Walkthrough

Head left of Hangman's Alley and Blackbough until you hit a beach. Once there you will encounter two level 4 Drowners. Once you deal with them, loot the body that is leaning up against a boat. You will find a letter read it and the quest will update.

Once you have read the letter head towards the marker. Cautiously approach the marker as there are several drowners underwater. Kill them with your crossbow it should take one or two shots. The treasure is on the sea floor located at the opposite end of the ship.