The woes of E. C. Ernst Inc. continued to multiply yesterday as a stockholders' lawsuit was filed claiming that earings statements of the Washington company were misrepresented during fiscal 1978.
The suit was filed in U.S. District Court in New York by Harry Lewis of Brooklyn on behalf of all purchasers of Enrst stock between Nov. 14, 1977, and Nov. 8 of this year.
He asked for damages of an unspecified amount as well as legal costs. Spokesmen for Ernst, a large electrical contracting company, declined comment.
Named in the suit were Ernst and some current or former officers and directors. Lewis alleged that Ernst "improperly included income from three long-term contracts" in its earnings reports for the second fiscal quarter ended Sept. 30, 1977, which boosted reported profits by $2 million.
Similarly, the suit charged, Ernst included income from the contracts for the six months ended that Sept. 30, overstating profits by some $4 million.
One contract at issue was with a foreign customer, and Ernst had encountered a significant delay in resolving a dispute over changes required by the customer, the suit states. And there was a "high probability" of a similar problem on another foreign contract, it added.
The third contract mentioned involved alleged cost overruns, and Ernst should have posted losses of $1.1 million for the quarter and $2.2 million for the six months ended Sept. 30, 1977, Lewis charged.Enrst actually reported profits of $950,000 for the quarter and $1.8 million for the six-month period.
Subsequently, in an action apparently dicated by Ernst accountants contract earnings were re-evaluated at the end of the fiscal year, and Ernst reported a surprising pretax loss of $10.8 million for the year on a volume of $129 million.
The pretax loss in the fourth quarter alone was listed at $15 million, and the firm halted dividend payments.
Last week, Ernst announced that it expects another loss - of about $7 million - for the recent six months ended Sept. 30. Ernst Chairman Charles Scharfe Jr. also revealed at that time that management is "continuing to investigate possible irregularities in connection with certain prior-period transaction."
Additional losses could be reported as a result of the current review, Scharfe added. He provided few details but said the current evaluation concerns certain joint ventures and domestic and foreign contracts.
During September, Ernst also rehired its former accounting firm, Arthur Young & Co. Meanwhile, former director and chief financial officer Joseph Griffin was brought back as senior vice president for finance starting Oct. 18.
The change in accounting firms was cited in the lawsuit as evidence of a "materially misleading" statement in a proxy statement for the annual meeting last summer, which had said Ernst had no plans to change accountants in fiscal 1979.
Lewis alleged that Ernst had plans to dismiss the accountant if they continued to disagreed about the company's financial condition.