At 23.09 hours on 1 Aug 1942 U-510 spotted the unescorted and neutral Maldonado (Master Mario Giambruno) about 250 miles south-southeast of Bermuda. Nietzel decided to follow the illuminated ship and radioed the BdU for orders because he misidentified the Uruguayan flag as Greek and assumed that she is in Swiss charter, but on a suspicious course as she was heading for New York with full holds. The answer was that he is allowed to sink the ship after an inspection, but only if she is not Argentine, Swiss, Portuguese or from the Red Cross. Lookouts on the ship spotted the U-boat after about two hours and the master tried not to provoke an attack by remaining on the same course and by not using the radio. At 05.45 hours on 2 August, the Germans fired two shots across the bow from the port beam and ordered the Maldonado to stop by Morse lamp. All 49 crew members immediately abandoned ship in four lifeboats within 3 minutes. Neitzel found this behavior even more suspicious and at 06.12 hours fired one torpedo at the stopped vessel that hit on port side amidships. U-510 then went to the lifeboats and asked for the master, who was taken aboard as prisoner and only from him they learned that the ship was Uruguayan. The U-boat then left without further questioning or assisting the survivors, but not before firing a coup de grâce from a stern torpedo tube at 06.42 hours. The torpedo struck on the starboard side amidships and caused Maldonado to sink immediately after breaking in two. The lifeboats remained together until they were separated in a storm during the third night. On 5 August, 22 survivors in two boats were picked up by the British troop transport Capetown Castle (Master E.H. Thornton) after being spotted by a Catalina flying boat (VP-52 USN/P-9) in 30°16N/63°38W and landed at Halifax three days later. At noon on 7 August, 13 other survivors were spotted by another Catalina aircraft (VP-52 USN/P-6), picked up with their lifeboat by USS Owl (AT 137) a few hours later and landed at Hamilton, Bermuda. The last lifeboat with the remaining 13 survivors was sighted by an US Army aircraft after 15 days at sea about 70 miles east of Fenwick Island. A Grumman J2F-5 Duck amphibian plane, piloted by Lt(jg) Durgin, took off from Cape May to investigate and direct USCGC GC-491 and USCGC-477 to the boat, but the aircraft crashed and sank not far from it due to engine failure. Both aviators were later rescued by USCGC CG-491 which also picked up the survivors in 38°28N/73°59W and took them to Cape May.

The sinking of the Maldonado and the detention of her master led to anti-Axis demonstrations in Montevideo and to a diplomatic protest by the Uruguayan government. The BdU criticized the commander for acting inexpertly, without due consideration and wrong during this incident because he was not following the prize rules as ordered, torpedoed the vessel before it was identified and captured a sailor from a neutral country. In September 1942 the master was allowed to return home through Switzerland, arriving in Uruguay three months after the sinking.