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San Diego's Carrizo Gorge railroad doomed once more

Latest incarnation as bizarre as its predecessors

Carrizo Gorge Trestles - Image by Andy Boyd
Carrizo Gorge Trestles
Pacific Imperial Railroad logo

Merriam-Webster defines conglomerate as “a widely diversified corporation.” But Donald Stoecklein, chief compliance officer for the Pacific Imperial Railroad — the company that leases from the Metropolitan Transit System a 70-mile stretch of track from the border at Campo to Plaster City in Imperial County — defines “conglomerate” as “three or more parties interested in the same transaction.”

Stoecklein gave his definition during a December interview while answering questions about inconsistencies the company gave in a October 28, 2015, press release; that was the date it announced that a New York–based conglomerate, Conatus Capital Group Inc., had acquired majority controlling interest in Pacific Imperial Railroad.

After closer review, it was discovered that Conatus Capital Group Inc. isn’t based in New York but was registered in Nevada in August 2015, two months before Pacific Imperial Railroad’s announcement. Adding to the confusion, there is a large hedge-fund investment firm named Conatus Capital Management in the New York area but it has no ties to the railroad.

The inconsistencies contribute to the mystery surrounding the railroad and its progress in completing the long-desired binational railroad.

Uphill climb

Pacific Imperial Railroad’s press release intended to quell controversy that has plagued the company since 2012, when it entered into a 99-year lease with the San Diego County Metropolitan Transit System.

Paul Jablonski

The terms of the deal were simple: Pacific Imperial agreed to pay $1 million a year to lease the track and to rehabilitate the deteriorating hundred-year-old line. Transit-system chief Paul Jablonski, and others, viewed the agreement as one that could potentially result in San Diego County becoming a transportation-and-shipping hub.

But in the three-plus years since signing the lease, questions have surfaced regarding the company’s shareholders. Former employees and shareholders claim the current group is using the line as a vehicle for fraud rather than one to transport goods from Mexico.

Tracks in Carrizo Gorge

What Jablonski didn’t mention in 2012 was that Pacific Imperial Railroad was just a new name for Carrizo Gorge Railway, the company that had rights to the line since 2004. The shareholders and management were the same ones who had been incapable of moving any freight since 2007.

In fact, as reported by the Reader, freight took a back seat to allegations of fraud and illegal activity. Since 2007, Carrizo Gorge Railway had been ordered to return $2 million to former investors Gina Seau, Gary Jacobs of Qualcomm, developer Corky McMillin, and Mark Arabo of the Neighborhood Market Association, among others.

Adding to the railroad’s woes, in 2010 the federal government fined the company $1.6 million after agents found 202 pounds of marijuana stashed on an empty railcar from Mexico.

Perpetual controversy

Conatus Capital Group was was formed in Nevada last year by the Securities Law Institute, which is owned by Donald Stoecklein and has been used to register a number of entities with ties to the railroad. Conatus Capital’s estimated worth at the time of filing was listed at $10,000. Pacific Imperial’s president, Arturo Alemany, a longtime railroad executive, was named as the group’s president, director, and treasurer. His brother Alexander was listed as secretary.

In late December 2015, Stoecklein, as well as Alemany, spoke to the Reader, denying any ties with the hedge-fund firm Conatus Capital Management.

“I have studied and followed Dutch philosopher Baruch Spinoza for over 20 years and Conatus was a subject he wrote about,” says Alemany. “We used Conatus for the new holding company to mean ‘endeavor,’ and ‘undertaking.’”

Added Stoecklein, “Conatus was formed as a holding company needed to acquire 51 percent of [Pacific Imperial Railroad] shares. The process took time to wrap up and we needed an entity to hold that 51 percent. There was no knowledge of the other Conatus, and after learning about that firm we are now in the process of changing the name to Pacific Transportation Investments.”

According to Stoecklein the reason that New York was mentioned in the press release was that one of the investors is New York–based former ambassador to Spain, Joseph Zappala.

Mystery investors

Instead of discussing rehabilitation, Stoecklein and others spent much of 2015 trying to get the railroad’s reputation back on track. Oftentimes their attempts to do so have faltered. In fact, the railroad company has issued similar announcements that new investors had assumed control of the railroad.

At a public meeting in January 2015, Metropolitan Transit chief Jablonski informed the transit agency’s board that a group of investors had taken over majority control of Pacific Imperial Railroad. Jablonski and company executives refused to release the names of the new investors. The following month, as reported by the Imperial Valley Press, the new investors included Carlsbad businessman and then-current Pacific Imperial Railroad shareholder Jeffrey Kinsell and a Daniel Neveau as the mystery investors.

Kinsell’s and Neveau’s ties with the company soon came undone.

