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Portions read as if they were plucked from a screenplay of an old western train-robbery movie: Land speculators, scams, drug smuggling, hostile takeovers, all surrounding a 100-year-old railroad track twisting and turning its way from San Diego into Mexico and back into eastern San Diego County.

But the stars of this train-heist story are not a gang of young, scruffy gunslingers but a group of middle-aged Las Vegas transplants dressed in business suits and designer jeans. There are no guns, no smoke-filled poker rooms, and no knife fights. Their weapons of choice are shell companies, penny stocks, inflated shares, and frivolous lawsuits.

Among the investors’ names are Gina Seau (former wife of Junior Seau), Qualcomm heir Gary Jacobs, and mega-developer (now deceased) Corky McMillin. They are joined by fanatical railroad enthusiasts, also known as “foamers.”

The story has unfolded for the better part of seven years under the not-so-watchful eye of the San Diego County Metropolitan Transit District, the public agency that owns the Desert Line, a 70-mile stretch of railroad from Tecate, Mexico, to Plaster City, California.

Since 2007, the railroad has carried no freight. It has been slapped with over $2 million in legal judgments, for unpaid bills as well as a $1.6 million penalty for smuggling 202 pounds of marijuana from across the border.

Currently, Pacific Imperial Railroad does not have any of the licenses or agreements to run a railroad and owes $240,000 in back-taxes. Despite it all, in 2012 San Diego County’s transit agency agreed to lease the Desert Line to the company for 99 years.

The bad old days

San Diego, 1906: In December of that year John D. Spreckels, financed by Southern Pacific, announced the incorporation of the San Diego and Arizona Railway Company, a binational railway connecting downtown San Diego to El Centro, in the Imperial Valley.

The following year, September 1907, Spreckels broke ground on the railroad. The line traveled south from downtown San Diego into Tijuana, then turned east, staying south of the border for 40 miles to bypass the most rugged terrain of the Laguna Mountains, later crossing the border at Division, heading northeast, climbing over a 3600 summit, crossing 14 bridges, and through 17 tunnels into Plaster City and then on to El Centro.

John D. Spreckels slams the final spike in the San Diego and Arizona Railway.

John D. Spreckels slams the final spike in the San Diego and Arizona Railway.

Carrizo Gorge

Carrizo Gorge

He spent much of the next decade overcoming one obstacle after another. In 1911, railroad workers were threatened by Mexican revolutionaries. Five years later, the U.S. government halted construction and seized all railways as fighting during World War I ramped up. Spreckels later convinced president Woodrow Wilson to continue. Finally, on November 15, 1919, $18 million later, Spreckels hammered the final spike into a railroad tie at Carrizo Gorge.

One disaster after another hampered the railroad company.

Heavy rains flooded miles of track east of San Diego from 1926 until 1929. Then came the Great Depression. The financial fallout and floods forced Spreckels to sell his stake in the company to Southern Pacific for $2.8 million in 1932.

That year, a combination of fires, more floods, and landslides resulted in $600,000 in damages. Jump ahead to the early 1950s, when Mexican maquiladoras and U.S. companies switched to shipping freight on the highways. The track and the ties began falling apart.

By 1978, the line was unusable. Southern Pacific petitioned the government to abandon the line but was denied. The following year, the Metropolitan Transit System purchased what is now known as the Desert Line, the 70-mile portion from Division to Plaster City, for $18.1 million.

During the next 20 years, fires destroyed hillsides and portions of track, dirt from landslides filled tunnels, and wooden trestles teetered. In 1997, self-described “foamer” Gary Sweetwood asked the Metropolitan Transit District to rehabilitate the track. He hoped to resume freight operation. The line, Sweetwood felt, could ship freight from the busy Mexican maquiladoras. Once up and running, it would decrease border delays all while transforming San Diego and Tijuana into a major hub.

Sweetwood, with help from three investors, spent the following seven years and thousands of dollars digging out miles of buried railroad track and clearing tunnels. By 2004, Carrizo Gorge Railway had opened, at one point hauling 20 rail cars a day, mostly sand, from Plaster City in Imperial County westward to the border.

