The Hedge Fund Kid and the Treasure Ship

An Odyssey Marine Exploration recovery operation at a North Atlantic shipwreck site in 2012 Photograph by Odyssey Marine Exploration via Bloomberg

On Monday, a deep-water exploration ship lingered 160 miles off the coast of Charleston, S.C. The vessel is operated by Odyssey Marine Exploration, a company with a unique business model: It recovers treasure from shipwrecked vessels.

Odyssey Marine hopes to retrieve an estimated $86 million in gold from the SS Central America, a steamship sunk during a hurricane in 1857 while it carried large amounts of gold from California. The publicly traded, Tampa-based company is entitled to a substantial percentage of the riches. Naturally, Odyssey Marine is promoting the possibility of a big score on its website.

Not everybody is persuaded. Ryan Morris, an activist hedge fund manager who has shorted Odyssey Marine’s stock, insists that nothing of great value is left on the sunken vessel.

Odyssey Marine and Morris should both be familiar to readers of Bloomberg Businessweek. In 2012, staff writer Susan Berfield chronicled the volatile career of Greg Stemm, Odyssey Marine’s co-founder and chief executive officer. That year, Karen Weiss, a reporter at the magazine, profiled Morris, at 28 years old a rarity in the hedge fund world.

Hostilities between Stem and Morris began in November, when Morris released a 66-page report on Odyssey Marine, arguing that its stock “was worth zero.” At the time, Odyssey Marine dismissed Morris’s work as full of “factual errors, incomplete information, and erroneous conclusions.” When Odyssey Marine announced its plan to go poking around the SS Central America, Morris published a less voluminous, but still scathing study, arguing that the company was embarking on a fool’s errand.

Morris may have good reason to be skeptical. This is the second time that a team of underwater explorers has visited the SS Central America. In 1988, a fortune hunter named Tommy Thompson led a team that located the SS Central America and returned with a stash of gold that he eventually sold at auction for $52 million.

Along the way, Thompson alienated investors who had bankrolled his effort. They claimed to have gotten nothing in return. Crew members also said they hadn’t been paid. Thompson, who denied the allegations, is hard to find these days. In 2012, a district court judge issued a warrant for his arrest after he skipped a contempt of court hearing. Thompson’s attorneys lament that they don’t know where to reach him.

Last year, a federal judge in Ohio appointed attorney Ira Kane to oversee Thompson’s companies and come up with a plan make his creditors whole. Kane wanted to send a team of treasure hunters back to the SS Central America to ascertain if further gold is  there, as some of Thompson’s crew members insist. Some have advanced the theory that a huge cache of gold then under guard by the U.S. Army remains on board.

Morris finds this laughable. He says he and his team have interviewed Thompson’s first mate, reviewed court records, and looked at historical documents without finding anything to support the presence of these riches. He insists that without such a discovery, Odyssey is in trouble. “The only way it is a home run project is if they found this secret army gold,” Morris said in an e-mail. “Otherwise, they are literally picking coins out of the skeletons of 425 dead passengers.” He promises to donate any profits from his short position to charity.

Odyssey Marine brushes off the activist investor’s attacks. “Our research department and the court-appointed experts all believe there is enough gold remaining at the SS Central America to warrant the expense of conducting an expedition,” Odyssey Marine President Mark Gordon told Bloomberg News.