In a futile effort to avoid bankruptcy, Auto-Train Corp. last summer sought financial help from a Las Vegas casino that for more than a decade has been under investigation for links to organized crime and union pension funds.
Executives of the Washington railroad discussed running an Auto-Train for gamblers from southern California to Las Vegas, and tried to secure a multimillion-dollar credit line through the Dunes Hotel and Country Club Corp.
The Dunes is controlled by Morris Shenker, a St. Louis lawyer who once defended former Teamsters' Union president Jimmy Hoffa and has arranged millions of dollars of loans -- to his own businesses and others -- from the pension funds of the Teamsters and other unions.
Shenker has never been convicted of a crime, but he, the Dunes and associated compaines have been subjected to repeated legal actions by the Securities and Exchange Commission and the Department of Labor for alleged civil violations of securities and labor laws.
Auto-train's talks with the Dunes collapsed when Shenker suffered a heart attack. After other efforts to secure financial help failed, Auto-Train last month filed a petition for reorganization in bankruptcy.
The controversial Las Vegas casino is only one of the unorthodox sources of funds to which Auto-Train turned when conventional lenders refused to give it credit, an investigation by The Washington Post has disclosed.
To help find capital, Auto-Train hired as a consultant a former stockbroker who has a criminal record. The consultant, Robert S. Keefer Jr., pleaded quilty in 1969 to three felony charges in a case involving illegal loans from a Swiss bank.
The struggling railroad tried to arrange a $3 million loan through a company called "British Bancorporation," which turned out to be neither British nor a bank, but a California firm operated by two convicted swindlers.
Auto-Train also signed an unusual contract permitting a New York firm to print certificates good for $1 million worth of Auto-Train tickets in exchange for what court papers call "vaguely described" advertising and marketing services.
That contract was canceled recently by Murray Drabkin, the trustee appointed by the federal bankruptcy court to run the railroad and try to straighten out its financial affairs.
The daily Auto-Train that carries passengers and their cars between suburban Lorton, Va., and Sanford, Fla., is continuing to operate under the direction of Drabkin, who has said he believes Auto-Train can be successfully reorganized.
But Drabkin's efforts to save Auto-Train Corp. have been hampered by new revelations of what was going on inside the company. "Everytime he turns over a rock, something awful crawls out," said one person familiar with the situation.
Drabkin is now in the midst of a fight to oust Auto-Train founder Eugene Kerik Garfield from his $125,000-a-year job as chairman and president of the railroad. Garfield, who has already agreed to a $75,000 cut in pay, has asked the bankruptcy court to delay action on the move to fire him.
Some of the company's major creditors are pressuring Drabkin to get rid of Garfield. Garfield's continued presence in the executive suite hinders efforts to reorganize the railroad, the trustee has told bankruptcy judge Roger M. Whalen, who is expected to rule on the dispute tomorrow.
Drabkin declined to discuss Auto-Train's connections to the Dunes casino and its previous efforts to raise funds. A spokesman for the trustee said he is more concerned about the future of the railroad than its past.
Garfield has previously said Auto-Train was forced to seek funds wherever they could be found because "obviously our credit was not bankable."
Garfield said disclosure of the backgrounds of some of the people dealing with Auto-Train bolsters up his claim that "somebody was out to get this company and get rid of me, and they're still trying."
The Auto-Train chief executive said he had dealt with Keefer for more than two years, and did not know the man had a criminal record.
Court records in New York City show that in 1969, Robert S. Keefer Jr. -- then an executive of a Wall Street securities firm called Coggeshall & Hicks -- was indicted along with that firm and four other men for violating federal securities laws.
All were charged with developing a plan to get around the federal limits on the amount of money that can be borrowed to finance the purchase of stock by routing business through a Swiss bank.
Keefer pleaded guilty to three of the eight charges against him. He was fined $30,000 and given a one-year suspended sentence in federal court. He was later banned from the securities business for one year.
