Part II: Sharing the Wealth
Everyone Wants a Part of Tommy Thompson's Treasure
By Leon Worden
COINage magazine Vol. 43, No. 1
ommy Thompson's fantastic voyage to the bottom of the sea five times deeper than the wreck of the treasure ship, S.S. Republic earned him the respect of engineers, archaeologists and marine biologists.
Thompson "Harvey" to friends and colleagues invented a boxy, robotic submarine appropriately named Nemo to sift through the debris of the S.S. Central America. From the remote-control sub, he manipulated probes at depths where no human had worked so intricately before.
Clothing, letters and other personal items his team found in passengers' steamer trunks painted a picture of pre-Civil War life in the West, and as many as 13 new animal and plant species were spotted during the mission including an unknown giant octopus that latched itself onto Nemo just as a giant squid had attacked Captain Nemo's Nautilus in the Jules Verne version 120 years earlier.
LIFE magazine hailed Thompson as the salvor of "the greatest treasure ever found."
A bit of the shine came off in 1989 when 39 insurance companies in the United States and Britain laid claim to 100 percent of the treasure. Thompson had only just begun to bring it to the surface.
The S.S. Central America went down in a Category 2 hurricane on Sept. 12, 1857, with $1.6 million in gold that had been consigned to banks in New York real money at the time. Many of the insurance companies (or their predecessors) helped staunch an economic crisis by paying off the losses immediately. Had they not done so, the Panic of 1857 could have been worse than it was.
Years of litigation followed Thompson's discovery. A federal judge eventually awarded 7.78 percent of the insured gold to the underwriters and the balance, 92.22 percent, to Thompson's company, Columbus-America Discovery Group, before expenses. (The final division was reportedly 7.6 percent for the insurers and 92.4 percent for Columbus-America.)
Additionally, the judge declared Thompson's group the sole owner of rest of the treasure, including all non-numismatic artifacts and a small fortune in uninsured gold, silver and jewels that the ship's 578 passengers and crew members left behind.
Most left everything behind. Only 153 people were rescued by passing ships, themselves damaged by the storm-tossed waters 160 miles off of the Carolinas. As the women and children (and several men) boarded lifeboats, Capt. William Lewis Herndon gave strict instructions that they could take no more than two $20 gold double eagles with them.
Many passengers had boarded the S.S. Central America at Aspinwall, the Caribbean port on the Isthmus of Panama, with tens of thousands of dollars in gold dust, nuggets, ingots, U.S. and foreign silver, territorial issues and gold coins from the San Francisco Mint that they had brought with them on the trip down the Pacific Coast aboard the S.S. Sonora.
Now, in the desperate realization that their years of toil in the West were for naught, hysterical passengers hurled their treasures to the floor of the sinking S.S. Central America and cast their gold dust to the winds.
Herndon, a celebrated, 43-year old naval officer who had charted the Valley of the Amazon when the United States was hunting for viable east-west routes in the early 1850s, had been assigned to the United States Mail Steamship Co. in 1855. Mail steamers were under Navy command, and it was a plumb assignment that provided Herndon considerable time in port between monthly trips from New York Harbor to Panama and back again.
From the time she made her maiden voyage in October 1853, the 280-foot S.S. Central America (initially commissioned as the George Law, for a partner in the original steamship company), carried one-third of all California gold that came east through Panama. On her 44th voyage, she took on water that snuffed the coal fires in the central boiler that fueled the two huge steam engines that ran her three-story-tall paddle wheels. Herndon organized a "bucket brigade," but it proved fruitless against the unrelenting, three-day maelstrom.
Herndon, in full uniform, went down with his ship. Three years later his daughter Ellen would name her first-born son in his honor, William Lewis Herndon Arthur Arthur being the surname of Ellen's husband Chester, the future president of the United States.
