At 00.46 hours on 18 April 1942 the unescorted and neutral Victoria was hit on the port side between hold #1 and #2 by a stern torpedo from U-201 about 300 miles east of Cape Hatteras. The crew stopped the engines and sent a distress signal, but remained aboard as the ship was not settling. At 01.45 hours, the U-boat fired a G7e torpedo as coup de grâce which hit on the port side between the bridge and the after deck house and then surfaced. The commander had observed faint lights on the ship before the attack, but could not see the neutrality markings through the periscope and only noticed them after surfacing. He immediately reported his mistake to the BdU, was ordered to cease attack and left the area. The crew abandoned ship after the second hit in two lifeboats which were shortly thereafter separated by wind in the darkness.

The distress signal was picked up by USS Owl (AM 2) towing the oil barge YOG-38 to Bermuda. She arrived after 7 hours and inspected Victoria at dawn, lying on even keel with two large holes in her port side. She seemed to be salvageable so a boarding party of eight men was transferred to the tanker and they worked the whole day to start the diesel engines, but high seas prevented that an engineer needed aboard could be transferred during the afternoon. Consequently the men had to remain aboard the next night. At dawn on 19 April, the lifeboat of the chief officer was spotted by Empire Dryden which was just about to pick up the 21 men in it when USS Owl was sighted not far away and informed about the nearby boat. The minesweeper picked up the survivors and brought them back to their ship. Among them was the guarantee engineer of Fairbanks Morse, the company that had built the diesel engines of the tanker and with his help it was finally possible to restart the engines and proceed at seven knots at 17.00 hours. USS Swanson (DD 443) and USS Nicholson (DD 442) were sent from New York to assist and en route the latter picked up the remaining survivors from the lifeboat of the master at 16.00 hours on 19 April, transferring them back to their ship about 8 hours later. The next day, USS Owl was relieved by USS Sagamore (AT 20) and Victoria eventually reached New York on 21 April.

This incident kept many diplomats and lawyers busy for quite some time. Argentina lodged a strong protest against Germany and Italy after an investigation proved that Victoria had been torpedoed. On 17 June, the German government confirmed and regretted that this ship had been torpedoed in error by one of their U-boats, but only a few days later the Rio Tercero was sunk by U-202 and this led to demonstrations off the German Embassy in Buenos Aires. Germany acknowledged her responsibility, offered to pay reparations and gave assurances that no further attacks on Argentine vessel would be made. The salvage of Victoria was also brought before court as it was not clear if the crew voluntarily returned to their ship or not, but it proved to be impossible to clear the matter during wartime as the witnesses were scattered all over the world.

In the meantime, Victoria was repaired at New York and because it was not clear at that time who will pay for the costs of a half a million dollar the US War Shipping Administration (WSA) requisitioned the vessel on 24 July. She returned to service as Panamanian Culpepper on 31 July 1942. The tanker was converted to a barge in 1961.