From February to October, Pacific Imperial Railroad faced several setbacks. The Securities and Exchange Commission slapped Pacific Imperial Railroad’s chief legal counsel and Stoecklein with a $73,751 fine for failing to report proceeds from a stock sale.

In October 2015, the California Labor Commission ordered Pacific Imperial Railroad to pay $90,152 in unpaid wages to its former secretary.

Less than two weeks after the commission’s order, Pacific Imperial Railroad announced the “New York–based conglomerate” had acquired majority control, including the involvement of principal investor Zappala. The Florida businessman has an interesting past of his own.

President George H.W. Bush appointed Zappala to become ambassador to Spain in 1989. Zappala, according to media reports, had donated $100,000 to Bush’s campaign and served as co-chairman to a fundraising group that raised $25 million for the former president before the appointment.

Zappala’s nomination drew criticism. During the vote, members of Congress blasted the nomination. One senator, according to Senate Record Vote Analysis, said, “What qualified him was his fund-raising work on behalf of the President over the past ten years. Mr. Zappala worked hard to raise money for both the President and the Republican Party, and this Ambassadorship is his reward.”

Zappala’s inability to speak Spanish didn’t help make him any more favorable a candidate.

Controversy followed Zappala after returning to America. In 2001, the Securities and Exchange Commission sued Zappala for failing to respond to subpoenas to testify about his investment activities, according to an October 2002 article in the Village Voice. The inquiry began for his involvement in CarePlus, a New York–based health-plan company that was awarded lucrative contracts by former New York governor George Pataki. Zappala and his business partner donated $225,000 to Pataki’s 1994 campaign.

In 2004, Zappala again made headlines when, amid inquiries from the Securities and Exchange Commission, he announced his immediate resignation from the board of directors of GeoPharma. At the time, GeoPharma was fighting accusations that it had provided false information about its ability to alleviate mouth sores in cancer patients.

Zappala’s other investments include a dog racetrack in Tucson, Arizona. According to an August 2009 column in the Tucson Weekly, Zappala and his partner reap the benefits of tax breaks that Arizona offers to dog and horse tracks in order to make up for losses from Native American casinos. Zappala and his partner have paid themselves $2.2 million in management fees, plus, of course, any profits from the track proceeds.

Tax breaks and political donations aside, Zappala’s attorney, Phil Mindlin, says “the former ambassador is looking to assist [Stoecklein, Alemany, and Pacific Imperial Railroad] with financing for reconstruction and rehabilitation and to bring the railroad back on line.”

Mindlin said Zappala is a longtime business partner of Pacific Imperial Railroad’s Alemany.

On the right track

Despite the questions surrounding Pacific Imperial Railroad’s finances, the most important aspect for the Metropolitan Transit System is that payments on the lease are made. According to a source, the payment due on January 1 was delivered on time.

Pacific Imperial Railroad executives are expected to provide details on the company’s progress in coming months.

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San Diablo Allstars, Marujah, J.D. Boucharde, Jenn Grinels, Eve Selis
Carrizo Gorge Trestles - Image by Andy Boyd
Carrizo Gorge Trestles
Pacific Imperial Railroad logo

Merriam-Webster defines conglomerate as “a widely diversified corporation.” But Donald Stoecklein, chief compliance officer for the Pacific Imperial Railroad — the company that leases from the Metropolitan Transit System a 70-mile stretch of track from the border at Campo to Plaster City in Imperial County — defines “conglomerate” as “three or more parties interested in the same transaction.”

Stoecklein gave his definition during a December interview while answering questions about inconsistencies the company gave in a October 28, 2015, press release; that was the date it announced that a New York–based conglomerate, Conatus Capital Group Inc., had acquired majority controlling interest in Pacific Imperial Railroad.

After closer review, it was discovered that Conatus Capital Group Inc. isn’t based in New York but was registered in Nevada in August 2015, two months before Pacific Imperial Railroad’s announcement. Adding to the confusion, there is a large hedge-fund investment firm named Conatus Capital Management in the New York area but it has no ties to the railroad.

The inconsistencies contribute to the mystery surrounding the railroad and its progress in completing the long-desired binational railroad.

Uphill climb

Pacific Imperial Railroad’s press release intended to quell controversy that has plagued the company since 2012, when it entered into a 99-year lease with the San Diego County Metropolitan Transit System.

Paul Jablonski

The terms of the deal were simple: Pacific Imperial agreed to pay $1 million a year to lease the track and to rehabilitate the deteriorating hundred-year-old line. Transit-system chief Paul Jablonski, and others, viewed the agreement as one that could potentially result in San Diego County becoming a transportation-and-shipping hub.

