Inactivity and a Change of Leadership, 1926-1932

    In June 1926, bonds matured again, and again there were no funds to pay off the lien holders.  Sam Reyburn, immersed in his job in New York, seemed willing to go along with any of several solutions:  simply finding more money for renewed testing, selling the company to a suitable new group, or, if necessary, foreclosing on the bonds.  In July he proposed the ADC raise $100,000 to pay off bonds and cover routine expenses while trying to find money for further testing.  Stockholders were reluctant to continue the status quo.[1]

    The ADC had only one asset left, its remaining rough diamonds, and it pledged those as collateral for loans to pay current expenses.  The lenders were the same group holding the bond lien.  For the diamond notes, they were due a total of $21,000 in July 1927.  When that date passed, they demanded payment.  According to Reyburn’s later explanation to stockholders, “The Company, without credit, could not borrow elsewhere or find a market for the diamonds.  They were sold under the power of the pledge for $21,000.”[2]

    Howard Millar’s later memoir, Finders Keepers, offered an expanded interpretation of these events.  In his version, Tom Cochran held the bond mortgage and was determined to foreclose and grab the ADC’s property.  “I do not believe he had any intentions of doing anything in the diamond field except to make sure it wasn’t developed to compete with the world syndicate,” Millar wrote.  As for the pledged gems, Cochran secretly “had stood on the steps of the Garland County Courthouse, in Hot Springs, Arkansas, earlier and auctioned off the diamonds for $19,000.  He was both auctioneer and only bidder.”  Schenck and Van Haelen, New York diamond specialists, later bought the collection, including the Uncle Sam, from Cochran’s estate.[3]

 

    The venture continued in limbo for almost two more years before the bondholders sued for foreclosure in order to spur shareholders into action.  At the time, the ADC was broke; the custodian and the watchman at the property, Lee Wagner and Charles M. Carter, had gone several months without pay; the property manager, John Peay, was using his own money for basic expenses.  Therefore, in January 1928 the trustee for the bond mortgage was switched from the Union Trust of Little Rock to George Jordan of New York County, New York.  In February Jordan filed suit against the ADC in federal district court, Texarkana, Arkansas, seeking $75,100 principal and $10,965 interest accrued since July 1, 1925.[4]  The original mortgage agreement had empowered the Trustee to defend the interests of the bondholders.  Jordan primarily represented the New York group.

    After lawyers representing the ADC filed a standard denial of all charges, J. C. Pinnix and other “minority stockholders” petitioned, in March, to intervene in the suit.  They needed time to “investigate the affairs of the Company,” in order to decide whether to intervene and “offer to lend the Company” any funds needed to discharge the mortgage.  Negotiations were already in progress, they said.  Nevertheless, after a transfer of the case to the Fort Smith Division of the Western District, the court appointed a receiver to arrange a public sale of the ADC’s property.[5]  

    As negotiations continued out of court, Thomas Cochran, the New York banker representing the bondholders, advised that they would be receptive to any plan of reorganization resulting in the retirement of corporate debts.  A group of interested stockholders, led by J. C. Pinnex and John T. Fuller, along with Roy L. Thompson and Fred Heiskell, prominent Little Rock businessmen, convened in the Chamber of Commerce auditorium, Little Rock, on April 7, 1928.  After due discussion, they proposed  to buy the Corporation’s remaining 491,147 shares of stock for 25¢ each, stipulating that the $122,786.75 be used to pay debts and, if possible, to recover the defaulted diamonds. If successful they would own both the ADC and the Corporation, and then would lease the ADC’s property to a new operating company headed by John T. Fuller.[6]  By implication, this meant the stalwart ADC, Sam Reyburn’s old Arkansas Diamond Company, would become superfluous.

