But there was no room in his imagination last Monday afternoon when he watched a large group of waving people emerge from the mist that perpetually clings to the fishing grounds 65 miles south of here. "I'm telling you, it's something to see 150 people coming up out of the water," he said.

He and his three-man crew moved the Atlantic Reaper in for a closer inspection. The people were crammed into two fiberglass lifeboats, only 12 inches separating their gunwales from the sea.

"They were talking a lot," said Dalton, 55, running his fingers through a white swatch of hair above his right ear. "And though we couldn't understand a thing they said, they were right excited."

His and two other fishing boats that came to the rescue gave food and water to the famished castaways. A few of the castaways who could speak English thanked Dalton profusely, saying they had been adrift for five days. One of them wrote down the country of their origin, Sri Lanka. Dalton had never heard of it.

"No ship," they said to Dalton, who believed they were survivors of a shipwreck. It did not immediately occur to Dalton - or to Canadian authorities - that they were concealing the identity of the vessel that had brought them across the sea.

As investigators unraveled the bizarre threads of evidence surrounding the arrival of the first "boat people" ever in Canada, they grew increasingly skeptical of the Sri Lankans' insistence that they had embarked from India.

Rather, a West German connection gradually emerged from the fog of intrigue.

And now the investigation has turned toward what an official of the U.N. High Commissioner for Refugees called "international racketeers," who West German police say charged the Tamil Hindus about $2,500 each for passage in a freighter from West German refugee settlements to the frigid Newfoundland shore.

By week's end, police in Hamburg, West Germany, had arrested two Tamils and a Turk for organizing the clandestine boatlift of refugees desperate for freedom. Authorities searched for a Honduran-registered cargo ship and its captain, who allegedly dumped the Sri Lankans on Canada's coast for a $340,000 fee.

Canadian authorities, who welcomed the 155 refugees without much question, nevertheless said they did not want to become the last stop on a trade route for refugee smugglers, a route that began in the embattled Indian Ocean island-nation of Sri Lanka, crossed the Berlin Wall and ended in Canada, one of the few friendly ports for people fleeing the world's trouble spots.

"That's our primary concern right now, trying to put a stop to it so we don't get more boatloads of refugees," said Sandra Nicholls, a spokeswoman for Immigration Canada.

From the beginning, mystery surrounded the arrival of the Sri Lankans.

Canadian Coast Guard officials, who retrieved the Sri Lankans from the fishermen, said the lifeboat passengers discussed their voyage only in vague detail. Those who spoke English could not describe the ship or its crew. Officials initially reported that the Sri Lankans had been forced to abandon ship.

Dalton and the other fishermen became suspicious after the initial excitement passed. The Sri Lankans, many of whom were young men, did not have much beard growth for such a lengthy voyage, they said, and they appeared unusually healthy despite five days adrift in a climate the fishermen know to be arduous under the best circumstances.

"You wouldn't be able to walk if you stood up," said Dalton. He also noted that the Tamils, when he hoisted them into his 42-foot boat, were wearing dry clothing. A heavy rain had fallen that morning.

"Whether they were out there for five days or whether they said that to allow the ship time to escape, we don't know," said Inspector Jack Lavers, the commander of the Royal Canadian Mounted Police in St. John's.

More important to the police was the identity of the mother ship. The refugees told of being separately loaded onto the ship, where they were confined below decks for the duration of the trip. Consequently, they knew only that it was a cargo ship and that the crew, of whom they saw little, was "Oriental."

The refugees, housed in two spare dormitories at Memorial University of Newfoundland, shrugged their way past a gauntlet of reporters, apologizing, "No English."

Several Tamil residents of St. John's, who had been working as interpreters for immigration officials, provided some clues that first indicated the refugees might have come from West German refugee settlements, where, officials say, 37,000 Tamils have fled to escape violence at the hands of Sinhalese Buddhists, who govern Sri Lanka. The Tamils are primarily Hindus.

"Their story is pretty hard to believe," said Rod Singarayer, a Tamil grocery-store owner in St. John's who sat through about 40 interviews with the refugees. He said some of the refugees carried German newspapers and currency. What little clothing they had was European.

