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Sunken treasure ‘overvalued to lift shares of salvage firm’

Daniel Foggo

AN underwater salvage company that claimed to have discovered $500m (about £250m) of sunken treasure in the Atlantic has been accused of inflating the value of its find, so boosting its share price and providing a bonanza for its executives.

The allegation comes amid disclosures in stock exchange documents that some of the bosses of Odyssey Marine Exploration cashed in millions of dollars of shares within days of announcing their recovery of 17 tons of silver coins from the wreck.

Other papers show that the Florida-based company privately estimated the worth of the silver coins at £1.2m. A few days later it claimed publicly that the coins had been valued at more than 200 times that amount.

The identity and ownership of the ship have since become the subject of a court battle and Odyssey has issued a defamation action against Jim McManus, a diver and a director of a UK-based historical website and internet blogger from Florida.

He is one of several people in the online maritime community to suggest that the company pushed up its share price by overstating the value of the find.

Following an announcement by Odyssey to the media on May 18 that it had discovered 500,000 silver coins, the company’s share price rose to more than triple its April value as speculators piled in.

Media reports put the valuation of the hoard at about £250m. On May 21 Odyssey issued another press release saying that the figure had come from estimates provided by a coin expert retained by the company and that it was “comfortable” with his calculations.

Instead of retaining the shares once a formal valuation had been carried out and their entitlement to the treasure confirmed, several Odyssey executives and board members started offloading their stock from May 22.

Shortly afterwards, ownership of the treasure was challenged in the Florida courts by the Spanish government, which believes it came from a Napoleonic-era warship, the Nuestra Senora de las Mercedes. That ship was sunk by the British off the Portuguese coast in 1804 while carrying more than 1m silver dollars.

If Spain’s claim is upheld it is possible that Odyssey would be ordered to forfeit its haul.

Whatever the outcome, Odyssey’s bosses have already profited from their discovery, according to documents filed with the US Securities and Exchange Commission (SEC), the stock exchange regulator.

John Morris, Odyssey chief executive and co-founder, sold £650,000 of shares four days after the issuing of the May 18 press release, while David Morris, the company secretary and treasurer, earned himself more than £343,000 within the following 24 hours. George Becker, then Odyssey’s executive vice-president and who has since left the company, also sold shares worth £193,000 within 12 days of the announcement. The commission declined to comment this weekend.

Odyssey has refused to disclose the exact name or location of the wreck from which the haul was taken, giving it only the codename Black Swan. Following the announcement there was widespread speculation in the media that the treasure had been taken from the Merchant Royal, a privately owned British cargo ship known as the El Dorado of the Seas, which sank off Land’s End in the 17th century. Treasure recovered from so old a ship would have been very valuable.

The Sunday Times disclosed in June that Spain believed the wreck was really that of the Mercedes and it has since become clear that it cannot possibly be of the Merchant Royal.

An export licence, applied for by Odyssey on May 14 when it was seeking to transport its haul to Florida via Gibraltar, shows that it was taken from a location off the Iberian peninsula, rather than Land’s End.

It also shows that Odyssey gave the silver coins a valuation of only £1.2m.

The £250m valuation was given by Nick Bruyer, a coin marketer who has sold coins for Odyssey in the past. He is said to have valued the 500,000 silver coins at between several hundred pounds and £2,000 each.

John Morris and Greg Stemm, Odyssey’s founders, have previously been prosecuted by the SEC. It accused them of inflating the value of shares in a company of which they were directors by overstating the worth of salvaged artefacts. They were acquitted by a jury in 1997.

A spokeswoman for Odyssey said: “The value put on the export licences was based on an estimate of what we believed to be our cost basis at that time. In accounting for US companies we are required to value artefacts at our cost of recovery, which has nothing to do with retail value.

“The company has not estimated the total potential value of the Black Swan recovery and will not do so until we have conserved and priced them all.

“John Morris, David Morris and George Becker legally sold parts of their positions after the appropriate waiting period as part of their personal financial planning.”



APRIL 7, 2008
A REPORTER AT LARGE

SECRETS OF THE DEEP

The dispute over what may be the biggest sunken treasure ever found.

BY JOHN COLAPINTO


Extract:

By this time, however, doubts about the company’s claim to have found the Sussex had begun to circulate. One skeptic was Jim McManus, a sixty-three year-old ship’s captain, commercial diver, and marine-archeology buff. In July, 2006, McManus and two friends—John Bartram, a former television producer and amateur historian in Britain, and Vincent Burrows, an archeologist—launched a Web site called Historyhuntersinternational.org. The History Hunters had read news reports about Odyssey’s deal with the British government, and they decided to conduct their own research on the Sussex.

Photographs of the wreck site that Odyssey had released in 2001 showed a pile of debris that McManus believed was not big enough to be the Sussex.

