On October 25, 1996, about 1715 eastern daylight time, a Mooney M20K, N32DG, lost engine power during the initial climb after takeoff from the Fernandina Beach Airport, Amelia Island, Florida. The airplane was operated by the pilot under the provisions of Title 14 CFR Part 91 and visual flight rules. An instrument flight plan had been filed, but not activated, for the personal flight. The commercial pilot and one passenger had serious injuries, one passenger had minor injuries, a fourth passenger had no injuries, and the airplane was substantially damaged. The flight was originating at the time of the accident. According to the pilot, after takeoff, and gear retraction, on runway 8, the engine began running roughly. He turned on the boost pump, and the engine quit. The boost pump was turned off; the engine surged, then quit, again. A forced landing was made through the airport fence onto a municipal road. Subsequently, the engine was shipped to the manufacturer's facility at Mobile, Alabama, where it was examined and disassembled. There was no evidence of a mechanical failure of the engine. The left magneto, a Slick Model 6224, serial number 90120019, a pressurized magneto, was equipped with a tachometer pickup in the lower magneto vent hole. The tachometer pickup is installed by the airframe manufacturer. The left magneto was operated on a magneto test stand which produced an intermittent spark at the number five ignition lead. The vent hole at the tachometer pickup exhibited corrosion (green debris). The interior of the magneto also exhibited corrosion on all the components and the interior walls. Slick Service Bulletin SB1-88A issued April 10, 1988, and revised March 01, 1994, recommended 100 hour interval inspections to detect moisture contamination in this model magneto. The bulletin states that moisture in magnetos can lead to severe arcing inside the magnetos and total magneto failure. The bulletin is applicable only to Cessna aircraft. However, the inspection procedures are also contained in the Maintenance and Overhaul Manual L-1037 for the magneto. The airframe manufacturer was contacted on April 25, 1997. The director of customer service stated that the magneto moisture problem was not observed during certification of the airplane, nor was he aware of any customer/warranty difficulties of the problem reported to Mooney. Consequently, Mooney does not have a similar service bulletin. The examination of the engine included a flow test of the fuel system components, in Continental's Fuel Injection production area. The fuel pump was adjusted high at the aneroid adjustment, resulting in 51 PSI pressure and 125 pounds per hour flow at 2700 rpm. The pressure should have been 30 PSI. According to Continental (see attached report) the high fuel flow would result in a rich mixture during operation of the engine, and if the fuel boost pump were activated to high during takeoff power setting, there may have been a tendency to supply excess fuel and create a loss of engine power. The airplane was maintained in accordance with an annual inspection plan. The last annual inspection depicted in the engine log was on October 5, 1995, at a "Hobbs" time of 1384.9. A new vacuum pump was installed, according to the engine log, about 15 hours later. The engine log book indicated that the engine oil was changed four times following the annual inspection, by a mechanic other than the one who conducted the last annual inspection. Additionally, the spark plugs were replaced and an oil leak corrected. The last maintenance in the engine log was on September 26, 1996, at Hobbs time 1528.9, when a defective fuel flow transducer was replaced.