The next day, both Mr. Hardy and Mr. Jones disappear. Frank and Joe seek out Mr. Hardy's informant at the maritime docks, Pretzel Pete, to see if he knows anything about the smugglers. Frank and Joe revisit the Shore Road area, and inside the house not far from the house on the cliff, Frank sees Mr. Hardy's hat. With their friends Chet Morton, Biff Hooper and Tony Prito, they use a boat to search for a secret tunnel at the base of the cliff. Frank and Joe try to rescue Mr. Hardy but they are also captured at gunpoint. Chet and Tony go to the United States Coast Guard and find Biff Hooper, Jerry Gilroy, and Phil Cohen there and lead them to the smuggler's secret cave.