Yet profits from freight weren’t enough to keep up with the cost of maintaining the line. According to a fourth-quarter summary report submitted to the Metropolitan Transit System, gross income from shipments of sand totaled $329,205, whereas expenses were $265,439 and maintenance costs for ties, joints, and payroll amounted to $227,919, resulting in a $164,153 net loss for that quarter.

Byron Wear

Byron Wear

Not all news was bad. In 2005, Carrizo Gorge entered an operating agreement with Union Pacific to move additional freight from Imperial Valley into Mexico. To buy some needed time, management searched for investors. They hired ex–San Diego city council member Byron Wear to work as a consultant and to use his contacts to locate money. Later that year, a local doctor, Robert Strauss, loaned Carrizo Gorge $300,000 to be repaid in three years at 7 percent interest. Gary Jacobs, the eldest son of Qualcomm founder Irwin Jacobs, invested $400,000; Corky McMillin added $250,000 before he died in 2005.

Wear managed to find even more investors by the names of Charles McHaffie, Sheila LeMire, Dwight Jory, James Warner, and, later, Donald Stoecklein. Their entrance marked the beginning of the end for Carrizo Gorge Railway.

Mentor

Based out of Henderson, Nevada, Dwight Jory, 71, is named in several lawsuits in San Diego County. He is a longtime business partner of Charles McHaffie and Pacific Imperial Railroad’s current president Donald Stoecklein. Nevada state business records show Jory as being the registered agent of 20 companies. He partnered with McHaffie in at least 5 of them and hired Stoecklein to register others under Securities Law Institute, the company Stoecklein owns in Nevada. The businesses, however, appear to be nothing more than names. Nearly all had massive debt and a large number of authorized shares set at a very low price.

When overly burdened by debt, Jory files bankruptcy. He has done so on five occasions in the past 20 years. In 1994, Jory reported having $100,000 in assets and $6.7 million in debt.

Jory currently is a major shareholder in Pacific Imperial Railroad as well as an elected boardmember. Several of his companies — some of which have already been declared bankrupt — own stakes in the railroad. And while his name is seen all over the railroad, Jory himself is not visible.

Ringleader

In his late 50s, Charles McHaffie is no stranger to controversy and is familiar with San Diego County courthouses. McHaffie has been named in more than 30 lawsuits in San Diego County alone, most of which include accusations of fraud.

McHaffie and Jory, the majority shareholder of Pacific Imperial Railroad, were Las Vegas land speculators with a long history of forming corporations and trusts, many of which have since gone bankrupt. To create the companies, Jory and McHaffie hired Donald Stoecklein’s Securities Law Institute, a Nevada corporation founded by the attorney.

To better understand their history, one only needs to look at the property profile of McHaffie’s current residence. According to real-estate records, ownership of McHaffie’s Rancho Santa Fe home is in a constant state of flux, the deed transferred from one Nevada corporation to another every few years.

In 1994, after a number of questionable deed transfers, the property was signed over to Donna Ferrara, the trustee for the Sharnee Family Trust, whose founders happened to be Jory and McHaffie.

Five years later, the Sharnee Family Trust transferred the property to the Sharnee Family Trust Partnership, with Jory named as the trustee in charge of the account. Then, in 2004, the deed was transferred again, this time to a California company by the name of Pacific Horizon Financial. The name of the notary who signed the transfer was Debra Amigone, secretary for Stoecklein’s company.

Four years later, the deed was signed back to the Sharnee Family Trust Partnership. Four months later it was passed back to Ferrara. After another default, the deed was signed to Jory’s Lone Ranger Holdings. Finally, in May 2013, Lone Ranger Holdings signed the deed over to Greensward Partners, a Nevada-based corporation.

While Jory and his cohorts played hot potato with the deed, McHaffie, aided by other longtime accomplices, were busy wresting control from the original owners and shareholders of Carrizo Gorge Railway.

Train heist

In November 2005, McHaffie and Sheila LeMire (McHaffie’s former girlfriend) purchased stock in Carrizo Gorge Railway under the name of the LeMire Group. Documents obtained by the Reader reveal McHaffie was then manager of S.J. Horizons LLC. The company’s address was 3233 Third Avenue in Hillcrest, also the address of the law offices of attorney James J. Warner, who came to play a larger role later.

