OceanGate faces a federal investigation a year after the implosion of the Titan submersible, former employees and expedition were contacted as part of the investigation.

NEW YORK (Reuters) – The U.S. Attorney’s Office for the Southern District of New York has contacted former OceanGate employees and expedition participants as part of an investigative investigation.

Citing multiple sources, Wired reported that, however, the subject of the investigation could not be confirmed and the US Attorney’s Office would not comment on it.

However, multiple sources revealed that a forensic accounting 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 Titanic wreck in June 2023, killing the five people on board, including OceanGate founder and CEO Stockton Rush.

Although OceanGate is based in Washington, U.S. attorneys often investigate crimes in different jurisdictions.

The New York office has a long history of complex financial investigations, and the US Postal Inspection Service also works on fraud and money laundering crimes.

OceanGate has raised over US$28 million (RM121.63 million) in investor money, with much of it coming from family and friends, witnesses told the US Coast Guard’s investigation into the accident last month.

The organization includes multiple entities, including at least three for-profit U.S. companies, a Bahamian company and a nonprofit foundation dedicated to oceanographic research and education, which would make untangling the flow of money and debt a complex matter.

Documents received exclusively from Wired from an anonymous source provide the most complete public picture of OceanGate’s corporate structure to date.

The main company, OceanGate Inc., built, tested and maintained the submersible Titan as well as its predecessors, the Cyclops and Antipodes.

OceanGate then sold the Titan to Cyclops 2 LLC, which leased the submersible back to OceanGate for five years at a time.

The existence of Cyclops 2 LLC has not been previously reported and was not mentioned in Coast Guard hearings.

Business documents filed with the state of Alaska indicate that Cyclops 2 LLC is managed by OceanGate Inc. and that at least two of OceanGate Inc.’s board members were investors in the company.

Companies affiliated with Rush’s family held about a quarter of the shares, and the largest shareholder, with more than 34 percent, was Furman Moseley, the retired CEO of a Seattle-based paper mill.

None of the investors Wired neither could identify, nor did the U.S. Postal Inspection Service respond to requests for comment. OceanGate declined to comment.

Investors who have invested at least US$250,000 (RM1.09 million) in Cyclops 2 LLC would receive back quarterly payments from Titan’s rental to OceanGate.

In early 2019, Titan was testing in the Bahamas and was still two years away from its maiden voyage with paying passengers.

However, a document prepared for an OceanGate board meeting states: “Current investors in Cyclops 2 LLC have already received a 13 percent cash return from OceanGate from the contractual use of Titan.”

OceanGate said investor ownership of the submersibles “offers unique cash flow and tax benefits.”

Such agreements, known as sale-leasebacks, are common in commercial aviation. Airlines sell aircraft to investors or banks and then lease them back from them to release capital.

These deals typically include strict requirements for airlines to keep the planes in good condition, and investors generally do not pay for annual maintenance or support of the vehicle, as Cyclops 2 LLC did for Titan.

However, investing and selling companies run by the same person never occurs in aviation leasebacks, such as Rush did in the Titan transaction.

According to the leaked documents, after OceanGate Inc. leased the Titan from Cyclops 2 LLC, it then subleased the submarine to a third company, Argus Expeditions Ltd (later also known as OceanGate Expeditions) – with the wholly owned subsidiary based on the Bahamas is registered to receive funds from passengers for the Titanic and other tours.

The OceanGate Foundation, a 501(c)(3) nonprofit organization, was also closely tied to the commercial companies.

Although documents filed with the US Internal Revenue Service do not reveal where the majority of the US$1.5 million (RM6.5 million) in donations came from, they show that hundreds of thousands of dollars are flowing back to OceanGate Inc. to To finance educational and research expeditions.

These kinds of convoluted structures were used by OceanGate for years, with a previous purchase-leaseback company called Cyclops 1 LLC, which dealt with Titan’s predecessor submersible, producing for some backers a return of nearly 90 percent of their original investment.

As of summer 2019, Argus Expeditions had about 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 agreement may explain how Rush was able to attract OceanGate’s largest investment to date in 2020, at a time when the company was working on the expensive task of replacing Titan’s first hull, which cracked during testing had suffered.

The US$18 million (RM78.2 million) equity financing enabled OceanGate to rebuild Titan and continue its first Titanic expedition in 2021.

At the time, documents suggested that OceanGate may have had more control over the acquired ownership of Cyclops 2 LLC.

But in 2023, OceanGate appeared to be on much more shaky financial ground.

Several witnesses testified at Coast Guard hearings that they believed OceanGate ran into financial difficulties leading up to the final Titanic expedition, including Rush foregoing his salary and occasionally lending the company money from his personal funds.

Demand for the US$250,000 (RM1.09 million) Titanic dives appeared to be waning – one of OceanGate’s partner sellers revealed that this summer’s May expeditions still have “some very limited dates and spots with one 40 percent discount available” will be in 2023, which has not yet been reported.

If the federal investigation results in criminal charges, it would proceed concurrently with a civil lawsuit currently pending in federal court in Washington.

The lawsuit comes from the family of famous Titanic explorer Paul-Henri Nargeolet, who is seeking US$50 million (RM217.2 million) for his death aboard the Titan. The lawsuit names OceanGate, Rush’s estate and a number of other individuals and companies as defendants connected to the ill-fated submarine.

Rush’s estate recently filed a motion to dismiss the lawsuit against him, stating, “As Rush’s employer, OceanGate is liable for Rush’s alleged negligence.”

Alton Hall, a maritime lawyer, is skeptical that Nargeolet’s family will get anywhere near the amount they are seeking.

A 1920 law, the Death on the High Seas Act, generally limits damages to financial losses, such as future earnings. One exception would be if Nargeolet and his fellow Titan passengers, whom OceanGate described as “mission specialists,” qualified as sailors under another law called the Jones Act.

An unknown question in these cases – and in others that may be filed by the families of the two billionaires who also died on the Titan – is who will face legal consequences.

The civil lawsuit against OceanGate and Rush’s estate also names as defendants Tony Nissen, OceanGate’s original technical director, and three companies that manufactured the Titan’s hull and viewport.

However, several witnesses at the Coast Guard hearings testified that Stockton Rush had the final say on many commercial, technical and operational decisions and that his company was likely all but bankrupt. In the end, there may be little to salvage from the wreckage of OceanGate.