“It’s barely wide enough to be the Sussex before she collapsed,” he told me. “Ships sometimes spread out to the sides when they sink. So the signature of the wreck is usually much, much larger than the ship was in real life.” McManus also studied a photograph taken by Odyssey of an anchor
at the site and concluded that it was too small to belong to the Sussex and the wrong shape for a British anchor of the period. Moreover, he thought that there weren’t enough cannons scattered around the site—nineteen were visible in the site maps that Odyssey released—given that Sussex had been an eighty-gun warship.

McManus and Bartram searched the archives of the Exchequer and of Parliament in the British Library but found no record of a million pounds sterling being aboard the Sussex. “You have to understand that in those days the entire operating budget for the Navy amounted to only a few million pounds,” McManus told me.

“Now, to lose a million pounds in gold coin on a ship? That’s a pretty significant punch in the treasury.” Bartram believed that Odyssey had made an error interpreting the historical documents. The company had relied in part on diaries compiled by scribes in the court of William III, which, as quoted by William Broad in the Times, indicated that the King had ordered the Exchequer to “give the flotilla ‘a million of money.’ ” However, a subsequent article in the Sunday Telegraph included the rest of the sentence that Broad had cited: “Days before the Sussex left Portsmouth, the royal proceedings of December 12, 1693 recorded that King William had ordered the exchequer to issue ‘a million pounds in money for the use of the Fleet.’ ” The phrase “for the use of the fleet” is routine language used in parliamentary proceedings to refer to appropriations for the British Navy (“the fleet”).

Thus, Bartram concluded, “They read a payment to the King for the Navy as a payment by the King to Savoy.”

In August, 2006, McManus and Bartram began to post their opinions about the Sussex on the History Hunters’ Website. Four months later, the site crashed.

The History Hunters determined that sophisticated hackers were attacking the site, repeatedly shutting it down. “One of the clever things they’d done, which my security people hadn’t seen before, was to join as a member of History Hunters, then post messages to each other with in the internal messaging system,” Bartram told me. “But, instead of sending messages, they were sending code.” Bartram said that the attacks ceased two months to
the day after they began, evidence, he believes, that the hackers had been hired on a contract. “And who would pay to hack a little Web site like History Hunters?”

Bartram said. “No one—unless they’ve got a commercial motive.” (Stemm denied that Odyssey had hired the hackers.
“We would never engage in, nor endorse in any way, creating any problem for anyone’s Web site, no matter how critical they might be of Odyssey,” he wrote in an e-mail.)

Stemm repeatedly assured me that Odyssey had proof of the Sussex’s treasure cargo that had not been reported by the media, and he promised to show it to me.

In December, he and his wife came to New York to attend the première of the Disney film “National Treasure: Book of Secrets.” (Odyssey had negotiated with Disney to sponsor an online contest tied to the movie, and artifacts from the SS Republic were being sold as part of a “Real ‘National Treasure’ Collectors’ Set,” for nineteen hundred and ninety-five dollars, on the company’s Web site.) I met Stemm in the restaurant of his hotel, where he handed me a book that had Odyssey’s logo and the word “Confidential” stamped on its cover. “There’s stuff that the British treasury department has on Sussex that they won’t even show to me,” he said. “So, I mean, what you’re going to see in this book isn’t the only evidence we were going on.” Stemm left me alone to look at the book, saying that he would return in an hour.

The book included photocopied pages from the “Calendar of State Papers, Domestic Series” and the “Calendar of State Papers, Treasury Books,” diaries by William III’s scribes. On one page, an arrow pointed at a passage containing these words: “Yesterday a warrant passed the privy seal for paying a million of money out of the Exchequer for the use of the fleet.” The excerpt made no mention of the Sussex or of Savoy. There was also a copy of a page from a book called “A Brief Historical Relation of State Affairs from September, 1678 to April, 1714,” by Narcissus Luttrell, who, like Samuel Pepys,
kept a record of the daily events in Parliament.

Luttrell’s entry for November 18, 1693, read, “A great summ of money is sending hence for Savoy.” There was n reference to the Sussex.

Toward the back of the book was a copy of the Livorno letter—the original inspiration for Odyssey’s interest in the Sussex—along with an English translation.

The letter, which was addressed to a Monseigneur Pontchartrain, an official in Louis XIV’s court, was a newsy account of recent developments in the war with England, and a passage at the end described the storm that had struck the enemy fleet the previous month:

But the storm worsened and the admiral
warship of the english fleet was lost, along
with its 90 cannons and 500 crew, of which
only two moors survived. In addition, this ves
sel carried a million piastres, of which 800,000
were for the Duke of savoy and the rest for the
marquis de Leganez and other individuals.

