NEW YORK, Oct 26 — The United States Attorney’s Office for the Southern District of New York has contacted former OceanGate employees and expedition members as part of an investigatory probe.
Citing multiple sources, Wired reported that the subject of the investigation however could not be confirmed, and the US Attorney’s Office would not comment.
Several sources however revealed that a forensic accountancy expert was one of the investigators and that the US Postal Inspection Service was also involved.
The carbon fiber submersible Titan imploded on a tourist trip to the wreck of the Titanic in June 2023, killing the five people on board, including OceanGate founder and CEO Stockton Rush.
Although OceanGate is based in Washington, US Attorneys often investigate crimes across jurisdictions.
The New York office has a history of complex financial investigations, and the US Postal Inspection Service also works on fraud and money laundering.
OceanGate attracted more than US$28 million (RM121.63 million) in investor funding, with much coming from family and friends, according to witnesses at last month’s US Coast Guard Marine Board of Investigation into the accident.
The organisation comprises multiple entities, including at least three for-profit US companies, one Bahamian corporation, and a nonprofit foundation dedicated to oceanographic research and education which would make untangling the flow of money and debt a complex affair.
Documents obtained exclusively by Wired from an anonymous source give the most complete public picture yet of OceanGate’s corporate structure.
The main company, OceanGate Inc., built, tested, and maintained the Titan submersible as well as its predecessors, the Cyclops and Antipodes.
OceanGate then sold the Titan to Cyclops 2 LLC, which would lease the submersible back to OceanGate for five years at a time.
The existence of Cyclops 2 LLC was not reported previously/ and it was not mentioned during the Coast Guard hearings.
Business documents filed with the state of Alaska show Cyclops 2 LLC managed by OceanGate Inc. and that at least two of OceanGate Inc.’s board members were investors in the company.
Entities linked to Rush’s family held about a quarter of its stock, and the largest stockholder, at more than 34 percent, was Furman Moseley, the retired chairman of a Seattle-based paper mill company.
None of the investors Wired could identify, nor the US Postal Inspection Service, responded to requests for comment. OceanGate declined to comment.
Investors who put at least US$250,000 (RM1.09 million) into Cyclops 2 LLC would receive quarterly payments back from the lease of Titan to OceanGate.
At the start of 2019, the Titan was undergoing testing in the Bahamas and was still two years from its maiden voyage with paying passengers.
A document prepared for an OceanGate board meeting however reported: “Current Cyclops 2 LLC investors have already received 13 percent cash return from OceanGate from contracting the use of Titan.”
OceanGate stated that having investors own the submersibles “provides unique cash flow and tax benefits.”
Such arrangements, known as sale-leasebacks, are very common in commercial aviation, where airlines sell planes to, then lease them back from, investors or banks in order to free up capital.
Those deals typically include strict requirements for airlines to keep the planes in good condition, and investors generally don’t pay for annual maintenance or support of the vehicle, as Cyclops 2 LLC did for Titan.
Investing and selling companies managed by the same person however never happens in aviation leasebacks, as with Rush in the Titan transaction.
According to the leaked documents, OceanGate Inc., having leased the Titan from Cyclops 2 LLC, then leases the sub on to a third company, Argus Expeditions Ltd (later also known as OceanGate Expeditions) — with the wholly owned subsidiary incorporated in the Bahamas receiving funds from passengers for the Titanic and other tours.
The OceanGate Foundation, a 501(c)(3) nonprofit, was also closely linked to the commercial businesses.
Although filings with the US Internal Revenue Service do not indicate the source of most of its US$1.5 million (RM6.5 million) in contributions, they show hundreds of thousands of dollars flowing back to OceanGate Inc. to pay for educational and research expeditions.
These types of convoluted structures had been used by OceanGate for years with an earlier purchase-leaseback company called Cyclops 1 LLC that dealt with Titan’s predecessor submersible had for some backers returned nearly 90 percent on their initial investment.
By the summer of 2019, Argus Expeditions was sitting on around US$500,000 in cash (RM2.17 million), while OceanGate itself had US$1.2 million (RM5.21 million) in the bank.
The apparent success of the leaseback arrangement might explain how Rush was able to attract what was OceanGate’s largest ever investment in 2020, at a time when the company was working on the expensive task of replacing the Titan’s first hull that had cracked during testing.
The US$18 million (RM78.2 million) in equity funding allowed OceanGate to rebuild the Titan and move forward with its first Titanic expedition in 2021.
Around this time, documents indicate that OceanGate may have had more control in the taken-over ownership of Cyclops 2 LLC.
But by 2023, OceanGate seemed to be on a much shakier financial footing.
Several witnesses at the Coast Guard hearings testified to what they perceived to be OceanGate’s financial difficulties in the run-up to the final Titanic expedition, including Rush foregoing his salary and occasionally loaning the company money from his personal funds.
Demand for the US$250,000 (RM1.09 million) Titanic dives appeared to be tailing off — with one of OceanGate’s affiliate sellers advertising that there were still “some very limited dates and spots available at a 40 percent discount” for that summer’s expeditions in May 2023, which was not reported previously.
If the federal investigation results in any criminal charges, they would proceed alongside a civil lawsuit currently in a federal court in Washington.
The suit comes from the family of famed Titanic explorer Paul-Henri Nargeolet who is seeking US$50 million (RM217.2 million) for his death aboard the Titan, with the lawsuit naming OceanGate, Rush’s estate, and a number of other individuals and companies connected to the ill-fated submersible as defendants.
Rush’s estate recently filed a motion to dismiss the complaint against it, stating: “As Rush’s employer, OceanGate is liable for Rush’s alleged negligence.”
Maritime lawyer Alton Hall is skeptical that Nargeolet’s family will recover anything close to the amount they are seeking.
A 1920 law, the Death on the High Seas Act, generally limits damages to pecuniary losses, such as future earnings. One exception would be if Nargeolet and his fellow Titan passengers, whom OceanGate dubbed “mission specialists,” qualified as seamen under another piece of legislation called the Jones Act.
An unknown question in these cases — and other cases that might be brought by the families of the two billionaires who also died on the Titan—is who might face legal consequences.
The civil case against OceanGate and Rush’s estate also names as defendants OceanGate’s original director of engineering, Tony Nissen, and three companies that manufactured the Titan’s hull and viewport.
However, multiple witnesses at the Coast Guard hearings testified to Stockton Rush having the final say in many commercial, engineering, and operational decisions, and his company is likely all but bankrupt. In the end, there might be little to salvage from the wreckage of OceanGate.