     The Corporation’s board of directors approved the offer, but with the proviso that all shareholders be afforded the opportunity to buy, at 25¢, shares virtually equaling the number each already held.  All participating shareholders were to send a certified check to Sam Reyburn, President of the Corporation, by a fixed deadline:  June 25, 1928.  If sales fell short of the stated goal, checks would be returned; otherwise, Reyburn and other officers of the venture would apply the funds and then resign in favor of new management.[7]

 

    At the meeting of April 7, John Fuller spoke optimistically about the group’s chances at the diamond field if adequate funds for testing could be raised.  “It is possible,” he said, “that diamonds may occur only in certain spots [in the matrix] and it will be necessary to excavate the whole area to determine if it will pay.”  Then he added:  “We always expect and always find the surface material of a diamond pipe more productive.  It might pay handsomely to wash up the surface and I believe it would in this case.  In fact, surface washings to date have been successful.”[8]

    Reporting this event, the Pike County Courier expressed guarded optimism.  Several men already were out on the big southeast slope, preparing it “for the probable re-opening of this only industry on the North American Continent.”  The new venture, “if carried through,” would undoubtedly succeed.  “The diamonds are there.  U. S. Geological reports show them to excel in hardness and brilliance . . . and if the diamond plant can be rebuilt to properly mine the precious stones . . ..”[9]

    Later, the Courier repeated the prevailing belief that Reyburn’s operation had failed because “for some reason the machinery never did the work expected of it.”  This time, however, the earlier comment was further qualified:  “There is no question about the presence of diamonds there; the only question is, can they be mined at a profit?  The new company propose [sic] to answer this question, and as a starter will employ sluice washing until the installation of new machinery is made.”[10]

 

    Although the Corporation’s terms were not met fully, the amount of stock sales and the reputation of the new group evidently impressed the bondholders.[11]  The lawsuit was terminated in June 1928 and the reorganization was allowed to proceed.  Roy L. Thompson, vice president of the Democrat Printing & Lithographic Company, replaced Reyburn as president of both the Corporation and the ADC.  John  Fuller, J. C. Pinnix, and John Peay served on the governing board; Peay, the veteran field supervisor for the ADC and the Corporation, remained as general manager.  The faithful Lee J. Wagner stayed on as property custodian and general handyman.[12]

 

    Facing the same problems as their predecessors, John Fuller and associates continued sluicing the rich surface layer, and found it still yielded about enough diamonds to compensate for operating expenses.[13]  They still lacked funds, however, for any significant testing of the matrix.  By late 1929, as turmoil in the stock market set in, the operation’s long-term viability seemed highly questionable.

    In early 1930, those leading the venture began preparing for the demise of the Arkansas Diamond Company.  In April a new Diamond Mining and Engineering Company of Arkansas (DMEC) was given a ninety-nine year mineral lease on all the ADC’s properties, including the existing plant.[14]  In return, the DMEC had to pay 5% of the gross from diamonds recovered in the future, plus 5% of any profit.  Stripping the ADC of valuable assets, the lease stipulated the ADC “shall sell and deliver to the lessee all diamonds recovered by it [the ADC] during the past year from said property”; the stated price was $5,000, “the estimated cost of producing said diamonds.”[15]

    Only the continuing involvement of John Fuller and John Peay lent credibility to this otherwise shaky venture.  Although the DMEC’s authorized capital was 10,000 shares of common stock, the certificates were assigned no par value.  The beginning capital was $300, the legal minimum.  The president, W. C. Ribenack, subscribed to fifty-four shares of the sixty bought by incorporators.[16]

    Those listed as officials of the DMEC, all Little Rock businessmen, hardly represented a significant break with the past.  Two of the seven, including the secretary, Aristo Brizzolara, Jr., used the Union Trust Company as an address; Ribenack and two others listed the Bankers Trust Company; and one, H. G. Mitchell, listed Roy Thompson’s Democrat Printing & Lithographic Company as an address.[17]

    In July 1930 the ADC completed this final reorganization by transferring all its properties in Pike County, including remaining buildings and machinery, to the Arkansas Diamond Corporation.  The warranty deed preserved DMEC’s long-term lease.  Then, on July 12, 1930, Sam Reyburn’s Arkansas Diamond Company officially dissolved.[18]