While new to Carrizo Gorge, McHaffie and LeMire did not come without baggage.

Evidence of business ties between Jory and McHaffie dates as far back as 1995, when along with current Pacific Imperial Railroad’s president and lead counsel Donald Stoecklein served as boardmembers for the Advantage Capital Development Corporation.

It was around that time that McHaffie and Jory were hunting for new investors, this time for a mega-development project near Whitehills, Arizona. “Will,” a former investor who wished to stay anonymous, says McHaffie approached him with a deal. McHaffie’s company, CyberJaya, had spotted a piece of prime real estate located 30 miles from Hoover Dam, adjacent to the Hoover Dam Bypass road.

McHaffie planned to develop the land, essentially build an entire city with a hospital and other services. Will was all in, agreeing to give McHaffie money as well as sign over his house in Orange County as collateral. Not long after, he began to notice strange payments from CyberJaya. Checks were made out to the Charlemagne Educational Trust and to its trustee, Dwight Jory. (Charlemagne was McHaffie’s son’s name; it has since been legally changed to Christian McHaffie.)

“It’s what they do,” Will says. “They start some big project, convince people to invest in it and once they have their hooks in, start skimming from the top. They get found out, threatened with lawsuits, and then move on to the next scam. It’s the same screenplay, same actors, just different setting.

“My hopes of being part of a successful development turned into a nightmare and I ended up with a lot of worthless property in Arizona,” he says. “These guys are professionals, completely bulletproof. McHaffie is like a good chess player, just when you think you can hold him accountable, he makes a move you weren’t expecting. You can sue him, as many have before, but they know the ins and outs of the courts. It’s a big waste of money.”

Four years later, McHaffie launched a new project called the UC Lofts, a mixed-use development on the block bounded by Fourth and Fifth avenues and Ash and Beech streets in downtown San Diego. Again, McHaffie teamed up with Jory and LeMire. Soon after breaking ground, investors and contractors began to notice an odd string of payments. According to a lawsuit later filed against McHaffie and UC Lofts, payments included $197,000 to his son Charlemagne, $91,833 to LeMire, $20,000 to James Warner, and $35,000 to WS-TH LLC, a company that McHaffie owned. Added up, McHaffie and his colleagues allegedly withdrew $1.9 million in “equity out of the project for their own use and benefit.”

East County business owner Mark Whillock later sued McHaffie in 2007 for $1.5 million and in 2010; a jury awarded him the entire amount, none of which has been paid. Court documents show that in 2013 a judge issued a warrant against McHaffie for failing to appear at a debt hearing.

The takeover

See Barone's objections at the end of this story

In 2006, not long after McHaffie purchased shares in the railroad, San Diego businessmen Daren Barone and Greg Watkins, founders and owners of WB Partners, partnered with S.J. Horizons, LLC — a company registered at the law offices of longtime McHaffie colleague and attorney James Warner — to invest in Carrizo Gorge Railway.

Barone and Watkins have their own interesting history surrounding development projects. The men were found to have dodged paying $850,273 in federal taxes on a cleanup of the Naval Training Center. A judge ordered Watkins and Barone to pay a $170,054 penalty.

For Carrizo Gorge, WB Partners loaned the railway $350,000 to sustain the company until representatives from S.J. Horizons (Warner and McHaffie) and Carrizo Gorge Railway worked out a much larger investment deal for $1.1 million.

Barone worked alongside McHaffie to finalize the investment in Carrizo Gorge. But as negotiations progressed, attorneys and consultants for Carrizo Gorge began to see holes in the plan.

“To summarize the [McHaffie] deal: He was originally to get 19% in exchange for $1.5 million. Now he’s getting 19% for $400k and paying $1.1 million for contract rights that could be worth $5 to $10 million. Sounds like bait and switch to me,” reads an internal email obtained by the Reader from a consultant who brokered the deal.

“Fuck [McHaffie] and the entire mess,” reads a response from another consultant. “I’m tired of the bait and switch and never ending promises. This guy is a flake and lives up to that reputation. Broken promises... Waiting hours for return calls... Bounced checks... Cell phones that don’t function.”

