(from pacificimperialrailroad.com)
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Conflict of interest and other financial wrongdoings continue to appear around every bend for the binational railroad meant to link factories in Mexico and the U.S. Yet, despite allegations of fraud and links to dozens of shell companies created in the state of Nevada, the Metropolitan Transit System, the owner of some portions of track, is still in support of the project.

MTS CEO Paul Jablonski

MTS CEO Paul Jablonski

“[Pacific Imperial Railroad] asked us to renew the lease in order for them to raise funds and we did. And, as of this time, that lease is in good standing,” MTS CEO Paul Jablonski said at the April 15 board meeting of the San Diego and Arizona Eastern Railway, the nonprofit that manages the Desert Line.

Also at the meeting were Pacific Imperial Railway’s newest CEO, Donald Stoecklein; former president and now self-professed “consiglieri” to management, Charles McHaffie; and Daren Barone, a large shareholder who has been tasked with working with Mexican officials. Earlier in the meeting, the trio reiterated their commitment to getting the binational railroad on track and to dispel any allegations of fraud and money laundering from former management.

As was reported by the Reader, Stoecklein and McHaffie are no strangers to controversy. Dozens of lawsuits have been filed against attorney Stoecklein and businessman McHaffie.

Most recently, the duo was accused by the Neighborhood Market Association’s Mark Arabo and two of his colleagues of scamming them out of $400,000 in a deal to purchase the restaurant formerly owned by Junior Seau. But soon after entering into negotiations the investors were told the deal had fallen through but not before more than one hundred thousand dollars went missing.

When confronted, Stoecklein and McHaffie attempted to convince the investors to put their money in the “lease of a short railroad system that goes from San Diego to Yuma through cross-border agreements they have with Mexico.” Arabo and the other investors declined but not before they say McHaffie and Stoecklein had already spent $145,000. That case is now making its way through court.

Daren Barone

Daren Barone

McHaffie and Stoecklein’s colleague Daren Barone, the man in charge of working with officials in Mexico, has also been involved in his share of controversy.

In 2013, Pacific Imperial's boardmembers, including Barone, entered into an $8.5 million contract with Watkins Environmental Incorporated to perform environmental remediation and construction on the the line.

“Under the agreement,” reads a press release from Business Wire, ”Watkins will provide needed reconstruction concurrent with the inspections provided by JL Patterson and Associates, which cover 57 bridges, inspect 17 tunnels and approximately 70 miles of track, in compliance with PIR’s agreement with the San Diego Metropolitan Transit System (MTS) and PIR’s plan to commence operations in 2014.”

But the work never commenced. And, according to a receptionist at Watkins, no contract is in place.

Barone is a longtime business partner of Watkins, dating back to the early 1980s.

In 2000, the City of San Diego awarded Watkins Acquisitions, owned by Watkins and Barone, a $17 million contract with the City of San Diego for environmental remediation on the Naval Training Center. By the end of the project, a tax-court judge had ruled that the two men had failed to pay taxes and had set up a number of companies in an attempt to increase profits.

Before commencing work on the Naval Training Center, Watkins and Barone, under the guise of Watkins Contracting Inc., looked for ways to limit their exposure legally. They did so by creating several ownership companies, adding another safeguard in case of lawsuits.

The Naval Training Center job was risky.

“To secure the subcontract agreement, [Corky] McMillin Companies, the developer, and [Harper-Nielsen-Dillingham] required [Watkins Contracting Inc.] to submit a lump-sum bid. A lump-sum bid would force [Watkins] to take on the risk of unexpected costs, a risk that was prevalent in the [Naval Training Center] project….”

Despite the risks, Watkins and Barone forged ahead. But before doing so, in order to prevent creditors from other jobs from taking their profits, Watkins and Barone added another layer to the contract, this time creating the Naval Training Center joint-venture agreement. The agreement allowed Barone and Watkins to split the profits: 30 percent to Watkins Contracting Inc., and the remaining 70 percent would go to WB (Watkins Barone) Partners.

