Shawn is annoyed when he learns Gus tricked him into attending a funeral for a sea lion. But Gus protests that Shabby isn't any sea lion. His story of being rescued and rehabilitated is famous, so much so that Randy Labayda of Animal Planet fame, who just released Shabby back into the wild, is giving the eulogy. When Shawn goes up to pay his respects to Shabby's open casket, he notices a strange hole in his flipper and tells Gus he thinks Shabby was murdered. April McCarthur, an official looking woman wearing an aquarium pin, overhears Shawn and promptly asks them both to follow her out of the funeral. Gus is annoyed with Shawn for getting them kicked out, but April tells them she has had similar suspicions regarding the circumstances of Shabby's death. Labayda's cameraman slows as he hears them talking, so April asks if she can meet them somewhere later.
At the Psych office, April tells Shawn and Gus that Shabby's release was supposed to be a quiet local affair, but Labayda, who wanted to do a segment on it, took over and insisted on moving up the release date. April says Shabby wasn't ready but that didn't matter to Labayda, and when they came back from releasing the sea lion, they were late and upset, quickly locking the ship's log in Labayda's office at the aquarium. Shawn says they need to get into that office and April claims she can help, but when they get outside the aquarium that night, it turns out she can only show them the best way to sneak inside. She confesses she was fired recently for asking too many questions, but she is able to give them the security code. Once inside Labayda's office, Shawn finds the ship's log but more interestingly, he discovers Labayda has two laptops, one in a metal case. They turn on that one to reveal a GPS screen displaying latitude and longitude numbers. Gus then checks the ship's log and realizes that Labayda released Shabby in the wrong place, but before they can get anything else, they hear a security guard coming. They take off but are not fast enough, and the two of them are arrested for breaking and entering.
Luckily for the guys, Juliet is also a Shabby fan, and convinces Vick to release Shawn and Gus without asking too many questions. But Lassiter, who lost the diamond smugglers he was chasing when they boarded a plane called Rocinante and got away in a lightening storm, is in need of a good case and mistakenly thinks they have one. Shawn then tricks Lassiter into exhuming Shabby, and the coroner finds a couple of things that are odd: an empty piercing on the body, some coral in his fur and some fibers from a fishing net. Once Lassiter has gotten over the shock of realizing he unearthed a sea lion, he says all of the evidence points to a pretty obvious cause of death. Shawn is worried he's right but still needs to see the reef to make sure. Henry refuses to take Shawn and Gus to the reef because it is in restricted waters, so Shawn steals his new boat and goes out anyway. He and Gus use the GPS on the boat to take them out to the coordinates they found in Labayda's log, but once they get there, Gus spots another boat in the vicinity and tells Shawn to cut the lights on the boat. They aren't supposed to be there and he doesn't want to get arrested again. They drift to the right coordinates, but as soon as they get there, three huge spotlights come on revealing another boat almost right on top of them. Shawn notices a man coiling up metal tubing and moving a mechanical arm back over the boat and realizes this boat is not the Coast Guard. The men, Roger and Spriggs, say they thought Shawn and Gus might be the Coast Guard coming to tow them in. They were on their way to Monterey and stalled out. The guys then take off before the authorities arrive but they get back to the dock only to find Henry waiting there for them with Lassiter and Juliet, who tell them the coroner found two bullets in Shabby. The sea lion was definitely murdered.
The police bring Labayda in for questioning, and, once confronted with the evidence he secretly tagged and monitored the sea lion, he confesses that he was going to produce more segments that followed the sea lion's progress. Labayda then uses his one phone call to tell his cameraman to destroy the discs of Shabby's release but he's too late. Shawn and Gus are already there reviewing the footage and discover that Labayda released Shabby in the wrong spot in order to get a better shot of himself with the sunset. Labayda didn't murder Shabby, he just put him in the wrong place at the wrong time. But in the background of the shot, they see Roger and Sprigg's boat on the same reef. Those guys weren't drifting, they were there for a reason. Shawn and Gus head to the marina and sneak onto their boat, where they find high tech tracking equipment, a torn fishing net with Shabby's tracking tag stuck in it and guns of the same caliber used to kill the animal. Before Shawn and Gus can get off the boat, Roger and Spriggs return. They hide in a smuggler's hatch where Shawn discovers a flight plan for the Rocinante. He's figured it out but the engine then roars to life and now they are trapped and on the move. Shawn texts Juliet for help, telling her to track them using Shabby's transmitter. She does and tells them they are still on land. Shawn and Gus crawl out of the hatch to see they have pulled into a warehouse where the bad guys are unloading the diamonds and dumping the equipment. Roger and Spriggs spot them but Shawn stalls by recounting how, when Shabby's signal came up on their tracking equipment, they thought he was an underwater diver and shot him. Using the net, they pulled him onto the boat to realize their mistake. The cops finally arrive and Shawn informs Lassiter that not only have they solved Shabby's murder, they've also found his missing smuggler's loot, closing two cases at once.