In 1995, the Fourth Circuit Court of Appeals upheld the trial judge's division of the gold. Acknowledging how heavily the ruling favored Tommy Thompson, the appellate court agreed that the insurers were entitled to compensation proportionate to their efforts to recover the treasure over the past century, which were practically nil. Indeed, without the unconventional mind and tenacity of Tommy Thompson, there would be no source of reimbursement. At one point, the appellate panel waxed eloquent:
"What Thompson and Columbus-America have accomplished is, by any measure, extraordinary," the court held. "We can say without hesitation that their story is a paradigm of American initiative, ingenuity and determination. [Their] efforts provide a standard against which all others should be judged."
In June 2000, the insurers sold their 7.6-percent share in a highly publicized Sotheby's auction that netted $5.5 million, plus a 15-percent sales commission.
More Treasure Below?
Today, the glowing praise for Tommy Thompson that the appellate court expressed in 1995 is not unanimously shared.
"This case is about directors who believe they can take millions from their investors but then refuse to tell the investors what happened to their money," two of Thompson's original financiers declared in a 2005 lawsuit against his partners.
In 1985, Thompson had tapped 161 investors, mainly in Central Ohio, for an estimated $15 million, and he borrowed millions more after he located the treasure. The auction house Christie's advanced him $36 million against future sales.
Two of the 161 investors were The Columbus (Ohio) Dispatch newspaper's parent company, which put up $1 million, and banker Donald C. Fanta, who kicked in $250,000, according to court papers (other sources say $500,000). In their lawsuit, Fanta and The Dispatch claim they have never seen a dime in return, much less a double eagle.
They allege that since 2000, when coin dealer and sports agent Dwight Manley brought the ex-Thompson treasure to market, Thompson and his partners "refused to provide ... any meaningful information regarding the company's finances and operations or what happened to plaintiffs' investment." Fanta and The Dispatch said they were pursuing their grievance now, nearly 20 years after the discovery of the shipwreck, because they didn't realize until early 2005 that they were being shut out.
They further allege that Thompson's partners "have refused to provide ... any information as to whether there is any remaining down treasure, and if so, what efforts have been made to recover it."
Court papers refer to the portion of the S.S. Central America treasure that Thompson and his shipmates brought up as the "up treasure" and assume there is a "down treasure" still sitting on the sea floor.
Thompson has done little to disabuse anyone of the notion. In fact, in a 1998 New York Times bestseller that was preapproved (i.e., edited) by Thompson, author Gary Kinder states that Thompson recovered three tons of insured gold; that the passenger and crew members' uninsured gold "approximated the commercial shipment" in volume; and that as many as 15 tons are still down there.
"Only three tons of gold comprised the commercial shipment out of a potential 21 tons aboard the Central America," Kinder writes in his book, "Ship of Gold in the Deep Blue Sea." Its publication coincided with Thompson's quest to market his share of the treasure.
In 1998, after the last bit of underwriter litigation was resolved (until the following year when Thompson tried unsuccessfully to stop the Sotheby's auction because bringing so much treasure to market at one time could suppress future sales prices), Thompson reorganized his main company as Columbus Exploration LLC.
Thompson is the executive director of the new company and its biggest shareholder, with a personal 35.2-percent stake. His old investors' interests, including those of Fanta and The Dispatch, were transferred to the new company, which has a goal of raising $40 million for its next venture.
The new company's stated purpose is to develop sonar and robotic recovery technology and hunt for more sunken treasure.
A $400 Million Haul?
Fanta and The Dispatch tentatively settled part of their dispute in July 2006 when Columbus Exploration agreed to share some financial data with them but not before Seattle-based International Deep Sea Survey Inc. and nine individuals intervened, claiming Thompson and his partners owed them collectively 2 percent of the profits.
Thompson had spent much of his time in 1985 lining up investors; in 1986, he began spending their money. On April 22, 1986, he signed a lease agreement with IDSS to rent a sidescan sonar system for his 180-foot research vessel, Arctic Discoverer, and then hired an IDSS crew to operate it.
