A WITNESS REPORTED HE HEARD AN APPARENT ENG PROBLEM AFTER THE ACFT TOOK OFF & BEGAN A LEFT TURN FOR A X-WIND DEPARTURE. REPORTEDLY, THE ACFT OSCILLATED, THEN AFTER REGAINING SOME LOST ALT, IT BANKED ABRUPTLY TO THE LEFT, NOSED DOWN, & SUBSEQUENTLY, CRASHED IN THE OCEAN IN A LEFT WING LOW, NOSE DOWN ATTITUDE. AN INVESTIGATION REVEALED EVIDENCE THE LEFT ENG HAD LOST POWER DUE TO WATER CONTAMINATION. WATER WAS FOUND IN THE FUEL STORAGE TANK AS WELL AS IN ANOTHER ACFT THAT HAD BEEN REFUELED FROM THE SAME TANK. THE LEFT PROP HAD NOT BEEN FEATHERED & THE FLAPS WERE FOUND FULL DOWN. THE PLT HAD BEEN DESIGNATED FOR 'ON-DEMAND' FLTS, BUT HE WAS NOT CERTIFIED FOR 'SCHEDULED COMMUTER' FLTS. THE COMPANY HAD DESIGNATED THIS AS AN ON-DEMAND FLT RATHER THAN AN EXTRA-SECTION SCHEDULED COMMUTER FLT. THERE WAS EVIDENCE THE ACFT WAS LOADED 600 TO 700 LBS OVER THE MAX LIMIT & UP TO 5 INCHES BEHIND THE AFT CG LIMIT. FAA SURVEILLANCE OF THE COMPANY OPERATIONS WAS NOT EFFECTIVE IN IDENTIFYING PRBLMS. THE STORAGE TANK FILLER CAP (IN A WELL AREA) WAS NOT WATER TIGHT.