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Tom, as I understand it - and we'd have to get a member of Chi Psi to set us straight - the captain was a paranoid sort who suspected mutiny and went plundering through the personal effects and papers of his officers. He discovered on young Midshipman Spencer a sealed box containing a coded list of names on a slip of paper. Spencer refused to reveal that they were in fact the names of his Chi Psi Fraternity brothers, and he was hanged because the Captain was convinced they were the names of mutineers.
Fraternities were mush more secretive then that we are today, but even for the 1850s this sounds extreme. I must say that you've got to hand it to a fellow who will give it up for the Lodge.
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