His largest engagement came when President William Howard Taft ordered the United States Marine Corps to Nicaragua in an attempt to put down a rebellion there, primarily out of the city of Managua.

Terhune commanded USS Annapolis, which landed hundreds of troops to quell the violence and protect American civilians and property.

He removed several local leaders from power and outlawed marriages between United States Navy sailors and Samoan women.

His actions helped lead to the anti-imperialistic Mau movement, stemming from perceived racism and a belief that the marriage law promoted anti-Christian promiscuity.

An inquiry was launched to the island, but before it could get there, Terhune, plagued with depression and health problems, killed himself by a gunshot through the heart on November 3, 1920, at noon.

[9] On at least one occasion, Terhune acted as counsel in a court martial, for Captain Franklin Steele Wilste of the United States Marine Corps, who was accused of failing to pay for uniforms, clothing, liquor, and other items.

The religious Christian Samoans not only claimed racism but that the law encouraged sailors to have sexual relations with young native girls, knowing they would never have to take responsibility for their actions.

[15][16] Terhune's first run-in with the Mau occurred when a group of Samoans returned to the island from the United States, seeking to enter the land development business.

[17] Upon hearing of the multiple difficulties Terhune was having, Secretary of the Navy Lieutenant Commander Josephus Daniels ordered an inquiry after accusations from Boucher,[18] sending Captain Waldo Evans to lead the investigation.

[16] Upon arrival, Waldo Evans was appointed governor on November 11, 1920, taking over from Kail, who had temporarily taken the post;[16] and the court later exonerated Terhune.

[22] Terhune's suicide makes him the only American Samoan governor to die in office,[17] and his ghost is rumored to wander the grounds of the Government House.