In addition to a daily rental fee of $6,632 falling to $4,796 after the first 30 days, since most treasure hunters give up after the first few days or weeks the agreement stipulated that if Thompson located the shipwreck with the leased equipment, IDSS would receive "0.9% of the net recovery of any salvage operation conducted by lessee [Thompson] on the target [the S.S. Central America]."
Court papers show that IDSS President Michael Williamson and his employees also signed individual "nondisclosure" agreements, promising not to share any confidential information. Confidential information was defined as the identity and location of the shipwreck, the physical and intellectual property used to find it, and anything else Thompson decided was confidential. They also agreed not to go near the shipwreck site for the next 10 years unless they were working for Thompson.
In return for their conciliation, on top of their per diem salary (which they received), documents show Thompson agreed to give Williamson and each employee a cut of the future profits, "provided the target shipwreck site is located in June-July of 1986." Williamson was to receive 0.45 percent; his employees' percentages varied from one-fortieth to one-twentieth of 1 percent. One employee, Don C. Craft, now deceased, was to receive 0.35 percent in return for reducing his daily shipboard wages from $450 to $300.
Whether the S.S. Central America was located in June or July 1986 is an open question for the court. In a Los Angeles courtroom in October, an attorney for the plaintiffs said yes, the ship was "imaged" in the summer of 1986. However, in a written declaration, the same attorney said the ship was discovered in September 1988, "during the third year of the search effort."
Either way, IDSS believes it is owed a principal sum of $3.6 million, based on Thompson's alleged promise of 0.9 percent of profits. The individual crew members say they're collectively owed $4.2 million. With interest calculated from the time the underwriters' case closed in 1998, the plaintiffs are jointly seeking $11.8 million.
How did the plaintiffs' attorneys calculate those figures? Let's do the math.
If IDSS' 0.9 percent equals $3.6 million, Tommy Thompson would need to have derived a profit of $400 million.
That is the figure the plaintiffs cite in their complaint based entirely on an anecdotal comment Tommy Thompson supposedly made on television while he was shopping around for a buyer.
"According to defendant Thompson's statements in an interview on ‘Dateline NBC' in 1998," the complaint reads, "he estimated that the ‘up treasure' might be valued at as much as $400,000,000. He has professed in federal court to secret marketing techniques which will enable him to achieve this value, which is several multiples of the believed bullion value of the recovered treasure."
That's it. The complaint cites no other source for the $400 million figure. Just a television interview and some "secret marketing techniques" that might net Thompson "as much as" $400 million.
"Maybe it's only $150 million," plaintiff's attorney James T. Shirley Jr. said in court testimony in October, "but [Thompson's attorney Richard T. Robol] kept promising that Thompson intended to pay."
Shirley said the plaintiffs are not seeking a cut of the "down treasure," which Shirley believes to be property of the U.S. Navy. He told COINage the Navy has no record of it.
Dwight Manley never discusses how much his California Gold Marketing Group paid for Tommy Thompson's 92.4 percent of the treasure. The figure is generally assumed to be in the neighborhood of $100 million.
It was at least enough for Thompson to settle $43 million worth of claims from two major lenders: Union Bank of California and Christies', which sued to get back its $36 million advance when Thompson changed his mind about using the auction house.
However much Manley paid, the plaintiff's claims would be against whatever profits were left after the payoff of the $43 million and any other debts Manley may have wiped out for Thompson.
Had the IDSS plaintiffs based their claim on the only verifiable figures that exist the $5.5 million realized in the 2000 Sotheby's auction of the underwriters' 7.6 percent Thompson's share of the insured gold, before expenses, would be valued at only $75 million. After the $43 million payoff and other expenses, the IDSS plaintiffs would be pursuing a claim of less than $1 million.
And if Manley truly did little more than retire Thompson's major debts in exchange for the gold, as some close observers suspect, the plaintiffs could be pursuing 2 percent of nothing.
©2007, MILLER MAGAZINES INC./LEON WORDEN. RIGHTS RESERVED.