On January 14,1942 U123 surfaced so close to New York Harbor that the rides at Coney Island could be seen silhouetted against the evening sky. Captain Reinhard Hardegen expected the U.S. east coast to be blacked out after more than a month at war and was surprised to see the glow in the sky from Manhattan’s millions of lights.
U-123 took part in the opening of Unternehmen Paukenschlag (“Operation Drumbeat”), also called the “Second Happy Time” in January 1942. She began by sinking the cargo ship Cyclops about 125 nmi (232 km; 144 mi) southeast of Cape Sable, Nova Scotia on the 12th.
Moving down the coast, she sank Norness, Coimbra, Norvana, City of Atlanta and the Latvian Ciltvaira.
She was also credited with sinking San Jose on 17 January, although this ship was actually lost in a collision.The Malay was only damaged because Hardegen had under-estimated her size and chose to use the deck gun rather than a torpedo.
U-123 was attacked by an aircraft off New York City, but withdrew without any damage being sustained.
She also had a lucky escape on 19 January when Kosmos II tried to ram the boat off Oregon Inlet.
At 12.50 hours on 19 Jan 1942, the Kosmos II . spotted U-123 from a distance of about 400 metres about 17 miles northeast off Cape Hatteras. The U-boat had troubles with one of the engines and steered a course out to the sea on the surface. The unarmed whale factory ship steered at full speed (about 17 knots) towards the U-boat and tried to ram it, while they send radio messages to notifiy the maritime authorities. The U-boat was out of torpedoes and the draught of the whale factory did not allow the U-boat to submerge. As the U-boat was only 75 metres from the ship, they managed to start the second engine and evaded the ship at full speed. The big ship followed the U-boat for over one hour, but it was making 18 knots and slowly got some distance to her. Hardegen thought about firing the machine guns at the ship to irritate the crew, but decided to fire two flares with the signal pistol at the bridge of the vessel.