New Brunswick was once at the centre of a mindbogglingly bizarre international fraud revolving around false claims of a fortune worth of shale oil in Sussex, with the money being siphoned off to buy the Magdalene Islands.
In 1923, a Quebecker named Kenneth Edgar Clayton-Kennedy was released from a Turkish prison.
He rushed to the United States, where, in an interview with the New York Times, he recounted a bizarre tale of why he’d been arrested. He claimed that his business partner, Arthur Chester, the son of an American Admiral, had “went to a high Turkish official and denounced me as a spy … probably the only thing that saved me was the fact that several influential Turkish friends went ball for me with their property and their lives.”
The reality was that the entire Turkish oil project had been an elaborate fraud.
Despite the mess his life had become, Clayton-Kennedy had once been something of a visionary.
As a little boy in Sherbrooke, QC, he had seen a blimp at a fair. In that moment, he knew that one day airplanes would dominate the world.
When he served as an officer in the First World War, he claimed to have personally lobbied Minister of Militia Sam Hughes to build a Canadian Air Force, only to be told: “Airplanes are ridiculous, only good for frightening horses.”
After the war ended, Clayton-Kennedy built an airplane parts factory in Quebec to position himself for what he thought would be the growing popularity of air travel.
Much to his frustration, the public saw airplanes as a dangerous novelty. Soon, his business was failing.
He took out loans on his beloved airplane factory and invested in a complicated oil exploration project in Turkey. He seems to have been betrayed and defrauded.
Strangely enough, his brush with fraud in the oil industry seems to have given Clayton-Kennedy a taste for fraud, and he seems to have decided to become a fraudster himself.
It was then that he turned his attention to New Brunswick. He was not alone.
“Oil Shale Deposits of N.B. Are Biggest In The World!” raved a Montreal Gazette headline.
The accompanying article quoted George Otis Smith, Director of the United States Geological Survey, saying “The United States is going bone dry as to oil … Canada’s great shale resources are only now receiving the attention they merit.”
Moncton would soon be a place “oil booms where the gamble proceeds without limit and … makes millionaires overnight,” dreamed the Transcript newspaper in 1920.
Giant multinational oil corporations like Shell quickly established operations in Moncton to investigate the claims, while San Francisco-based Newcombe & Winchester Co. built offices in Fredericton and Saint John.
However, a closer examination of Smith’s speech reveals that the top geologist’s words had been taken out of context. “Oil won from oil shales will not be labour cheap like petroleum now flowing from wells,” he’d cautioned, ominously declaring: “industry cannot expect any return from oil shale, nor can it expect any return to low prices.”
This isn’t to say that there was no oil, though. “In 1923, the production of crude oil in Albert County was 308,984 gallons, and 619,673 thousand feet of gas,” writes the Albert County Museum. “By 1925, sixty-six wells had been bored in the Stoney Creek oil fields.”
The problem was that the process of extracting shale oil was expensive. Even Shell, then one of the biggest corporations in the world, struggled to figure out how to make it profitable.
Into this scene appeared Kenneth Edgar Clayton-Kennedy, announcing that he had patented a new invention that would make shale gas extraction cheap and easy. He announced he’d put it to use in Sussex.
It was the Roaring Twenties, a heady time when everything seemed possible. Wealthy American investors ignored that his invention appeared to be a perfectly normal weathervane and focused on his big promises of massive future returns. Clayton-Kennedy quickly set up the American Hydrocarbon Company, a Canadian company he claimed was based in Sussex, as the subsidiary of the New York-based Maritime Eduction Co.
He managed to secure vast sums of money from American investors — tens of millions in today’s dollars — to fund the exploration and development of shale gas in the Sussex area.
Although what became of the money remains murky, it clearly didn’t go towards oil exploration efforts around Sussex. In fact, it’s not clear Clayton-Kennedy ever set foot in New Brunswick, allegedly the seat of his so-called multimillion-dollar oil empire.
Six years later, American tax agents demanded to know why Clayton-Kennedy had paid no taxes. He retorted that his American companies were subsidiaries of their Canadian counterparts and that he paid taxes in Canada.
Even back in 1929, his claim was easy enough to fact-check. The American taxmen quickly learned that he’d been telling the Canadian authorities that he had been paying taxes in the States. He hadn’t actually been paying anyone taxes.
He was arrested by the Americans. The subsequent trial was where things got really weird.
His defense claimed that the money he raised was used to build the $12 million Caledonian Mills oil refinery in Albert County. This was, once again, easy to fact-check. Prosecutors pointed out the refinery had been built two years before Clayton-Kennedy had founded his company.
Prosecutors then revealed that all the money Clayton-Kennedy had raised from investors had actually been used to buy the Magdalene Islands. He had purchased the entire seven island chain between Newfoundland and PEI, which was then home to 7,900 Quebeckers.
He was found guilty by the American courts, given a $10,000 fine, and deported back to Canada. There he was promptly arrested for tax evasion.
Canadian courts found that Clayton-Kennedy had spent eye-watering sums of money on himself. In today’s money, this ranged between $200,000 and $1,000,000 per month. He was sentenced to serve two years in jail.
Back in New Brunswick, neither the public, the press nor the politicians paid much attention to the story. Despite technically being at the centre of the bizarre tale of international fraud, as far as they were concerned, the strange story had nothing to do with them. After all, Clayton-Kennedy's so-called Sussex-based shale oil company had only ever existed on paper.
