According to the Wikipedia article on Peyton Magruder he "resigned during his senior year of 1934 partially due to a scandal which has now become a part of Naval Academy lore." What was this scandal?
The subjects of the Annapolis legend, which any plebe can recite complete with gestures, is a bath in Madeira and explains how Magruder came to resign from the Naval Academy. Boiled down, a generally accepted version goes like this: when the old battleship Wyoming, with Magruder, and other midshipmen aboard, arrived at Funchal, Madeira, on a training cruise in 1933, across the bay was a German merchantman with future wives for South African colonists on its passenger list.
Wyoming scuttlebutt quickly translated this into a shipload of beauteous maidens. That night, Magruder and a classmate (now a well-known submarine commander in the Pacific) were preparing to turn in when the classmate decided he wanted a date with one of those beauteous maidens. Before Magruder could dissuade him, he had dived overboard front the gun deck. Magruder, knowing his bunkmate was a poor swimmer, went after him. He should, however, have sung out "man overboard" instead. By not so doing, he had, in Navy parlance, unnecessarily endangered a life (his own). So the commendation for saving his classmate was accompanied by a whopping block of demerits for violating Navy regulations. He now had so many demerits that even the most trivial offense would result in his automatic expulsion of the Academy. Several months later, he decided discretion was the better part of valor and resigned. He is more useful to the nation where lie is, however, than he could ever have been as a still quite junior naval officer
Another version of the story here: