The trustee for the defunct Auto-Train filed a $51 million damage suit yesterday against the company's former auditors, claiming that they fraudulently failed to report federal tax liens against the company and led it on a reckless program of expansion prior to its demise two years ago.
The trustee alleges in the 31-page complaint, filed in D.C. Superior Court, that Alexander Grant & Co.'s opinions led to public financial statements that "presented a false and misleading description of Auto-Train's financial condition" and that the company as a result "failed to take timely steps to reorganize" prior to filing for bankruptcy.
Burt K. Fischer, managing partner for the auditing firm, said yesterday that the suit "is totally without merit," adding that he was "surprised that [the trustee] is willing to spend the assets of the estate" by bringing the case to court.
Murray Drabkin, the court-appointed trustee overseeing the liquidation of Auto-Train's assets, was unavailable for comment.
During its 10 years of operation, the Auto-Train transported thousands of Washington-area vacationers from Northern Virginia to Sanford, Fla. On May 1, 1981, operations abruptly halted, with the company in financial ruin.
Drabkin maintains in his suit that the company's financial difficulties were misrepresented for years to stockholders and the board of directors and that Auto-Train, with equipment that was rusting away for lack of spare parts, was trying to expand when it should have been consolidating its assets.
Drabkin contends that among the financial difficulties auditors failed to disclose were:
* Nearly $2.4 million in delinquent federal payroll taxes. According to the suit, the taxes, representing 5 percent of the company's liabilities, "were Auto-Train's primary source of cash for operations" in the late 1970s. A tax lien was filed against the company in 1980, making it more difficult for Auto-Train to receive federal assistance.
* Maintenance of the company's rolling stock "was deferred and in most cases never performed." Spare parts were stripped from train cars, which were left to rust. In late 1979, more than half the company's equipment was inoperable, and the value of equipment was "materially overstated" while the company failed to take "a substantial write-off," according to the suit.
* Financial statements in 1977, 1978 and 1979 "materially overstated" the value of Auto-Train assets by depreciating leased euipment over the life of the equipment rather than over the period of the lease.
Around 1977, Auto-Train attempted to invest in an auto ferry in Mexico, with the sale of $1.2 million worth of train cars to a Mexican group called Auto-Tren de Mexico, according to the suit. Drabkin maintains that the deal never went through, but that Auto-Train's financial statements continued to list unbilled expenses in Mexico as company assets.
From at least 1978 to September 1980, Auto-Train's books and records "were not properly maintained," according to the suit. Drabkin alleges that auditors "failed to make a proper study" of the data-processing systems that generated the company's financial information and that Alexander Grant "placed unreasonable reliance" on representations about the company's equipment, its construction projects and its stock offerings.
According to the suit, the auditors "failed to perform appropriate procedures" to determine why the company's income "was not consistent with the basic Auto-Train financial statements and with Auto-Train's true financial picture."