The Gold Ring Scandal of 1869

Morning folks, and welcome to today's episode called The Gold Ring Scandal of 1869.
This, I promise you, is one of the most audacious and just jaw-dropping financial schemes that I’ve ever come across. Two young outsiders initially taking on and beating Cornelius Vanderbilt, the richest man in America, and then on the back of their success, they attempt to corner the gold market. It's got everything: political corruption, backroom deals in Albany, a siege in New Jersey, backstabbing and betrayal, and the first Black Friday ever, 1869, when the markets crashed and Wall Street descended into chaos.
It's a cracking story — enjoy.

So this whole story revolves around 2 young, ambitious and ruthless men — Jim Fisk and Jay Gould, and before we get to the gold part of the story, we have to first look at who these 2 men were and how they were able to finance the scheme to corner the gold market.

So let's go to 1864. Jim Fisk, just 29, originally from Vermont, had made money on Union contracts and illicit cotton runs, then lost it all in bad speculations. He heads to New York and is taken under the wing of Daniel Drew, who sets him up as a stockbroker. Drew himself is a very interesting character — he’s an eccentric who had made his first fortune as a cattle drover, walking herds of beef cattle from upstate New York to Manhattan in the early 19th century.

And he had a reputation for shady business behaviour. He was a major participant in many Wall Street manipulations of the 1850s and 1860s. He is credited with perfecting the short-selling of stock and introducing the concept of "watered stock" — in effect, it’s issuing large amounts of new shares without any real increase in assets or profits. On paper, the company looks bigger and more valuable. In reality, nothing had changed.

The second main protagonist in this story is Jay Gould, and he is a very interesting character because he goes on to become one of the robber barons of the Gilded Age. Born in 1836, he grew up on a small farm in Roxbury, New York, and had worked as a surveyor. Careful. Calculating. During the war he speculates on small railroads and, in 1863, takes control of some failing lines.

He reorganises them. It becomes his pattern: distressed assets, turned around quickly.

By 1865, the war ends and speculation explodes. Gould and Fisk are looking for opportunities and in 1866 they get one. The Erie Railroad was controlled by Daniel Drew, Fisk’s mentor. It was one of the most important lines in the US — it ran from New York City to Lake Erie, a vital east–west corridor for the grain and freight trade of the Midwest. But by 1866 it was in a mess. A sprawling network, badly managed, short on cash. Cornelius Vanderbilt, the richest man in America, who had made his fortune through ships and railroads, wanted control of the Erie Railroad to add to his vast holdings.

Drew realised Vanderbilt was quietly buying up shares in Erie. So together with Gould and Fisk, he hit back using the classic Wall Street weapon that he was very familiar with: “watering stock” — in other words, they simply issued lots of new shares, and in doing so they diluted Vanderbilt’s position. It didn’t just block Vanderbilt. It created chaos. Prices swung violently. And this allowed Drew, Fisk and Gould to profit by shorting it.

Brief explanation of short selling: it involves borrowing a security or shares whose price you think is going to fall and then selling it on the open market. You then buy the same stock back later, hopefully for a lower price than you initially sold it for, return the borrowed stock to whomever you bought it from, and pocket the difference. And of course because Drew, Fisk and Gould were diluting the shares, they knew its price was going to fall.

Soon Vanderbilt cottoned on to what was happening. He turned to the courts. Injunctions were issued. Arrests were threatened. If Drew, Gould and Fisk were legally restrained, Vanderbilt could freeze the share issuance and tighten his grip on the railroad.

So they run.

On the night of March 11, 1868, they ferried trunks of Erie’s cash — around $6 million (that’s $120 million when adjusted for inflation, a huge amount back then) — and they also took the company records to Jersey City, out of New York’s reach. They hole up in Taylor’s Hotel and fortified the building with hired muscle. I mean this is brilliant stuff.

The siege becomes national news. Drew, ageing and anxious, clutches a Bible. Gould stays silent, planning the next step. Fisk turns it into theatre — bright clothes, exaggerated swagger. One correspondent calls him “Jubilee Jim.” From the hotel they issue statements mocking New York law, insisting injunctions “cannot cross the river to New Jersey.”

Vanderbilt responds with lawyers and political muscle.

Gould knows that to win he needs a law that retroactively legalises all the watered stock already printed. If he gets that, Vanderbilt’s injunctions collapse.

So Gould heads to Albany, the state capital, carrying about $500,000 in cash in a leather satchel. He sets up in the Delavan House hotel. Open bar. Liquor on every table. Cash on demand. And he brings in William “Boss” Tweed, the influential Tammany Hall political boss, to run the Tammany side — for context: Tammany Hall was New York City’s powerful Democratic political machine, famous for patronage, vote-buying and institutionalised corruption — and conveniently Boss Tweed is also an Erie director.