Despite the red flags, a deal was reached. Barone Capital Fund X LLC and S.J. Horizons owned more than 25 percent of the company. When factoring in McHaffie and LeMire’s shares, as well as a proxy vote from one of the original shareholders, McHaffie, Barone, Jory, and LeMire became majority shareholders.

The deal soon spelled disaster for Sweetwood, the original investors, and the Desert Line. Within a year’s time, Warner and the new shareholders assumed control of Carrizo Gorge Railway. Freight soon came to a halt so, too, did payments to the IRS and Union Pacific, among others.

McHaffie, Warner, Barone, and Jory transferred stocks from one company to another. Then, in January 2007, Barone Capital Fund and S.J. Horizon transferred a $1 million promissory note to a new corporation named Pacific Imperial Holdings, which, according to a March 2007 statement to the California Secretary of State, was managed by the Barone Capital Group.

McHaffie, Lemire, and Barone convinced original Carrizo Gorge shareholder Vince Crisci to sign over his voting rights. Their first order of business was to inflate the number of shares. They followed it by forcing Sweetwood to resign. The transfer of power was complete. McHaffie and his colleagues took control of the railroad.

Derailed

By September 2007, the railroad continued on its journey to insolvency. In an update to Warner, the company’s secretary relayed grave concerns.

“As of today Kim Sweetwood and Byron Wear sent a bad check to the liability insurance, if the check does not clear our insurance for the Desert Line will be canceled,” reads the letter obtained by the Reader. “All of the utilities are either shut off or are in server [sic] jeopardy of disconnection. We also have a fuel account for the company property and it is now [three] payments past due $3,500. Nextel’s are $5,000 past due and are on a disconnect date of [October] 5. At this point I have in the amount of $45,000 in past due bills that need payment or we will be disconnected from train service.”

The next month, a consultant hired by the company tendered his resignation, though not without expressing his frustration with the new management team. “...I have never in my life experienced such unethical and unprofessional behavior in a workplace environment. During my investigation to try and get information for you as agreed upon, I was met over and over again by those who have been deceived by Carrizo Gorge Railroad. Empty promises, lies, and downright deceptive dealings followed me everywhere. It is my professional opinion after 34 years in the rail business...that if you have any moneys or legal responsibility in this organization, I would distance myself.”

Despite the money woes, McHaffie and company forged ahead. In May 2008, according to a transcript from a shareholders meeting, the fallout with former founder and president Gary Sweetwood as well as with former employees had damaged the company’s relationship with Mexican officials who oversaw the 40 miles of track south of the border. Shareholders responded by issuing more stock, this time 80 million shares valued at $1 to $5 a share.

Then the lawsuits began to appear.

In September 2008, Sweetwood filed his first lawsuit against McHaffie and the majority shareholders of Carrizo Gorge Railway. Sweetwood wanted the railroad back and he wanted to inspect corporate records in an attempt to show that McHaffie, Barone, and others never made the investments they say they did. If proven, the agreement would be invalid and Sweetwood would regain ownership. A judge has not yet made a final ruling.

While the two camps fought, the company faltered. Lawsuits and environmental violations piled up. In June 2009, Union Pacific Railroad sued Carrizo Gorge for $750,000 after the company failed to pay linkage and other fees. San Diego and Imperial Valley Railroad then sued Carrizo Gorge for $41,000 for failing to pay property taxes. In September of 2009, the IRS fined McHaffie $400,000 for unpaid taxes. That same month, investigators for the Department of Environmental Health discovered 16 drums of hazardous waste seeping into the ground at their yard in Jacumba.

Paul Jablonski

Paul Jablonski

Meanwhile, McHaffie and then-president Armando Freire provided quarterly reports to the San Diego Arizona and Eastern Railroad board, an offshoot of the Metropolitan Transit District. The inability to run freight seemed a foregone conclusion. And, Paul Jablonski, the Metropolitan Transit System’s top executive, didn’t seem to mind.

By the end of 2009, things went from bad to worse, as shown in an email from Carrizo Gorge chief of police Mark Langlais to McHaffie.

