Amtrak and Securities Fraud

Amtrak claims that its FY 2018 operating losses were the “lowest in decades” at a mere $168 million. However, there is no way to verify this because Amtrak has not yet published its FY 2018 financial reports.

Private companies are not allowed to drop hints about their financial health before the official results are released to the public. Elon Musk and Tesla got fined $40 million for securities fraud after sending out tweets before the release of Tesla’s annual report. But Amtrak gets away with the same sort of fraud that it commits in a blatant effort to boost its political standing.

Here are the numbers in Amtrak’s press release: total revenues were $3.38 billion; capital investments were $1.46 billion; and operating losses were $168 million. An AP story adds that Amtrak received $1.9 billion in federal subsidies. But what do these numbers mean?

First, the $3.38 billion in revenues include the subsidies provided by the federal and state governments. So the reason why Amtrak can claim “record revenues” is that it also received record subsidies. The failure to distinguish between “revenues” (i.e., passenger revenues) and “subsidies” can be considered a form of fraud.

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Depreciation in the first 11 months of 2018 was $744 million, suggesting it will probably be about $812 million for the year. Depreciation is not just an accounting fiction; it is a real cost indicating how much Amtrak, or any company, needs to spend to keep its capital improvements working at 100 percent of their capacity. Amtrak’s fraudulent efforts to pretend that depreciation isn’t real has contributed to the Northeast Corridor’s $51 billion maintenance backlog and numerous other problems.

After deducting depreciation and state subsidies, Amtrak’s real operating losses will total to more than $1.2 billion in FY 2018. That’s more than in FY 2017, but not a record as it is less than FY 2016. Still, it is more than seven times what Amtrak claims to be its operating losses. If that’s not fraudulent, I don’t know what is.

When Congress created Amtrak, it specifically stated that it was to be a private corporation, and not a government agency. But when Amtrak stockholders sued the company, the Supreme Court held it was a government agency. Thus, the Securities and Exchange Commission will probably not go after Amtrak for committing securities fraud. Yet that it was it is doing when it pre-releases selected numbers to make it look far better than the actual final reports.