THE PURPOSE OF THE FLIGHT WAS TO PREPARE TWO FIRST OFFICERS FOR A CAPTAIN UPGRADE FLIGHT. THE INSTRUCTOR PILOT DISABLED THE STUDENT'S ATTITUDE INDICATOR DURING FLIGHT, AND THE STUDENT HAD DIFFICULTY MAINTAINING AIRPLANE CONTROL. DURING A SIMULATED INSTRUMENT APPROACH, WHILE IN THE PROCEDURE TURN, THE INSTRUCTOR SIMULATED AN ENGINE FAILURE IN ADDITION TO THE ATTITUDE INDICATOR FAILURE. THE STUDENT ASKED THE INSTRUCTOR TO TAKE CONTROL OF THE AIRPLANE BECAUSE HE BECAME DISORIENTED, HOWEVER, THE INSTRUCTOR REFUSED. THE INVESTIGATION REVEALED THAT THE INSTRUCTOR WOULD TURN HIS OWN FLIGHT INSTRUMENT LIGHTS TO THE 'DIM' POSITION WHEN THE STUDENT WAS FLYING SO THAT HE COULD NOT 'PEEK' AT THE OPERABLE ATTITUDE INDICATOR. EXAMINATION OF THE WRECKAGE REVEALED THAT THE INSTRUCTOR'S LIGHT RHEOSTAT WAS IN THE DIM POSITION. THE ACCIDENT OCCURRED OVER THE OCEAN, ON A MOONLESS NIGHT. NEITHER THE OPERATOR, NOR THE FAA WERE AWARE THAT THIS INSTRUCTOR WAS USING BLOCK ISLAND FOR TRAINING, OR WHAT TRAINING METHODS HE WAS EMPLOYING.