“The Carrizo Gorge railroad will not survive the next 30 days; we have depleted any chance of pulling this operation together,” warned Langlais. “We held out over two years with lies of funding that never came, we stalled the [Federal Railroad Administration, California Public Utilities Commission, Metropolitan Transit System], and CalFire for as long as we could.... We can no longer operate on taking weeks to make a policy decision that may end the jobs of many employees dependent on the income of this corporation to feed their families.

“At this point there is not light at the end of the tunnel, in eight years of employment with the Carrizo Gorge Railroad I have never seen it this bad. We are a transportation company that can’t transport goods to the level of the requirements of our customer base.”

April 2010, McHaffie submitted his resignation. In a letter to the Metropolitan Transit System, McHaffie wrote, “It is with sincere regret that I find it necessary to take this action, which in my opinion will provide [Carrizo Gorge Railway] with a possible restructuring plan to continue and ultimately succeed in achiving [sic] all of the accomplishments we have invisioned [sic].”

But McHaffie didn’t go far. He continued to represent the railroad company at quarterly Metropolitan Transit System hearings.

Around that time, attorney Stoecklein first appeared at a shareholders meeting. Stoecklein soon became the mouthpiece for Pacific Imperial Holdings, the railway’s largest shareholder.

Unbeknownst to some of the original shareholders, Stoecklein had worked alongside McHaffie and Jory for nearly 20 years. According to records from the Nevada state business office, Stoecklein partnered with Jory in 1995, in a company named Advantage Capital Development Corporation. That year, the Securities and Exchange Commission warned him of “violating the securities registration and the anti-fraud provisions of the federal securities laws.”

From the outset, Stoecklein refused to provide much information on Pacific Imperial Holdings and who its members were; videotape from a shareholders meeting in June 2010 shows just that.

When pressed to provide information on who was in charge of Pacific Imperial Holdings, Stoecklein replied, “I am not saying who the owner of Pacific Imperial Holdings is. I have a proxy from the managing member, the individual who controls the voting shares for Pacific Imperial Holdings.”

As Sweetwood and Stoecklein grappled for control, lawsuits against the company piled up. Burlington Northern Santa Fe Railroad Company filed a complaint against Carrizo Gorge for $196,000 in unpaid linkage fees. San Diego Imperial Valley Railway sued the company for $82,000 in unpaid property taxes.

In August 2010, Border Patrol officers found 202 pounds of marijuana stashed inside a train. Department of Homeland Security slapped the company with a $1.6 million penalty.

“On August 23, 2010, Carrizo Railway Inc. manifested railcars BNSF 469335 and BNSF 473568 as empty railcars entering the U.S. through the Otay Mesa Rail yard. Inspection by [Customs and Border Protection] officers revealed 91.8 kilograms of Marijuana concealed in the bottom of the hoppers,” reads the Notice of Penalty received on October 4, 2010.

But drug busts, hazardous-waste violations, and financial and legal problems didn’t dissuade the Metropolitan Transit System from giving the company its full support.

Although McHaffie had resigned in April 2010, attorneys for the transit agency considered him the company’s point man.

“[U]ntil there is an official court order, a change in Carrizo’s management will not be recognized,” read a transcript from an October 2010 board hearing. “[Attorney for the Metropolitan Transit District Karen Landers] added that until such time, Mr. McHaffie and Mr. Freire will continue to report to the [San Diego Arizona and Eastern Railway Company board and to [the Metropolitan Transit System].”

With the Metropolitan Transit System onboard, McHaffie, Warner, Stoecklein, and others designed a new plan to ditch Sweetwood and the original Carrizo Gorge shareholders for good.

Thus began the series of name changes. In January 2011, McHaffie and the majority shareholders transferred the operating rights from Carrizo Gorge to Pacific Imperial Holdings and Pacific Imperial Investments. In January 2012, then president, Jory signed over operating rights to Pacific Imperial Railroad. McHaffie’s name no longer appeared as a shareholder but was present at all board meetings. Without McHaffie’s name on the lease, the company was free and clear of the $2 million judgment against him from the UC Lofts lawsuit, as well as the $400,000 judgment he was ordered to pay for not paying federal taxes during his stint as president of Carrizo Gorge.

