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San Diego and Arizona Eastern Railway to roll?

Executive from company to address allegations of fraud

Cars that long ago fell from San Diego and Arizona Eastern Railway tracks - Image by Pattymooney/Wikipedia
Cars that long ago fell from San Diego and Arizona Eastern Railway tracks

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.

Sponsored
Sponsored

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.

“I was just notified that $225,000 was journaled out without my approval or knowledge. This is money that I called in as a personal favor before documentation was finished to relieve potential pressure we may have regarding our $500,000 lease obligation due July 1. The company has financial obligations to me including payment of debt, salary, and payment of my deal expenses. I have yet to ask for the the company to fulfill these obligations because I feel its inappropriate to do so under our current financial circumstances. I am working tirelessly to fund this business, and a significant part of my ability to do so is my own personal credibility. I hope that we all understand the potential dire consequences of me losing that credibility because it appears that we have our 'hand in the till' as they say....”

Dahlman soon grew frustrated.

"Well yes," wrote Dahlman in an August 6, 2013, email to Stoecklein, Sheila LeMire, and shareholder Darren Barone. "I'd like to see the financial statements as well as a detailed expense ledger as I ask for in my previous email, as I asked for in the board meeting, and as I've been asking for from the beginning. Should I start sending requests by certified mail so I have a record of it? Why should we all not have equal access to the information. We have one signatory, that person is in charge of our financials which I haven't seen, and that person is able to pay himself and his firm with checks from Pacific Imperial himself, as well as anyone else for anything he may decide unilaterally. Doesn't everyone see that this puts us all in jeopardy? I'm not accusing anyone of any wrongdoing because I have no way of knowing — how could I? How is this even a conversation? If we want to be a real business, which we all are working very hard to be, and which everyone seems to believe we can be, then why don't we start acting like one….”

Stoecklein responded: "Thanks for your input."

Amid financial questions, Stoecklein resigned on October 29, 2013. This from a press release:

“Pacific Imperial Railroad, the only company providing railroad freight services on the Desert Line servicing the Tijuana-Tecate region of Baja California, Mexico and eastern San Diego County through its 99-year lease with the Metropolitan Transit System (MTS), announced today changes to its Senior Management Team. Donald Stoecklein has chosen to retire as President to focus on his family and other ventures.”

Mr. Stoecklein stated, “It has been my pleasure to lead this company since its inception. I have enjoyed working with MTS and the team to put this company in a position where it can capitalize on its very unique opportunity. I look forward to continuing my involvement as a shareholder and supporting the team.”

Dahlman took over as president and later hired Rohal. Rohal invested $750,000 upon joining. According to interviews with Rohal, the two began seeing more strange expenditures, including a $1.2 million payment to Nevada-based firm, AC Funding. The two asked questions and soon found themselves on the outs with McHaffie and others.

Now, less than one year later, Stoecklein has returned as president; Dahlman and Rohal are out. Since leaving the company, the two have lobbied Metropolitan Transit System to reconsider the 99-year-lease with Pacific Imperial Railroad.

Their pitch to Metropolitan Transit System officials angered Stoecklein and the other members of Pacific Imperial. They have since hinted they may seek a resolution in court.

But a deeper look into Stoecklein’s actions as well as the companies affiliated with Pacific Imperial Railway reveals some coincidences that may not bode well for the company or Metropolitan Transit System.

The companies referred to by Stoecklein in his letter all have something in common with one another. First, they are all based out of Las Vegas or in a nearby suburb of Henderson, Nevada. Second, all of them have direct ties to Stoecklein, McHaffie, and Jory.

For instance, Camden Healthcare was established by Stoecklein in October 2011, around the same time that Pacific Imperial Railway was incorporated. Headquartered in Las Vegas, the company's first action was to issue 110,000,000 shares at a price of $.001 per share, also known as sub-penny stocks. In June 2013, Stoecklein changed the name of the company to "International Railroad Investment Fund."

And then there's Locati Global Holdings. This company, also incorporated around the time of Pacific Imperial Railway, was created by Dwight and Theodora Jory. Its home base is headquartered in Henderson, Nevada. So, too, is Gold Mountain North LLC, also founded by the Jorys back in 2004.

More recently, in June 2013, McHaffie, Stoecklein, and Dwight Jory launched a new venture called Public Private Equity Group LLC. Again, among the company's first action was to issue 110 million shares, valuing them at $.001 per share.

The questionable dealings of Stoecklein go much further back. In 1995, the Securities and Exchange Commission issued a cease-and-desist order to Stoecklein for "violating the securities registration and the anti-fraud provisions of the federal securities laws," reads a September 5, 1995, commission newsletter.

Despite all the questions, the Metropolitan Transit System remains steadfast in their support of McHaffie, Stoecklein, and Dwight Jory. A spokesperson for the agency says executives are aware of the allegations, adding that there are guidelines in place that will prevent wrongdoing.

Considering that no goods have been transported since McHaffie and company assumed control of Carrizo Gorge Railway and later created Pacific Imperial, there is little chance those guidelines have been met.

Compounding the issue has been new lobbying efforts by the San Diego Regional Chamber of Commerce led by former mayor Jerry Sanders. According to lobbyist disclosures, Sanders and the chamber look to San Diego politicians to try and break through barriers that prevent the railway from becoming operable.

Their work seems to be paying off. Recently, San Diego mayor Kevin Faulconer has been out promoting the binational railroad. After a recent trip to Tijuana, Faulconer said the railroad will help turn San Diego and Tijuana into an economic powerhouse. Afterward, however, he noted the problems that lie ahead.

"There are some issues with ownership that need to be sorted out before moving forward," Faulconer told the Reader.

During Tuesday's meeting, the public will have their first opportunity to watch that happen.

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Cars that long ago fell from San Diego and Arizona Eastern Railway tracks - Image by Pattymooney/Wikipedia
Cars that long ago fell from San Diego and Arizona Eastern Railway tracks

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.

Sponsored
Sponsored

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.

“I was just notified that $225,000 was journaled out without my approval or knowledge. This is money that I called in as a personal favor before documentation was finished to relieve potential pressure we may have regarding our $500,000 lease obligation due July 1. The company has financial obligations to me including payment of debt, salary, and payment of my deal expenses. I have yet to ask for the the company to fulfill these obligations because I feel its inappropriate to do so under our current financial circumstances. I am working tirelessly to fund this business, and a significant part of my ability to do so is my own personal credibility. I hope that we all understand the potential dire consequences of me losing that credibility because it appears that we have our 'hand in the till' as they say....”

Dahlman soon grew frustrated.

"Well yes," wrote Dahlman in an August 6, 2013, email to Stoecklein, Sheila LeMire, and shareholder Darren Barone. "I'd like to see the financial statements as well as a detailed expense ledger as I ask for in my previous email, as I asked for in the board meeting, and as I've been asking for from the beginning. Should I start sending requests by certified mail so I have a record of it? Why should we all not have equal access to the information. We have one signatory, that person is in charge of our financials which I haven't seen, and that person is able to pay himself and his firm with checks from Pacific Imperial himself, as well as anyone else for anything he may decide unilaterally. Doesn't everyone see that this puts us all in jeopardy? I'm not accusing anyone of any wrongdoing because I have no way of knowing — how could I? How is this even a conversation? If we want to be a real business, which we all are working very hard to be, and which everyone seems to believe we can be, then why don't we start acting like one….”

Stoecklein responded: "Thanks for your input."

Amid financial questions, Stoecklein resigned on October 29, 2013. This from a press release:

“Pacific Imperial Railroad, the only company providing railroad freight services on the Desert Line servicing the Tijuana-Tecate region of Baja California, Mexico and eastern San Diego County through its 99-year lease with the Metropolitan Transit System (MTS), announced today changes to its Senior Management Team. Donald Stoecklein has chosen to retire as President to focus on his family and other ventures.”

Mr. Stoecklein stated, “It has been my pleasure to lead this company since its inception. I have enjoyed working with MTS and the team to put this company in a position where it can capitalize on its very unique opportunity. I look forward to continuing my involvement as a shareholder and supporting the team.”

Dahlman took over as president and later hired Rohal. Rohal invested $750,000 upon joining. According to interviews with Rohal, the two began seeing more strange expenditures, including a $1.2 million payment to Nevada-based firm, AC Funding. The two asked questions and soon found themselves on the outs with McHaffie and others.

Now, less than one year later, Stoecklein has returned as president; Dahlman and Rohal are out. Since leaving the company, the two have lobbied Metropolitan Transit System to reconsider the 99-year-lease with Pacific Imperial Railroad.

Their pitch to Metropolitan Transit System officials angered Stoecklein and the other members of Pacific Imperial. They have since hinted they may seek a resolution in court.

But a deeper look into Stoecklein’s actions as well as the companies affiliated with Pacific Imperial Railway reveals some coincidences that may not bode well for the company or Metropolitan Transit System.

The companies referred to by Stoecklein in his letter all have something in common with one another. First, they are all based out of Las Vegas or in a nearby suburb of Henderson, Nevada. Second, all of them have direct ties to Stoecklein, McHaffie, and Jory.

For instance, Camden Healthcare was established by Stoecklein in October 2011, around the same time that Pacific Imperial Railway was incorporated. Headquartered in Las Vegas, the company's first action was to issue 110,000,000 shares at a price of $.001 per share, also known as sub-penny stocks. In June 2013, Stoecklein changed the name of the company to "International Railroad Investment Fund."

And then there's Locati Global Holdings. This company, also incorporated around the time of Pacific Imperial Railway, was created by Dwight and Theodora Jory. Its home base is headquartered in Henderson, Nevada. So, too, is Gold Mountain North LLC, also founded by the Jorys back in 2004.

More recently, in June 2013, McHaffie, Stoecklein, and Dwight Jory launched a new venture called Public Private Equity Group LLC. Again, among the company's first action was to issue 110 million shares, valuing them at $.001 per share.

The questionable dealings of Stoecklein go much further back. In 1995, the Securities and Exchange Commission issued a cease-and-desist order to Stoecklein for "violating the securities registration and the anti-fraud provisions of the federal securities laws," reads a September 5, 1995, commission newsletter.

Despite all the questions, the Metropolitan Transit System remains steadfast in their support of McHaffie, Stoecklein, and Dwight Jory. A spokesperson for the agency says executives are aware of the allegations, adding that there are guidelines in place that will prevent wrongdoing.

Considering that no goods have been transported since McHaffie and company assumed control of Carrizo Gorge Railway and later created Pacific Imperial, there is little chance those guidelines have been met.

Compounding the issue has been new lobbying efforts by the San Diego Regional Chamber of Commerce led by former mayor Jerry Sanders. According to lobbyist disclosures, Sanders and the chamber look to San Diego politicians to try and break through barriers that prevent the railway from becoming operable.

Their work seems to be paying off. Recently, San Diego mayor Kevin Faulconer has been out promoting the binational railroad. After a recent trip to Tijuana, Faulconer said the railroad will help turn San Diego and Tijuana into an economic powerhouse. Afterward, however, he noted the problems that lie ahead.

"There are some issues with ownership that need to be sorted out before moving forward," Faulconer told the Reader.

During Tuesday's meeting, the public will have their first opportunity to watch that happen.

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