Melchior Verdugo, an inhabitant of the city of Truxillo, was one of the richest men in Peru, being proprietor of the entire province of Caxamarca. On the arrival of the viceroy Blasco Nunnez Vela, Verdugo, who was originally from the same city in Spain, engaged heartily in his service, and continued in his suite at Lima, till the time when the viceroy proposed to dismantle that city and retire to Truxillo. At that period he commanded Verdugo to go before, that he might secure possession of Truxillo, with orders to levy soldiers and provide arms; and Verdugo accordingly embarked all his baggage and effects, intending to have set sail on the very day when the viceroy was imprisoned. As all the vessels at the port of Lima were then detained, Verdugo was unable to proceed; and, as Verdugo was particularly obnoxious to Gonzalo and his partizans, on account of his known attachment to the viceroy, he was one of the twenty-five who were committed to prison by Carvajal on his arrival at Lima, when De Baro and several others were hanged, as formerly related. For a long while afterwards he was in continual danger of being put to death; but at length Gonzalo granted him a pardon, though he still entertained suspicions of his conduct, but had no convenient opportunity of getting rid of him, till the departure of Carvajal against Centeno, when it was proposed by the lieutenant-general to have surprised him while at Truxillo, as formerly mentioned: But having some suspicions of his intention, Verdugo saved himself by flight, and concealed himself among his Indians in the province of Caxamarca.

After Carvajal quitted Truxillo, Verdugo returned to that city; but as he expected Gonzalo might soon become master of that place, and would make him feel the effects of his displeasure, he resolved to abandon the country, yet wished to do it in such a manner as might distress Gonzalo as much as possible. While waiting a favourable opportunity for this, he made every preparation in his power for his intended enterprize, collecting as many men in his service as he possibly could, and employed workmen secretly to construct musquets, iron chains, fetters, and manacles. At this time a vessel arrived from Lima in the harbour of Truxillo, on which Verdugo sent for the master and pilot, under pretence of purchasing some of their commodities; and on their arrival at his house he confined them in a deep dungeon which he had previously prepared. After this, he returned to his chamber, causing his legs to be swathed with bandages, under pretence of certain malignant warts or ulcers to which he was subject, and sat down at one of his windows which looked towards the public square in which the magistrates and principal inhabitants used to assemble every day. When the magistrates came as usual to the square, he requested them to come into his house, as he wished to execute certain deeds in their presence, and the disorder in his legs rendered him unable to go out. Immediately on entering, he caused them to be carried into the dungeon, where they were deprived of their badges of office and put in chains. Leaving them under the guard of six musqueteers, he returned to the window of his chamber, whence he gradually enticed about twenty of the principal citizens into his house, all of whom he put in chains and fetters. He then went out into the city accompanied by a guard of soldiers, and proclaimed the king with much loyal solemnity, making prisoners of all who presumed to oppose him; which were very few, as Gonzalo had carried off most of the inhabitants on his expedition to Quito. Having thus made himself master of the city, and returned to his house, he addressed his prisoners, whom he reviled for having embraced the party of Gonzalo, and declared that he was resolved to withdraw from under the usurpation of the tyrant to join the viceroy, and meant to take along with him all the men and arms he was able to procure. For this purpose, he demanded that all his prisoners should contribute in proportion to their abilities, as it was quite reasonable they should give assistance to the royal cause, having frequently made large contributions to the usurper. He insisted therefore that every one of them should instantly subscribe for such sums as they were able to furnish, all of which were to be paid immediately, as he was otherwise resolved to carry them all along with him as prisoners. Every one of them accordingly agreed to advance such sums of money as they were able to procure, which were all instantly paid.

Having brought this contrivance to a favourable issue, Verdugo made an agreement with the master and pilot of the vessel, and had every thing that could be useful or necessary carried on board. He then carried all his prisoners in irons in carts or waggons to the shore, and embarked with about twenty soldiers, and a considerable sum of money, partly exacted from the inhabitant, partly from the royal funds belonging to the city, and partly, from his own extensive revenues. Leaving his prisoners still in fetters on the carriages, to be liberated as they best might, he set sail along the coast to the northwards. In the course of his voyage he fell in with and captured a vessel belonging to Bachicao, containing a great deal of valuable articles which that officer had acquired by plunder in Tierra Firma, all of which Verdugo divided among his soldiers. He at first inclined to have landed at Buenaventura, on purpose to join the viceroy; but considering the small amount of his force, and the danger of falling in with the fleet of Gonzalo Pizarro, he directed his course for the province of Nicaragua, where he landed and applied to the principal persons there for assistance against the usurper. Finding small encouragement in that quarter, he addressed himself to the royal audience, which was established on the frontiers of Nicaragua, who promised him protection and aid, and sent for that purpose one of their number, the oydor Ramirez de Alarcon to Nicaragua, with orders to the inhabitants of that city to hold themselves in readiness to march with their arms and horses.

Intelligence was soon received at Panama of the exploit of Verdugo at Truxillo, and his having gone to Nicaragua; and as Hinojosa suspected he might increase his force in that province so as to be enabled to disturb him in the possession of the Tierra Firma, he sent Alfonso Palamino with two ships and an hundred and eighty musqueteers to endeavour to dislodge Verdugo. Palamino easily took possession of the ship belonging to Verdugo; but as the inhabitants of Grenada and Leon, the two principal cities in the province of Nicaragua assembled in arms, under Verdugo and the licentiate Ramirez, to oppose his landing, and were much superior in number to his troops and provided with cavalry, he found himself unable to land with any prospect of success. After waiting some time in vain, he was obliged to sail back to Panama, taking several vessels along with him which he had captured on the coast, and burning several others which he could not carry away.

On the departure of Palomino, Verdugo levied about an hundred well armed men, with whom he resolved to give as much interruption as possible to the schemes of the insurgents in the Tierra Firma. With this view he determined to make an attempt on Nombre de Dios, which he learnt was occupied only by a small detachment, which had no suspicion of being attacked. For this purpose, he fitted out three or four small vessels, in which he embarked his troops on the lake of Nicaragua, whence he descended into the gulf of Mexico by the river Chagre, which discharges the waters of that lake into the Atlantic. Finding some trading vessels at the mouth of that river, he received accurate information from their commanders of the state of affairs in Nombre de Dios, the number of the soldiers which occupied that place, and the different quarters in which they were lodged. Taking some of these mariners along with him as guides, he contrived to arrive at Nombre de Dios undiscovered about midnight, and went immediately to the house of Juan de Zabala, in which the captains Pedro de Cabrera and Hernan Mexia were quartered with some soldiers; who, roused by the noise, put themselves in a state of defence. Verdugo and his people set the house on fire, so that Mexia and his soldiers, who defended the staircase, were constrained to rush from the house to save themselves from the flames; and as the night was exceedingly dark, they escaped unseen, and saved themselves in the woods near Nombre de Dios, whence they escaped across the isthmus to Panama.