Vanderbilt sends his own agents with bags of money to buy votes against the Erie bill. The result is one of the most brazen bidding wars in American political history. Lawmakers take bribes from both sides. One senator pockets $75,000 from Vanderbilt, then $100,000 from Gould, keeps both, and votes with Gould. And remember this is at a time when lawmakers only made a few hundred dollars a year.

Because of Boss Tweed's influence, Gould’s network is stronger, and by mid-April 1868 the bill passes — legalising every one of the fraudulent Erie shares already printed. The moment it becomes law, Vanderbilt’s position collapses so he switches to damage control. Daniel Drew brokers a quiet meeting between the camps. Gould’s end game is to own the railway so they agree to reimburse Vanderbilt for most of the money he spent buying Erie’s watered stock — more than $7 million. In effect, Erie buys back the fraudulent shares.

So this is a huge coup for Fisk and Gould, who are still in their early thirties, and they then show how ruthless they are by pushing Drew, their mentor, out of Erie Railroad.

And this is the start of what’s called the Erie Ring — Gould, Fisk, Boss Tweed, and a circle of political allies. And the Erie Railway stops functioning like a railroad company. It becomes a cash engine.

Fisk diverts corporate money into political payoffs, Broadway productions and his own entourage. Reporters call him “The Prince of the Erie.” Gould, quieter and more strategic, focuses on financial engineering.

At the end of 1868, he quietly acquired control of the Tenth National Bank of New York and put Tweed on the board. It gives them financial capacity far beyond Erie — and a platform for the next scheme.

So it’s 1869. The U.S. financial system is stabilising after the Civil War. Flush with cash and emboldened, Gould sees an opportunity to corner the gold market by driving the premium back up. Control the supply. Make everyone else buy from him. But this only works if the federal government stays out of the way. Because if the Treasury releases its own gold into the market, the supply jumps and the price falls instantly. So Gould understands that the financial plan and the political plan are the same plan. He can only control gold if he can keep Washington from doing anything.

In June he finds an opening: Abel Corbin, a minor speculator and President Grant’s brother-in-law. Gould flatters him and gives him profitable trades. Then sells him a story — higher gold helps farmers, boosts exports, strengthens the country. Corbin buys it immediately. He becomes the Ring’s lobbyist inside President Grant’s orbit and arranges a private dinner between Gould and President Grant. At the dinner, Gould steers the conversation toward national finance, hoping Grant will signal he won’t push gold down. He doesn’t get the assurance he was hoping for — in fact Grant says that he’d be more inclined to burst any speculative bubbles, and not indulge them.

So Gould turns to the federal gold supply. When the assistant treasurer in New York resigns in June, the job goes to General Daniel Butterfield, a decorated Union officer. So Gould immediately courts him with loans and investment offers. And crucially Butterfield accepts a $10,000 loan from Gould, and while he later denies any corrupt arrangement, such a payment could only put him in a compromising position.

Through the summer, the ring quietly buys more gold.

The price goes up. And by early September, with Treasury sales paused and confidence rising, the corner begins to take shape, but it’s a very delicate balancing act — they know if they push too hard, the Treasury could crush them.

So Gould pushes the scheme further. Earlier in August, President Grant had met privately with the editor of the New York Times and spoken about his views on the economy. And in the days that followed, the Times’ editorials closely mirrored Grant’s outlook on the economy.

This gave Gould an idea. If Grant's outlook could shape editorial opinion once, maybe it could be nudged again — this time in a direction that suited him.

So the gold ring writes an article titled “Grant’s Financial Policy,” which claims the administration favoured higher gold prices. To ensure the piece gets printed, Gould recruited an influential British financier with close ties to the editor of the New York Times, and he presents the article as the work of an insider who was “in the intimate confidence of the President.”

And it almost works, but at the last possible moment, just before it goes to print, the financial editor thinks that the final paragraph feels off — too bullish, too eager. He cuts most of it and prints a softened version.

But even this more tame version still helps Gould. The public reads that Grant might hold off on selling gold. No explicit endorsement of a rising market, but enough of a hint. Enough for Gould and the ring to keep buying and for the markets to believe that the government won’t be selling gold into the market, as they want to keep the price high.

Between September 2 and 6, gold rises from the mid-130s to 137¼ — and while that might not sound like much, for long stretches of modern financial history the price of gold barely moved. Under the gold standard, governments fixed its value by law, removing the wild price swings we associate with markets today.

Now it should be noted that Gould is the master manipulator here — Fisk and Corbin, while actively involved, really only know what Gould wants them to know.

But now Gould pulls Fisk fully into the centre of the scheme — but does it by lying.

He tells Fisk that the President, the First Lady Mrs. Grant, and key Treasury officials were financially interested in their gold scheme and that there was an order not to sell gold. You see he needs Fisk to fully believe this because now Fisk goes hell for leather to ensure they corner the market.

On September 13, the Ring created a pooled fund called the "national gold account," and using certified cheques from Gould’s bank, the Tenth National Bank, they deployed sixty brokers to buy up huge amounts of gold contracts.

On September 17, Corbin writes a letter to President Grant. A personal appeal urging Grant not to interfere — framed entirely as a patriotic plea to protect Western farmers. Nothing about the Ring. Nothing about their trades. Just a plea for stability.

Fisk sends one of his most trusted men to deliver it. The courier tracks Grant to a quiet farm in Pennsylvania on Sunday, September 19. He hands over the letter and asks if the President has a reply. Grant says, "No answer."

But the courier telegraphs back: "Letters delivered all right."

Fisk interprets "all right" as approval and so continues to believe as if the President of the United States is on their side. Confidence inside the Ring soars.

But the ground is shifting. When President Grant got that letter, he thought it was suspicious and smelt a rat. So that evening he asked his wife, the First Lady, to write a letter to her sister, who of course is married to Corbin — the letter conveys that the President is "very much distressed" by the rumours he’s hearing of speculators attempting to corner the gold market, and that if Corbin is involved in this scheme then he needs to get out of it.

When that letter from the First Lady reaches the Corbins, he panics. He summons Gould to his library near midnight. The scene becomes one of the defining moments of the affair. Corbin reads the letter with Gould hovering over his shoulder. The meaning of the letter is very clear — President Grant is warning them off. Corbin goes pale and says to Gould, "If this becomes known, I am a ruined man."

Now throughout that very day, September 22, the Tenth National Bank certifies roughly $25 million in cheques for the Ring. Gold hits 140½. The Ring now controls about fifty or sixty million in contracts and this figure intimidates every short seller in the market — they’re unaware, of course, of the letter that Corbin and Gould have just received — so as far as the short sellers are concerned, Washington isn’t going to interfere. And that fear itself pushes gold higher.

The following morning Gould and Corbin meet again. It’s not clear exactly what happens at this meeting because they both told different versions, but it would appear that Corbin wanted out, and Gould offered him $100,000 to ensure that Corbin wouldn’t tell the President or any official about the scheme and that he wouldn’t tell Fisk or anyone in the gold ring about the letter.

This gave Gould some breathing room — yes, he knew the game was up, that the President was aware of their scheme, that the Treasury would most likely get involved — but crucially neither his co-conspirators nor the market knew this yet.

That night, the Ring maps out the final push. Brokers gather. Fisk, who of course believes that he has the President and the Treasury on his side, boasts that the Ring controls $110 million in calls. He’s massively exaggerating. He also convinces his brokers that gold will hit 160 and Fisk’s swagger and confidence serves its purpose — if brokers believe the Ring can overpower every seller, the short sellers will panic and prices will explode upward.

Friday, September 24, 1869, opened under extreme tension. Gould and Fisk rode downtown to their headquarters, where guards had been stationed at the doors, because rival traders and angry speculators were gathering.

When trading opened, Fisk ordered: buy everything at 145 or under. Gold stood at 143½. It went to 145. The next order: take it to 150. By 10:30, it was there.

Each time it hit its mark, Fisk demanded more. It went 155, then 160, then 162.

This was a full-scale short squeeze in that rising prices were forcing short sellers to buy back gold at any price to limit their losses, which only drove prices even higher. The New York Times described the scene: “strong men fell senseless… others raved in the agony of despair… it was as though hell had broken loose.”

Fisk strode through the chaos as if staging a performance. He was in his pomp, believing that everything was going exactly as planned.

Meanwhile, Gould was sitting there, very still, barely speaking. There were subtle nods — yes, he was buying but only small amounts, as a show, because at the same time he was secretly and very quietly selling off his gold holdings at the very peak through his own agents, while Fisk’s brokers kept buying. Gould was unloading into the frenzy he had engineered. As Gould later admitted, “I was a seller of gold that day. I purchased merely enough to make believe I was a bull.”

Gould knew that at some stage the government would step in either directly or indirectly — and he was right. By late morning, gold was at 163½ and at the very height of this frenzy, James Brown of Brown Brothers — one of the most respected bankers on Wall Street who handled government bond placements and had regular contact with federal financial authorities — stepped forward and offered to sell $1 million in gold at 162. So here was a very credible and very large seller entering a market that the Ring had convinced everyone was almost sold out.

And before that bombshell could even register, Brown coolly offered another $1 million at 161, and then $5 million at 160.

Now the question I had at this stage was — where was Brown getting the gold to sell? Didn’t the ring have the market virtually cornered? Well no, they didn’t — yes they had bought massive amounts of gold contracts — but that’s not the same as owning physical gold. And Brown Brothers & Co. was one of the few firms in New York with deep, reliable access to actual gold reserves.