In October 2011, Stoecklein was named president, secretary, treasurer, and director of Pacific Imperial Railroad. According to documentation provided to the Metropolitan Transit System, “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.”

Business records from the State of Nevada show a common denominator in the Nevada Group. Stoecklein established Camden Healthcare in October 2011. CC Trust was one of McHaffie’s many personal trust accounts, this one set up under the name Charlemagne Christian. And, of course, Jory owned Gold Mountain North, AC Funding, and Locati Global Holdings.

And while Stoecklein issued press releases, executives at the Metropolitan Transit System didn’t bother to verify the information. In January 2012, Metropolitan Transit System officials agreed to lease the 70-mile stretch of track from Division to Plaster City for 99 years at the cost of $1 million per year, or two payments of $500,000.

The new lease allowed McHaffie, Stoecklein, and Jory to start their hunt for new investors. They hired New York investment banker Ernie Dahlman as the new chief executive officer. After arriving, Dahlman got to work finding investors. It was an uphill climb from the start.

Dahlman hired David Argenbright to bring in cash.

“Investors were very excited,” said Argenbright during a phone conversation in February 2014. “[Dahlman had arranged meetings with top-flight investors, and executives from railroad companies began to show interest, especially around the time that Warren Buffet purchased Burlington Northern Santa Fe. As I was meeting investors, we began to notice some of the cash we raised was getting diverted.”

Dahlman soon began to notice money was disappearing — payments to Stoecklein’s law firm as well as to so-called consultant firms such as AC Funding, which happened to be owned by Jory.

“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,” Dahlman wrote in an August 6, 2013, email to Stoecklein, LeMire, and Barone. “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 (Stoecklein) 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....?”

Rancho Tembabichi

To raise money, Pacific Imperial shareholders decided to issue stock and borrow against the company assets. They turned to Jory and his company Gold Mountain North. According to documents Stoecklein provided to the Metropolitan Transit System, Jory’s company was willing to use a $550 million beachfront property it owned in Baja Mexico called Rancho Tembabichi as collateral for investors to buy in.

In a report to Metropolitan Transit System executives, Stoecklein provided the following description of Rancho Tembabichi: The property 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.”

Dahlman objected after being repeatedly denied a chance to see a title or proof of ownership.

There were valid reasons for not showing it. Jory didn’t own it. The property was worth nowhere near $550 million: in 2008, it was appraised at $1.4 million.

Court documents show Jory’s only tie to the property stems from a 2012 investigation he was named in of Nevada Superior Court judge Steven Jones. According to a criminal investigation, in 2008 then-judge Jones accompanied Jory and Victor Hancock to Tijuana to meet with Tembabichi owner Linda Chavez. At the time, Chavez and Hancock were involved in some sort of land dispute. Jones was there to try and persuade Chavez to settle the matter. Doing so violated federal law, which prohibits using the “prestige of judicial officer to advance the private interests of the judge or others.”

Jones is currently awaiting trial for his role in the Tembabichi scheme.

Questions regarding ownership of the land were put to rest in a June 2014 deposition from attorney Antonio Maldonado. Maldonado looked into the land dispute and found that the Chavez family (Linda Chavez passed away) owns the property to this day. The closest Jory got to owning Rancho Tembabichi was in 2008, when one of his many companies (Baja Mexican Riviera S.A.) made an offer to purchase the land for $1.4 million.

Concluded Maldonado, “there is no indication in the purchase agreement or in the acknowledgement that the purchase agreed to by means of the purchase agreement was ever closed.”

New management

In November 2013, Dahlman hired David Rohal, a longtime railroad executive from Jacksonville, Florida, to run the railroad. Before jumping onboard, Rohal and his brother invested $1.25 million in the company.

In late November, Rohal hired his father, Bob, a retired railroad engineer, to examine the track and the three trains the company had purchased for a reported $450,000. It didn’t take long for Bob Rohal to become suspicious.