But in the three-plus years since signing the lease, questions have surfaced regarding the company’s shareholders. Former employees and shareholders claim the current group is using the line as a vehicle for fraud rather than one to transport goods from Mexico.

Tracks in Carrizo Gorge

What Jablonski didn’t mention in 2012 was that Pacific Imperial Railroad was just a new name for Carrizo Gorge Railway, the company that had rights to the line since 2004. The shareholders and management were the same ones who had been incapable of moving any freight since 2007.

In fact, as reported by the Reader, freight took a back seat to allegations of fraud and illegal activity. Since 2007, Carrizo Gorge Railway had been ordered to return $2 million to former investors Gina Seau, Gary Jacobs of Qualcomm, developer Corky McMillin, and Mark Arabo of the Neighborhood Market Association, among others.

Adding to the railroad’s woes, in 2010 the federal government fined the company $1.6 million after agents found 202 pounds of marijuana stashed on an empty railcar from Mexico.

Perpetual controversy

Conatus Capital Group was was formed in Nevada last year by the Securities Law Institute, which is owned by Donald Stoecklein and has been used to register a number of entities with ties to the railroad. Conatus Capital’s estimated worth at the time of filing was listed at $10,000. Pacific Imperial’s president, Arturo Alemany, a longtime railroad executive, was named as the group’s president, director, and treasurer. His brother Alexander was listed as secretary.

In late December 2015, Stoecklein, as well as Alemany, spoke to the Reader, denying any ties with the hedge-fund firm Conatus Capital Management.

“I have studied and followed Dutch philosopher Baruch Spinoza for over 20 years and Conatus was a subject he wrote about,” says Alemany. “We used Conatus for the new holding company to mean ‘endeavor,’ and ‘undertaking.’”

Added Stoecklein, “Conatus was formed as a holding company needed to acquire 51 percent of [Pacific Imperial Railroad] shares. The process took time to wrap up and we needed an entity to hold that 51 percent. There was no knowledge of the other Conatus, and after learning about that firm we are now in the process of changing the name to Pacific Transportation Investments.”

According to Stoecklein the reason that New York was mentioned in the press release was that one of the investors is New York–based former ambassador to Spain, Joseph Zappala.

Mystery investors

Instead of discussing rehabilitation, Stoecklein and others spent much of 2015 trying to get the railroad’s reputation back on track. Oftentimes their attempts to do so have faltered. In fact, the railroad company has issued similar announcements that new investors had assumed control of the railroad.

At a public meeting in January 2015, Metropolitan Transit chief Jablonski informed the transit agency’s board that a group of investors had taken over majority control of Pacific Imperial Railroad. Jablonski and company executives refused to release the names of the new investors. The following month, as reported by the Imperial Valley Press, the new investors included Carlsbad businessman and then-current Pacific Imperial Railroad shareholder Jeffrey Kinsell and a Daniel Neveau as the mystery investors.

Kinsell’s and Neveau’s ties with the company soon came undone.

From February to October, Pacific Imperial Railroad faced several setbacks. The Securities and Exchange Commission slapped Pacific Imperial Railroad’s chief legal counsel and Stoecklein with a $73,751 fine for failing to report proceeds from a stock sale.

In October 2015, the California Labor Commission ordered Pacific Imperial Railroad to pay $90,152 in unpaid wages to its former secretary.

Less than two weeks after the commission’s order, Pacific Imperial Railroad announced the “New York–based conglomerate” had acquired majority control, including the involvement of principal investor Zappala. The Florida businessman has an interesting past of his own.

President George H.W. Bush appointed Zappala to become ambassador to Spain in 1989. Zappala, according to media reports, had donated $100,000 to Bush’s campaign and served as co-chairman to a fundraising group that raised $25 million for the former president before the appointment.

Zappala’s nomination drew criticism. During the vote, members of Congress blasted the nomination. One senator, according to Senate Record Vote Analysis, said, “What qualified him was his fund-raising work on behalf of the President over the past ten years. Mr. Zappala worked hard to raise money for both the President and the Republican Party, and this Ambassadorship is his reward.”

Zappala’s inability to speak Spanish didn’t help make him any more favorable a candidate.

Controversy followed Zappala after returning to America. In 2001, the Securities and Exchange Commission sued Zappala for failing to respond to subpoenas to testify about his investment activities, according to an October 2002 article in the Village Voice. The inquiry began for his involvement in CarePlus, a New York–based health-plan company that was awarded lucrative contracts by former New York governor George Pataki. Zappala and his business partner donated $225,000 to Pataki’s 1994 campaign.

In 2004, Zappala again made headlines when, amid inquiries from the Securities and Exchange Commission, he announced his immediate resignation from the board of directors of GeoPharma. At the time, GeoPharma was fighting accusations that it had provided false information about its ability to alleviate mouth sores in cancer patients.