Then minutes later came a telegram from Washington announcing the Treasury would sell $4 million in gold immediately. And that was it — the crash was instant. Gold plunged from 160 to 133 in fifteen minutes. The tables had been totally turned.

Margin calls went out en masse — because of course as well as Fisk and his Gold Ring there were lots of other speculators who had jumped on the bandwagon believing that prices would keep climbing. Those who couldn’t meet them went under. Stock prices on the stock exchange collapsed as leveraged investors dumped other stocks to cover gold losses. Exchange officials closed the gold market — and the day became America's first ever Black Friday.

Gould and Fisk barricaded themselves inside the Erie offices as furious traders searched for them. Inside, Fisk, enraged, angrily confronted Abel Corbin, because in his mind Corbin was the link to President Grant. Fisk was stuck with tens of millions in gold purchased at 150–160 that was now worth 20% less. Gould, as usual, stayed silent. Unbeknownst to Fisk and Corbin and almost everyone else at that time, he had offloaded a lot of his gold near the top.

Across the country, credit markets convulsed. Farmers who’d hoped high gold would help crop prices watched grain prices fall. Trade froze. Banks hoarded cash.

And of course it should come as no surprise to see what Fisk and the ring did next — up to $70 million of their trades were done through a brokerage firm that had effectively acted as a straw man — this brokerage’s name was on most of the trades undertaken by the ring — so the Ring repudiated all these trades, saying it had nothing to do with them. Seventy million dollars in contracts vanished because in an age where protections barely existed, the counterparties were left with nothing.

The lawsuits came quickly, but judges aligned to Tammany Hall, obviously bribed to the hilt, protected the ring. Injunctions blocked attempts to seize Gould's or Fisk's assets. No criminal charges were filed.

Then came the political fallout.

In January 1870, Congress opened a formal inquiry. Gould insisted he had broken no law and framed his actions as pure economic logic. Fisk played the showman, loudly shifting blame. Democrats tried to tie Grant to the scheme, even hinting that the First Lady had received a suspicious package containing $25,000 during the spike in prices. The suspicious package turned out to be $25.

The committee cleared President Grant. The inquiry found Corbin’s behaviour was “reprehensible,” but there was “no evidence” the President had aided the Ring. Grant’s order to sell $4 million in gold on Black Friday was taken as evidence of his independence and he was also credited for acting fast enough to stop a deeper collapse.

The press had its own verdict. Satirical cartoons mocked Wall Street. Commentators cast Gould and Fisk as “robber barons.” Henry Adams published a fierce essay blaming Wall Street, Tammany Hall and the loose ethics of the era.

The personal fallout was uneven.

Corbin suffered the worst disgrace. Grant cut him off. Society did too. He ended up humiliated and socially exiled.

It’s fair to say that Jim Fisk had a pretty thick skin. He swaggered through the crash claiming victory, boasting he’d escaped his gold obligations through sheer defiance. But the court cases piled up, and the sense grew that he’d been half-partner, half-dupe to Gould — which seems about right. Then on January 6, 1872, at the age of 36, he was shot dead on the staircase of New York’s Grand Central Hotel. The guy who shot him was a former associate who was romantically involved with Fisk's mistress and had also been swindled by Fisk in a business deal.

So what of the real brains behind the great gold ring?

Jay Gould was bruised but still standing. Within months he was back running the Erie Railroad, speculating again and rebuilding his position. And through the 1870s and 1880s his wealth and power grew substantially. As you’d expect there was constant litigation, hostile investigations and regulators shadowing almost every deal he touched. And while the Gold Ring scandal definitely blackened his name, it didn’t slow him down. When he died in 1892 he was one of the richest people in America — fourth place behind Rockefeller, Carnegie and Vanderbilt. He’s a fascinating character, and I’ll definitely be doing more episodes on him.

This was just such a rollicking story — I’m not going to overanalyse it. I just couldn’t believe the shenanigans that these guys pulled. And it’s not just the fact that they did so much underhand, double-crossing stuff, it’s also that they were able to get away with it — it shows how corrupt everything was back then. But that’s understandable — this was all new. The government, Wall Street, everyone was only feeling their way — and it takes time and plenty of mistakes to ensure that the right regulations and processes are put in place. And we’re still not there — you will always have Jay Goulds and Jim Fisks out there who are looking for loopholes in the system, people they can exploit. But in fairness, I’m grateful, because these kind of people provide such a rich source for these types of great business stories.

And that brings us to listeners’ emails, and this one is from Mark. And Mark would love to know whatever happened to Skype — you and me both, Mark. That’s a brilliant suggestion for a story and I didn't actually have that on my list — so thanks for listening and for the suggestion, Mark. And remember, if you have any comments, any corrections, or any story you’d like me to cover, email me at info@gbspod.com.

All the best, folks.