This passage, Stemm had told me, was among the best evidence that the Sussex carried a million pounds sterling in its hold when it sank. But the passage could be proof that there was considerably less treasure on board. The term “piastres” — used throughout Europe at the time to denote pieces of eight, a basic unit of Spanish currency—varied in value from country to country. The Livorno letter was written in French to the French court by a French-speaking official, and, as Odyssey admitted in the book, “In that period, the French, Spanish and Italian coins were valued at just under one-fourth of an English pound sterling.”

Wrangle could sink treasure hunt

5:00AM Saturday May 24, 2008
By Peter Huck


On October 5, 1804, a flotilla of four treasure-laden Spanish frigates, homeward bound from Latin America, was intercepted by an equal number of British frigates off the Portuguese coast.

Although Spain was neutral, the British knew of a secret alliance with Napoleon, and intended to seize the bullion. The British ships closed with the Spanish, taking the Fama, Clara and Medea after a brisk action. But in a catastrophic blast the Nuestra Seora de las Mercedes went to the bottom when its magazine exploded.

Now in a closely-watched case being heard in Tampa, Florida, the Mercedes has re-emerged as Spain battles US salvage company Odyssey Marine Exploration, which is said to have found the wreck and its contents, over ownership of the frigate's cargo. It is valued by some media estimates at a record US$500 million ($636 million).

The case dates to May 2007, when Odyssey announced it had found a "colonial-era shipwreck in an undisclosed location in the Atlantic Ocean."

Code-named the "Black Swan" - a manoeuvre that obscured the ship's identity and drummed up publicity - Odyssey said the wreck has yielded 500,000 silver coins, several hundred gold ones and artefacts. The haul, flown to the US on chartered jets early last year, is officially valued at $3.99 million.

This figure quickly leapt to $500 million in media reports.

The treasure hunters found themselves assailed by critics. The company is accused of hyping the wreck's value to beat up its stock price and cash in, and also of vandalising a historical site and grave for 200 sailors.

And in a case involving colonial-era booty, both Odyssey and Spain are accused of robbing cultural patrimony.

Odyssey said the wreck lay "beyond the territorial waters" of any nation. Suspecting the salvagers may have desecrated a historical site, in May 2007 Spain laid legal claim to the treasure. Salvage efforts halted when Spanish gunboats, during a month's long cat-and-mouse game, ordered Odyssey vessels into Algeciras to be searched.

Attention then shifted to the US District Court in Tampa. Spain identified three ships as tentative Black Swans: the Merchant Royal, an English ship laden with Spanish bullion that floundered in 1641 off Cornwall; a liner sunk by a U-boat off Sardinia in 1915, but later identified as the Ancona, an Italian vessel; and the Mercedes.

In March, after persistent pressure from Spain to reveal the Black Swan's identity, Odyssey - which insisted it had to hide the wreck from looters - told the court "one vessel Odyssey has considered which may be related to the site is the Nuestra Senora de las Mercedes y las Animas, a Spanish vessel which had been assigned to transport mail, private passengers and consignments of merchant goods and other cargoes at the time of its sinking in 1804."

This is a masterly piece of understatement, scoffed at by James Goold, a Washington-based lawyer who represents Spain, as Odyssey's "working hypothesis".

Spain says salvaged items, inspected in a Florida warehouse sealed by the court, prove the wreck is the Mercedes.

"We know its exact location," says Goold. "We're not revealing it."

Identifying a wreck's identity is critical in deciding ownership. While salvagers can claim a percentage of a commercial wreck's worth if ownership is known, or everything if it is not, warships, sunk or afloat, remain the property of the state under whose flag they sailed.

"The same principles and rules would apply if it was a New Zealand navy ship," says Goold, who won Spain's claim to the frigates La Galga and Juno, which sunk off the US eastern seaboard in 1750 and in 1802, respectively, before a US court in 2000.

"If someone disturbed it or took materials from a sunken New Zealand navy ship without authorisation of the New Zealand navy and government they would presumably not be entitled to any compensation whatsoever. And they would be in serious legal trouble."

Odyssey, which suggested the Mercedes was on a non-military mission, has tried to salvage a deteriorating legal situation by suggesting that it might be entitled to some sort of finder's fee. "It is the opinion of our legal counsel that even if a claim is deemed to be legitimate by the courts, Odyssey should still receive title to a significant majority of the recovered goods," Natja Igney, Odyssey's public relations manager, said in March.

This may be wishful thinking. "I have no reason to expect any kind of settlement," says Goold. "Odyssey has made recent statements suggesting they would like to receive some kind of reward. And the Spanish position is clearly stated. Violations of law are not to be rewarded."