Keefer, who now lives in the Los Angeles area, has been involved with Auto-Train for about two years.
The relationship began when Keefer approached Arthur Gilbert, a Washington consultant who was then an Auto-Train board member. Gilbert said Keefer first offered to aid in an effort to wrest control of the company from Garfield and then "double-crossed me." Gilbert was later ousted from the board of directors and Keefer went to work for Auto-Train.
Keefer was "indirectly involved" in the effort to secure financing through the Dunes casino, Garfield said. He would not elaborate and provided no details of Auto-Train's relations with the Nevada company.
Other sources said Garfield hoped to get the Dunes and Shenker to provide a loan quarantee that would enable Auto-Train to borrow some $3 million.
The Washington railroad also hoped to start a West Coast service running from San Diego to Los Angeles to Las Vegas, and developed the proposal far enough to print elaborate color posters promoting the new train.
Neither the loan nor the gamblers' train came to be, howver, because of the heart attack that hospitalized Shenker. Auto-Train needed money quickly and turned to other sources.
Federal investigators familiar with the operations of the Dunes and Shenker said this week they were puzzled by suggestion that either might be able to provide funds to bail out another business. The Dunes itself has not found money to finance planned expansion because federal officials have cut off Shenker from his usual source of capital -- union pension funds, say federal authorities.
The Central States Teamster Pension Fund five years ago gave Shenker a committment to loan the Dunes $40 million to build a big new wing of hotel rooms.
The Labor Department sued to block the loan and was upheld by the federal courts, but the legal fight is still continuing. Labor Department lawyers contended the loan was illegal under pension reform legislation drafted in response to previous dealings of the pension funds of the Teamsters and other unions.
The law prohibits loans to businesses which employ union workers, and the Dunes company indirectly owned part of a trucking company.
The Labor Department has also taken Shenker and his associates to court over loans from the Culinary Workers Union, which represents bartenders and other casino workers. In 1977 the federal agency reported that three quarters of the Las Vegas Culinary Workers' $46 million pension fund was loaned to Shenker-controlled companies.
Shenker financed the purchase of the Dunes with loans from the Central States Teamster Pension Fund. federal officials say, and the Dunes still owes the union $9 million.
A prominent St. Louis criminal lawyer, Shenker has ties to the teamsters that were developed more than a decade ago when he defended then-Teamster president Jimmy Hoffa against criminal charges of jury tampering and looting the union's pension fund.
In 1969 the Securities and Exchange Commission took action against Shenker for alleged improprieties in a series of transactions that gave him control of The Dunes through a company then called Continental Connector Corp. Without admitting charges that Continental's assets were artificially inflated and its public reports were false, the company and its officers accepted an SEC order to correct the practices.
The SEC apparently did not learn of The Dunes' negotiations with Auto-Train, but did discover the Washington railroad was negotiating with another company operated by persons who had previously been in trouble with law enforcement agencies.
Early last month, SEC attornies called Garfield to a Saturday morning meeting to notify him that two men with whom he was negotiating a $3.7 million loan were convicted swindlers.
The two had told Auto-Train they were executives of British Bancorporation and had agreed to help the company arrange a loan through a Swiss bank.
One of the British Bancorp. executives was identified by the SEC as Milton Z. Mende, a former stockbroker cited by the SEC for selling unregistered securities. Mende has been indicted on more than a dozen charges in California.
The other British banker turned out to be Edward S. Friedland, who was convicted in New York of stock forgery, conspiracy and related charges for which he served three and a half years in prison.
No charges have been filed against either Mende or Friedland in their dealings with Auto-Train and the Swiss bank. Garfield says his company is cooperating with a federal investigation of the matter.
Auto-Train trustee Drabkin has also raised questions about the contract Auto-Train signed in July with a New York firm called Trafalgar Capital Corp. The contract gave Trafalgar the right to print certificates that could be redeemed for $1 million worth of Auto-Train tickets, in exchange for providing the railroad with advertising and marketing services.