“According to Barone and Watkins, the profit split was designed to prevent the 70 percent of profits allocated to WB Partners from being exposed to the reach of [Watkins Contracting Inc.’s] creditors,” reads court documents later filed against the pair.

In 2002, Watkins and Barone, through Watkins Contracting, billed the contractors $14.1 million. At the same time, the two claimed that the joint-venture agreement was responsible for $5.8 million, resulting in a profit of $8.27 million for Barone and Watkins.

Despite the windfall, Barone and Watkins failed to claim the profits on Watkins Contracting returns, a move that a tax court did not find amusing, finding the business failed to claim $850,273 in profits and ordering them to pay a $170,054 penalty.

The ties between Barone, Watkins, and the binational railroad are much stronger.

Nevada state business records reveal Watkins and Pacific Imperial’s top executives and shareholders created a new business together. In May 2013, Watkins was named as a director of the Intercontinental Equity Group. Among his colleagues are Pacific Imperial’s new CEO and lead counsel Stoecklein, former Pacific Imperial executive and shareholder Sheila LeMire, and Dwight Jory, one of the founders of the railroad company and the largest shareholder.

Intercontinental Equity Group’s articles of incorporation include some interesting provisions.

“No contract or transaction between this corporation and any of its directors, or between this corporation or any other corporation, firm, association, or any other legal entity shall be invalidated by reason of the fact that the director of the corporation has a direct or indirect interest, pecuniary or otherwise…”

In addition, according to a share exchange agreement dated May 24, among the many shareholders of Pacific Imperial were WB Acquisitions, DJB Holdings, and GSW Holdings, the three companies that Barone and Watkins had set up for the Naval Training Center project.

I contacted MTS for comment on the apparent conflict of interest issues and am waiting for a response. Donald Stoecklein was unable to provide a comment in time for publication.

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Comments

dwbat April 21, 2014 @ 2:01 p.m.

Meanwhile, Jablonski is another of the many overpaid public officials in California. His current compensation (salary + benefits) amounts to more than $400,000. http://www.sandiegoreader.com/news/20...

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Visduh April 21, 2014 @ 9:25 p.m.

Unless this ship rights itself soon and moves right along with the track, bridge and tunnel repairs, Jablonski will have a lot of 'splaining to do. He's been credited with good things at MTS, but one of them that so far has escaped his reign is getting the buses to run on schedule. But then, for a salary of that size he doesn't get by with being right most of the time, he needs to be right ALL the time. This matter is a scandal in its fetal stage, ready to burst out and bring a huge black eye to the MTS, the city, SANDAG, and good old Paul.

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rrmike7485 April 22, 2014 @ 6:10 p.m.

I was part of the team that got the railroad open and operating back in 2004 and while doing so, MTS as the owner of the railroad kept putting roadblocks in our way.

We paid 100% of the costs with ZERO assistance from MTS and then were saddled with having to pay 6.9% of our gross revenue to Railamerica, who was previously the operator of record on the line. Railamerica publically stated "They wanted nothing to do with the Desert Line, but as a For Profit Corporation", they demanded their cut. We paid a further $200.00 per car that was routed away from the San Diego and Imperial Valley RR, (Railamerica's local operation) and sent through Plaster City, Ca. to the Carriso Gorge Railway.

On top of these fees, we paid a further 1.5% of our gross revenue to MTS, which went into a fund administered by the San Diego and Arizona Eastern Transportation Company, a Nevada Corporation wholeyowned by MTS. This fund was supposed to support the railroad and related projects. Carriso Gorge Railway Inc. was never allowed access to these funds!

During 2007, there were 2 hostile takeovers of Carriso Gorge Railway (CZRY), the 2nd was masterminded by Chas McHaffie and others now identified as owners and management of Pacific Imperial Railroad (PIR).

Needless to say, the railroad has lanquished under control of the current MTS/PIR and the future is very hazy and getting darker regarding this rail line!

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