MODERN treasure hunting is a high-risk business, far from the low-tech era of scuba divers. Odyssey, which was started in 1994, uses private capital and is traded on the US Stock Exchange and the NASDAQ. In 2005 and 2006 the company reported net losses of $14.9 million and $19.1 million respectively. But this can change with one strike. When the Black Swan was announced, Odyssey shares soared over 80 per cent to $8.32. Greg Stemm, a former advertising executive who co-founded the company with real estate magnate John Morris, says his business plan is simple: "Billions of dollars of shipwrecked cargo are lost in the deep ocean, and technology exists to find and recover it."

That may be true. But fortunes can be made without plunging to the bottom of the sea; shares in treasure hunting stock have seen wild trading.

In 2003 Odyssey salvaged the SS Republic, a US paddle steamer that sank in 1865 and yielded $75 million. In 2002 it claimed to have found HMS Sussex, a British warship that sank in 1694, reputedly taking 10 tonnes of gold coins intended as a bribe to entice the Duke of Savoy to side with Britain against France. A front-page New York Times story said the horde might "be worth up to $4 billion". Odyssey's stock soared overnight, from $0.90 to $1.93.

This rosy scenario had detractors. In April the New Yorker reported that History Hunters International, a website run by three British sceptics, had questioned the wreck's true identity and suggested that the Royal Navy's entire budget in 1694 was smaller than the Sussex's supposed cargo.

To salvage the Sussex, Odyssey cut a controversial deal with the British Government. While Britain retains ownership of the wreck, and both sides will market recovered artefacts, Odyssey gets a percentage, on a sliding scale, of the salvage, plus exclusive marketing rights to the Sussex name in return for royalties. But by harassing Odyssey vessels near Gibraltar, Madrid has challenged UK claims to territorial waters off the British overseas territory.

"There is the potential here for a serious diplomatic incident," Mike Williams, a heritage law academic, told the London Times. "The British may be obliged to act. It is all very embarrassing to them."

In Spain the Mercedes affair has become a matter of national honour, with treasure hunters pilloried by the local press as "the new pirates of this century". Less attention has been paid to another claimant: the people from whom Spain stole gold and silver to mint its coins.

Campaigners in Peru want this looted treasure, extracted in brutal conditions by enslaved Indians, back. "If we can establish that recovered artefacts came from Peru, we are ready to reclaim them as material remnants of our past," Blanca Alva Guerrero, Peru's chief of cultural patrimony told the Guardian.

Although Peru didn't exist in 1804, they are several precedents for such a move, including the restoration of Greek and Roman antiquities to Greece and Italy from the Getty and other US museums, and of Inca artefacts, looted from Machu Picchu, from Yale University to Peru.

Goold says Peru has not filed legal claim to the Mercedes' cargo. Finally, there's the 2001 UNESCO Convention on Protection of Underwater Cultural Heritage, which bans the commercial exploitation of wrecks. It is unlikely to have much heft in Tampa [neither the US nor the UK has signed], but provides moral weight to nations fearful for their patrimony and archaeologists battling treasure hunters.

Odyssey says it handles wrecks with kid gloves. As it is highly secretive, and wrecks lie at tremendous depths, this is hard to ascertain. Salvage companies build databases, culled by historians, of likely targets, then sweep the ocean with side sonar and magnetometers, before deploying remote operated vehicles [ROV] that use strobes, video and robotic arms equipped with suckers to salvage the wrecks.

But what really riles archaeologists is the Sussex deal, which they liken to letting a fox in with the chickens. The Council for British Archaeology worries poorer nations will be pressured into selling artefacts, and that Britain will lose its moral authority in fighting illegal antiquities trade sometimes linked to organised crime.

Meanwhile, doubts have emerged about the Mercedes' true value. Will the haul fetch $500 million or does the $3.99 million declared to UK Customs in Gibraltar represent its real worth? The London Times reported stock sales by Odyssey directors under a teasing headline: "Sunken Treasure Overvalued to Lift Shares of Salvage Firm'."

Back in Tampa, Goold is circumspect when asked if the case will be resolved soon. "We expect now that the mystery this company sought to create has been dispelled, legal activity will accelerate and intensify," he says.

And for Odyssey it is a high-stakes gamble that may sink the Black Swan.

SEA BOUNTY
* US$450 million Value of treasure recovered from the Nuestra Seora de Atocha, which sank off the Florida Keys in 1622. Treasure hunter Mel Fisher won title after years of litigation.
* US$1 billion Amount at stake in court battle between Colombia and salvage company Sea Search Armada for riches lying on the Caribbean seabed off Cartagena.
* 3 million wrecks lie on the ocean floor, according to UNESCO. For treasure hunters the Caribbean and the Iberian coasts are the happy hunting grounds.
* 800 colonial-era shipwrecks, plus Phoenician and Roman vessels, lie off the Spanish port of Cadiz, the landfall for ships from America. Another 150 ships sank off southern Portugal. Their total value is estimated at US$1.5 billion.
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