Before a hostile gathering of reporters, Nalliah Wijayanathan, 46, who became the spokesman for the refugees, spoke into a bouquet of microphones and dismissed allegations that the refugees had gone through Europe. He said the newspapers and foreign currency had been sent to the refugees by relatives in Germany.

"I did not come from Germany," said Wijayanathan, a thin, balding man. He removed his German-made eyeglasses and said he had bought them in Sri Lanka. "We are telling the truth," he said.

"I told them to tell the truth because there is no harm in telling the truth," said Singarayer, the interpreter. "They may have been told to tell a lie until they were secure here."

Canadian authorities said it would make no difference where the Tamils had begun their journey. Under Canadian law, the government cannot deport refugees from several nations with civil unrest, including Sri Lanka. Indeed, two days after the refugees arrived in Canada, the government gave them one-year temporary residency permits.

Canadian investigators, meanwhile, examined the clues that the refugees carried with them.

The lifejackets worn by the Tamils were marked Hamburg and Hapag-Lloyd, a German ship company. Investigators questioned the captain of the Nurenberg Express, a Hapag-Lloyd ship that passed by Newfoundland last weekend before berthing in Baltimore. They ruled out that ship.

The 30-foot lifeboats also bore the barely perceptible name of the Regina Maris, a former Canadian cruise ship.

West German authorities traced the lifeboats to a shipyard in Bremerhaven, where the Regina Maris was refitted last August. Officials in West Germany reported that three of the lifeboats had been resold recently.

A torrent of clues flowed to substantiate the European connection. Witnesses who had worked with the Tamil refugees in West Germany said they recognized some of the boat people in news reports carried in Europe. About 20 Tamils were reported missing from refugee camps near Hamburg. West German banks reported changing large amounts of Canadian dollars recently.

When West German police announced on Friday that they had arrested three men for organizing the smuggling operation, they identified the ship that carried the Tamils as the Aurigae, a German-owned freighter registered in Honduras. The coastal freighter and its captain, Wolfgang Bindel, were last seen near the West German port of Brake on July 28, about 13 days before Dalton discovered the lifeboats full of refugees.

Yesterday, Bindel denied the allegations in an interview with the German Norddeutsche Rundfunk radio network, which said he was reached by radio off the coast of Morocco. The captain said he was returning to West Germany to answer the accusations.

An official in the Canadian consul's office in Hamburg, Dennis Baker, said he had received an anonymous call on July 25 saying a group of Tamil refugees planned to board a freighter and flee to Canada. Authorities in West Germany and Canada were notified, but officials in Ottawa said Friday that the caller did not provide enough details to identify the ship before it departed.

Canadian officials acknowledged that the Tamils had a strong incentive to risk an illegal voyage to Canada. "I suppose Canada has a reputation for having a very fair refugee system," said Nicholls, the spokeswoman for Immigration Canada.

Jean Francois Durieux, an official with the U.N. High Commissioner for Refugees, said most Tamils find it easy to migrate to West Germany, catching inexpensive flights on Soviet or Eastern European airlines to East Berlin. East Germany permits the refugees to cross into the West because it only recognizes the Berlin Wall as an internal border, not an international one.

In West Germany, Durieux said, Sri Lankan refugees have restricted freedom and are not permitted to work for two years. In Canada, a Tamil from Sri Lanka is almost automatically granted refugee status. The 155 refugees, who were flown to Montreal and Toronto on Thursday, already have received approval to apply for work permits or welfare payments.

Although last week's boatlift was Canada's first, it illustrated the vulnerability of the Canadian coast.

Military and Coast Guard officials said their surveillance is concerned more with enforcing Canada's 200-mile fishing limit over the rich Grand Banks than with monitoring the busy shipping lanes that operate only 20 miles from Newfoundland's shore.

"Cargo ships are pretty much at liberty to go where they want," said Greg Teddle, a Canadian Coast Guard spokesman. "There are ships out there that are going a lot of different places, eh? They pass pretty close."

With the cover of fog, a freighter could easily pause to unload two boatloads of refugees and escape, undetected, to the high seas.