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SEC Fine Tarnishes Treasure Hunter

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By RICHARD MULLINS, The Tampa Tribune

Published: January 18, 2008

Finding one of the world's largest sunken treasures has not ended well for Ernesto Tapanes.

Instead of being known worldwide as the man who discovered $500 million in sunken gold and silver coins, he'll likely be known for the story that ended with him paying a $216,000 fine to the government over insider trading violations.

Tapanes, 39, worked as an oceanography survey consultant with the treasure-hunting firm Odyssey Marine Exploration Inc., and on March 30 was aboard an Odyssey Marine vessel off the coast of Gibraltar, according to a dramatic description of his actions filed Thursday by the Securities and Exchange Commission.

Tapanes, a Canadian citizen with residences in Ontario and Fort Lauderdale, could not be reached for comment.

On March 30, Tapanes identified and photographed an "anomaly" on the ocean floor.

Odyssey halted survey work, the SEC wrote, and dispatched a second ship to the site to begin explorations with remote-controlled submarines. Odyssey code named the site the "Black Swan" and within a week identified it as an 18th-century ship with more than 500,000 silver and gold coins.

The company quickly circulated a confidentiality agreement that required two things of employees and consultants including Tapanes: Keep the discovery secret, and don't trade in company stock. Tapanes signed that document April 4, the SEC said.

Odyssey began recovering 17 tons of coins and artifacts - the largest treasure trove ever excavated from a historic site - but kept the discovery secret and hauled the coins to a location in Tampa Bay that's still undisclosed.

Another Treasure Hunt

The same day that Tapanes signed the confidentiality agreement, he began buying small increments of Odyssey stock through his personal E-Trade brokerage account online, the SEC said.

To keep buying stock, Tapanes drained $150,000 from his savings account, accumulated over 10 years, and bought 42,000 Odyssey shares from April 4 to May 15, the SEC said. During that time, Odyssey stock traded between $3.58 and $4.35 a share.

Then on May 18, Odyssey revealed its discovery.

The potential value: $500 million, proclaiming it possibly the largest find of its kind.

Odyssey stock leapt 80 percent to close at $8.32 a share. Three days later, the stock traded at $9.45 a share, its highest price ever. Tapanes sold his entire stake, reaping a profit the SEC said equaled $107,101.92.

"That's a classic case" of insider trading, said Howard Mulcahy, a vice president of Forensic Economics Inc., a Pittsford, N.Y., firm that studies stock trades for large insider trading investigations.

The SEC has access to vast databases of stock trading information that record what stocks are held and for how long. Those databases automatically flag strange trades.

"It's an easy matter for them to go back in time and see who held stock and when they bought and sold," Mulcahy said.

Stock brokerages eagerly comply with SEC requests for information in such matters, he said.

"They the brokers don't want to get in trouble, and it's probably spelled out in your account license that they will provide data to the SEC for investigations," he said.

Once the SEC discovered that Tapanes worked inside Odyssey, it probably triggered further investigation, Mulcahy said.

In a written statement Thursday, Odyssey said Tapanes is not a direct employee and the company "is not involved with the matter relating to Mr. Tapanes and the Securities and Exchange Commission." The company said it is not aware of any SEC investigations into direct employees, officers or directors, and declined to comment further.

Teresa Verges, assistant director of enforcement in the SEC's Miami office, said insider trading "is a conduct that we try to move very swiftly against regardless of whether the amount is minimal or significant."

Deal Doesn't Rule Out Criminal Charges

The SEC said Tapanes has consented to a specific punishment, without admitting or denying any allegations, and will disgorge $107,101.92, plus prejudgment interest of $2,151.56, and a civil penalty of $107,101.92. The total fine: $216,355.40.

The SEC has authority to bring civil litigation against companies or individuals in federal courts, so this action would not have resulted in direct criminal prosecution.

SEC officials said their settlement does not prevent any other law enforcement agency from bringing criminal charges against Tapanes.

Information from Bloomberg News was used in this report. Reporter Richard Mullins can be reached at (813) 259-7919 or rmullins@tampatrib.com.

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