Zappala’s other investments include a dog racetrack in Tucson, Arizona. According to an August 2009 column in the Tucson Weekly, Zappala and his partner reap the benefits of tax breaks that Arizona offers to dog and horse tracks in order to make up for losses from Native American casinos. Zappala and his partner have paid themselves $2.2 million in management fees, plus, of course, any profits from the track proceeds.

Tax breaks and political donations aside, Zappala’s attorney, Phil Mindlin, says “the former ambassador is looking to assist [Stoecklein, Alemany, and Pacific Imperial Railroad] with financing for reconstruction and rehabilitation and to bring the railroad back on line.”

Mindlin said Zappala is a longtime business partner of Pacific Imperial Railroad’s Alemany.

On the right track

Despite the questions surrounding Pacific Imperial Railroad’s finances, the most important aspect for the Metropolitan Transit System is that payments on the lease are made. According to a source, the payment due on January 1 was delivered on time.

Pacific Imperial Railroad executives are expected to provide details on the company’s progress in coming months.

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Comments
9

So what's the gag here, stock scam or what? Running an actual railroad doesn't seem to be on the agenda, yet they continue to shell out a lot of money for that annual payment. Also, did those investors (what were they thinking?) actually get their money back or was that debt owed by one of the former corporate shells that has no assets?

Jan. 27, 2016

Mr. Hudson- As to that first question of whether this is a stock scam, it really depends on who you ask. One thing is for sure, the railroad hasn't made any money and doesn't have any money coming in other than from investors. As for the investors, at least for McMillin, Seau, and others, they never received any payments. They all filed lawsuits, all against Carrizo Gorge Railway (name before PIR). The lawsuits mean little if there is no money to pay. I hope that answers your questions. Thanks. -dH

Jan. 27, 2016

Generally scams are pulled off by those who make the "investors" think that they have already put large sums of money into the deal, when in fact they have not. There are ways of making it look as if plenty has been done and spent. But in this case, the $3 million put into the MTS coffers have been real dollars, and they had to come from somebody or some place. But nothing beyond making those payments has been done. You might ask if the rent payments would have been better spent on actual work to reopen the line. Jablonski and the MTS board seem perfectly happy to take the money and pretend that PIR will actually, finally, and at long last, turn a shovel, replace a tie, or replace a bridge timber. But, three years of no activity? That fact speaks for itself.

Jan. 27, 2016

The railroad will never amount to anything. It was abandoned because it was too expensive to operate. San Diego is a dead end as everything is cheaper to ship out of LA than San Diego. I think the whole railroad thing is a scam and always has been. It's only purpose is to scam investors. Jablonski is a crook.

Jan. 27, 2016

Alex, strictly and legally speaking, that rail line is not abandoned. The rails are still in place and it exists as a legal entity owned by MTS. Yes, as railroads go, it would be expensive to operate. The notion put forth by PIR and predecessor Carrizo Gorge Railway about taking cargo in and out of northern Baja on that rail link isn't totally fanciful. The biggest barrier would be cost, not just to refurbish the line, but to construct a state-of-the-art intermodal facility somewhere along the line. Then there's the imponderable of the degree that Union Pacific would cooperate to accept the rail cars somewhere in the Imperial County desert and rapidly send them on their way to the East.

Jablonski's role in all this is highly questionable. I suspect that for as long as the rent payments keep coming in neither he nor the MTS board will rock the boat.

Jan. 28, 2016

Also, Jablonski makes a huge salary, and isn't likely to be fired. So he's rolling in clover, no matter what happens with that railroad. regular pay $332,839.00 (as of 2014) Other pay 33,579.00 Total benefits 144,335.00 Total pay and benefits $510,753.00

Jan. 28, 2016

Agreed but I think that the costs to make it viable let alone profitable will never happen. The cost of an intermodal facility alone would nix the deal. Of course there is seemingly no end to stupid and gullible investors.

Jan. 29, 2016

Oh, what you say is true. I had a top-of-the-head estimate from a guy with plenty of railroad savvy of the cost of such a facility. He had it in the hundreds of millions. That's a far cry from anything these promoters seem capable of raising. If they could raise funds, why have they not spent a cent, seemingly, to start to put the line back into service? The answer to that is obvious.

Jan. 29, 2016

This railroad is not abandoned, it is dormant. But from my perspective, as long as MTS owns this railroad, it WILL NEVER amount to much. What legitimate company can afford to pay $1 MILLION dollars a year and produce ZERO INCOME and do ZERO UPGRADES on the line and move ZERO TRAFFIC!!!

Feb. 2, 2016

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