Problem: Two trains leave opposite ends of San Diego. Train A is traveling at 100 miles per hour loaded with allegations of fraud; Train B is traveling on the same track at the same rate of speed packed with many of the same allegations. What time will the two trains collide?
The answer: 9 a.m. on Tuesday, April 15. That's when the San Diego and Arizona Eastern Railway Company's board of directors, an offshoot of the Metropolitan Transit System, will meet in downtown San Diego to discuss, among other items, the 100-year old binational railroad built by John D. Spreckels.
In recent weeks, the former Carrizo Gorge Railway Company (now called Pacific Imperial Railway) has transformed from a potential rail line linking factories in Mexico with San Diego into an alleged vehicle for fraud.
During Tuesday's meeting, attorney and current CEO of Pacific Imperial Railway, Donald Stoecklein, will address allegations of fraud from former CEO Ernie Dahlman and Pacific Imperial's former president, David Rohal.
The two former executives say Stoecklein and the majority stockholders laundered not just the nearly one million dollars they invested privately but also another million they raised to get the railroad up and running. Their claims have been covered by U-T San Diego as well as a three-part-series by KUSI. Dahlman and Rohal are leading the charge against Stoecklein and Pacific Imperial Railway in hopes of exposing what they say is a multimillion-dollar ponzi scheme.
The two were hired to help put the line on track — Dahlman in early 2013, Rohal later that year. Dahlman, a New York investment banker, was brought in to raise capital; Rohal, a longtime railroad executive, was hired to run the company.
Along the way, however, Dahlman says he ran into a wall when trying to track down the company's financials. He says by mid-2013 he shelled out $100,000 in order to fulfill the lease payment to the Metropolitan Transit System's $1 million annual lease to use the line. Rohal also invested $750,000 of his own cash before discovering what they say is a well-oiled fraud machine.
Rumors of fraud and numerous lawsuits have weighed down the former Carrizo Gorge Railway since 2007, when majority stockholders and former Las Vegas speculators (Charles McHaffie, Dwight Jory, McHaffie's former girlfriend Sheila LeMire, among others) assumed control of the company from former president Gary Sweetwood. Both sides continue to fight over the issue in court.
Since that takeover, more weight in paper has been moved between court rooms than goods transported on the line.
Pacific Imperial's principals — McHaffie, Jory, LeMire, as well as Pacific Imperial Railway's new CEO, Stoecklein — are not strangers to controversy.
Together, the four have been involved in dozens of lawsuits in San Diego County, many of which are for breach of contract and not making good on payments as well as a handful of bankruptcy cases spanning the past decade.
McHaffie, seemingly the ringleader, has been on the losing side of several suits — to the tune of more than $2 million. In 2010, a judge ordered McHaffie to pay El Cajon businessman Mark Whillock $1.5 million for his role in a development gone wrong in downtown San Diego. According to Whillock, he has not received a single payment.
Last year, McHaffie was on the losing side of another court battle, one brought against him by the federal government for failing to pay $360,000 in payroll taxes when he was the principal for Carrizo Gorge Railway. McHaffie also had a role in some campaign-finance scandals, too, as first reported by the Reader.
The lawsuits and allegations have turned the spotlight on the company. In response to the allegations and the sordid past, in a 21-page letter to boardmembers for the San Diego and Arizona Eastern Railway, Stoecklein hopes to convince them that operations are chugging along as planned.
In his letter, Stoecklein chronicles Pacific Imperial Railway's beginnings in October 2011. Among the first orders of business: Stoecklein named himself the company's director. He then went on to hire his law firm as chief legal counsel.
"Stoecklein was [Pacific Imperial Railway's] Incorporator, President, Secretary, Treasurer, and sole Director," reads his letter. "He was asked to serve as such by the group known as the 'Nevada Group' made up of Camden Healthcare Inc., Gold Mountain North, AC Funding, CC Trust, Locati Global Holdings, Dwight Jory and the other principals of each entity."
Stoecklein claims that one of those companies, Gold Mountain North LLC, a company started by Jory and his soon-to-be wife, Theodora, brought a major asset to the deal, a $550 million property in Mexico known as Rancho Tembabichi.
The property, states Stoecklein, is "approximately 21,326.73 acres on the Sea of Cortex [sic] in Baja California, Mexico. The primary parcel is 5,685.30 acres, with 12 miles of ocean front, a natural lagoon with an estimated area of 12.36 acres, set on a gentle sloping site with a view of the Sea of Cortez."
Stoecklein believed the company should use Tembabichi as an asset to raise capital for Pacific Imperial but then chief executive officer Dahlman thought otherwise, saying that using the property would only confuse investors.
Dahlman's recollection differs. He says that despite repeated attempts, he never saw a title or concrete evidence that Pacific Imperial had rights to the property or whether the property existed.
Shortly after, Dahlman began asking for financial statements and other items he needed to show investors.
In a June 10, 2013, email obtained by the Reader, Dahlman questioned Stoecklein's power as president, lead counsel, and one of the largest shareholders.
"I would like to address a concern I have regarding the impound account which we are using to fund our current $25 million raise. Money from this account should not be distributed to the [Pacific imperial Railroad] operating account without knowledge and approval from the board. If it appears that money is being used in a 'self serving' manner during this process, we could suffer serious consequences with regard to future funding, and importantly future potential liabilities to the company.