“The fines for the defects, if discovered by federal inspectors, would have stopped any movement and amounted to more than $30,000 in fines. I noted immediately that anyone with railroad operating experience who had inspected the railroad system would have known that the locomotives were not right for the projected operation. They were too light. The fuel tanks too small, and the locomotives had no extended range dynamic brakes, there were brake shoe modifications that removed eight of the sixteen brake shoes on each locomotive, no toilets, no water coolers, no air conditioning, no radios, no event recorders, no end of train communication devices or wiring, broken seats, no warning devices or horns, plus all the federal defects.”

The condition of the trains as well as Rohal and Dahlman’s questions over finances created tension inside the company.

By January 2014, Rohal and Dahlman were out. The millions they put in to the company were gone. They have since turned to the media, private investigators, an influential lobbying group, and to the Metropolitan Transit System to try and expose what they say is a Ponzi scheme.

Congressman Duncan Hunter vowed to investigate the players as well as ensure that the transit agency, which receives federal funding, isn’t perpetuating a fraud on the public.

Despite the negative publicity and the concerns from congressmen, Jablonski refuses to budge. During a July 17 meeting, Jablonski praised the company, calling their principals “entrepreneurs” on several occasions. He says there are conditions the company must meet; one condition was to have trains operating by January 2014. It didn’t happen.

Jablonski says the lease will stay with Pacific Imperial Railroad unless the milestones the agency created are not met.

The Reader made several attempts to contact Stoecklein and others, none of which were successful.

Barone's ojections to this story

Greg Watkins and myself were never part of a takeover. WB Partners never partnered with S.J. Horizon, LLC to invest in Carrizo Gorge Railway. I was approached by Carrizo Gorge Railway who were looking for funding as they always were. Any mention of WB Partners in partnership with McHaffie or Warner to invest in a railroad is inaccurate. This loan was convertible towards the purchase of certain ancillary rights that Carrizo Gorge represented they owned. This had nothing to do with McHaffie or S.J. Horizon. I had never met or knew James Warner. There was no commitment on a much larger investment from WB Partners.

Barone did not work alongside McHaffie to finalize the investment in Carrizo Gorge. Barone had never met Mr. McHaffie prior to this transaction. Carrizo Gorge quickly defaulted on the $350,000 Loan. As part of a restructure of the defaulted note WB Partners worked with the officers of Carrizo Gorge Railway to facilitate an additional $1,000,000 Loan for working capital as well as acquire 25 % of shares of stock from then current individual shareholders. Negotiations progressed just fine and the loan was funded. There were no holes . McHaffie was not a part of this transaction.

There were no red flags and in Jan 2007 the Loan for 1 Million dollars was made by Barone Capital Fund X , LLC , which was made up of a group of local investors. S.J. Horizon was not a party to this loan. As Part of the Loan requirements BCF X, LLC required Proxy’s from several shareholders for controlling voting rights as collateral for the loan. At the same time Pacific Imperial Holding was formed, which was also made up of local investors, to acquire a block of shares of Carrizo Gorge Railway from two existing shareholders for approx. $900,000. S.J. Horizon nor McHaffie were a party to these transactions. Your collective Group you refer to was never the majority shareholders and “Barone” as you reference was never a shareholder. Barone was never a party to any “takeover” as you lead your readers to believe

The “deal” referring to the WB Partners Loan had nothing to do with the disaster. Freight was still running and Back IRS payments were being made. Freight was never stopped and IRS back payment was also made during WB Partners loan period. The deal soon spelled disaster for BCF X.

Barone Capital Fund X within 3 months of making the loans of 1,350,000 and the purchase of shares discovered that Carrizo Gorge did not own the ancillary rights that they represented and which they sold. In addition nothing about the railroad was properly represented. Barone Capital Fund X after making these discoveries immediately pursued to rid itself of the note and all shares and association with Carrizo Gorge railway. On June 21, 2007 Barone Capital Fund X sold their note to S.J. Horizon owned by Jim Warner, a man we had never met before. Pacifc Imperial Holdings, which owned the purchased shares of Carrizo Gorge sold their interest in Pacific Imperial Holding to S.J. Horizon at this same time. Barone, Watkins, Barone Capital Fund X at this point had no more interest in the railroad and no more association with any of the individuals. We were involved in this railroad for a short six months.

