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.
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.
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.
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.