspapers Nov. 30, 1905. He also found the steel bridge and foundation holes where construction of 18 homes and a hotel had begun. An “office building” had been transformed into a “tenement.” A long pier and a dam had been partly dismantled.

“With the completion of the demolition of the first Lubec plant … there will be practically nothing left to give visual evidence of the former wonderful Jernegan reign … when money was free and the hope of getting more vast sums lay in carrying on immense undertakings,” he wrote. The story remains today a morality tale fit for the ages.

Wayne E. Reilly can be reached at wreilly@bangordailynews.net.