McHaffie, Warner, “Barone” and Jory did not “transfer” stocks from one company to another. Barone Capital Fund sold their note and sold their interest in PIH as described above on June 21, 2007. No loan was transferred to Pacific Imperial Holding in January of 2007 as you state. Any transfers of any stocks or loans between McHaffie, Warner and Jory were done after we sold our interest and severed all association with Carrizo Gorge. I had never met Warner or Jory . “Barone” was not a party to any of these “transfers”. The statement to the secretary of state for pacific Imperial Holdings was The Barone Group in March 2007 because that was prior to the sale.

— Daren Barone

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rrmike7485 Sept. 11, 2014 @ 12:28 a.m.

A few minor corrections on your history of the SD&AE. John D. Spreckels died in 1926, his heirs, not wanting the railroad concluded the sale of the line to the Southern Pacific in 1933.

The line was unusable in 1978 due to over $1 Million dollars worth of damage caused by Tropical Storm Kathleen in 1976.

As part of the sale of the line to MTDB, now MTS, the SP repaired ALL of the damage and turned over a complete line to MTS, who brought in Kyle Railways to operate the freight on the line. At that time the line was intact between San Diego and Plaster City.

Not only did the MTS get the 70 miles of the Desert Line as part of the deal, they also acquired the line between Downtown San Diego and San Ysidro, currently the trolley line to San Ysidro, as well as the line from downtown to El Cajon, also used by the trolley. The sale also included the Coronado Line, including all existing right of way into Coronado and North Island. All of this was included in the $18.1 Million dollar sale.

When Kyle left the railroad it was once again severed due to 2 burned out trestles in the Carriso Gorge. Tunnels 8 and 16 were later burned out in 1988 and 1986, respectively.

None of MTS's contracted operators bothered to reopen the line until hometown Carrizo Gorge Railway got the line reopened and operating by February of 2004! ALL on it's own dime, I might add!!

I was part of the original Carriso Gorge Railway and spent months working to reopen this line, digging out burned out tunnels, repairing the track and operating trains over the railroad, trying to build up the freight business!

Once the takeover of 2007 happened and seeing the complete mess it has become at the hands of McHaffie, Jory, Stocklein and yes, I am even including Paul Jablonski at MTS, I am of the opinion that Congressman Hunter and others SHOULD demand a full Federal investigation of Pacific Imperial Railroad, its principals AND MTS!!

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Javajoe25 Sept. 11, 2014 @ 11:01 a.m.

This is such a disappointing story in so many ways.

It seems poor little Sandy Eggo is just too much of a podunk backwater town to have its own East/West rail line. If this thing could ever got going, it would take a considerable bite out of the shipping that now goes to Long Beach and LA. Not only that, but if shipping links and concurrent distribution facilities were ever established, thousands of jobs could be provided for people on both sides of the border.

I know a large part of the story is just poor luck, with floods and storms and what have you, but I also think there are some pretty powerful forces (trucking, for example) who do not want to see this line ever get beyond the planning stages. Another major problem is having the line run south of the border. Now, with all the attention on illegal border crossings and the drug cartels, I don't see how this is ever going to happen under the current plan and route.

It is really a shame because if this rail line ever got going, it might transform San Diego into a full-blown city instead of the cul de sac it is. It's not too late, but whenever I read the details of the machinations that have gone on and are going on, I just feel like there is very little hope for this choo-choo.

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Visduh Sept. 11, 2014 @ 3:44 p.m.

There's much more to the story, because that rail line did operate from its completion in 1919 up to about 1983. But it was never a well-used line, and was a disappointment. Southern Pacific kept it open and operating until they sold the whole thing to MTDB in 1978, at which time it had been brought up to decent operating standards.

That all indicates that there just wasn't enough traffic to make it successful, and if maquiladoras are to start heavily using rail for shipments in and out, that will require some major changes to the rail line in Baja. (That is to make the railroad accessible to the factories.) It's more than just bad luck, and while there is potential for the line, will require a high level of trans-border cooperation, investment, and operational savvy. At this time, those factors just don't look very likely.

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