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Home / Articles / News / News /  Pacific Imperial Railroad’s bad track record
. . . .
Wednesday, Aug 13, 2014

Pacific Imperial Railroad’s bad track record

Desert Line leaseholder likely claimed fake asset

By Joshua Emerson Smith
Desert Line map A map of the “impossible railroad”
- Illustration by Lindsey Voltoline; Source: San Diego Metropolitan Transit System

Two men from Nevada traveled to Tijuana around 2006 in an effort to take control of a property in Baja, Mexico called Tembabichi. One of the men was embattled Nevada District Court Judge Steven Jones, who, according to prosecutors in an ongoing judicial discipline hearing, made the trip in connection with a scam that left three unsuspecting investors out $20,000 each. Making a string of headlines in Las Vegas, Jones also now faces a federal indictment that includes charges of money laundering and multiple types of fraud.

The other man was Dwight Jory, the central figure in San Diego’s most recent quagmire surrounding what’s widely known as the "impossible railroad"—a 148-mile rail line between San Diego and Plaster City, just west of El Centro, which over its century-long history has been plagued by flooding, fires and now scandal.

The two men met with a woman named Linda Chavez, who, despite the best efforts of the Nevada duo, retained control of Tembabichi, according to court documents. However, as recently as 2012, Pacific Imperial Railroad, a company financed by Jory, secured a 99-year government lease to operate the rail line while touting Tembabichi as an asset worth more than $563 million.

Adding to mounting evidence that Jory and his associates in the railroad business might not have the region’s best interest in mind, additional documents have surfaced that not only point to Chavez as the owner of the property but also call its purported value into question.

When the San Diego Metropolitan Transit System (MTS) in 2012 granted Pacific Imperial Railroad (PIR) the lease to operate the rail line, owners of Mexican factories, known as maquiladoras, were hopeful. Businesses like Toyota had long desired to move freight using the Desert Line, a 70-mile stretch of rail between Tecate and Plaster City, where the Union Pacific Railroad picks up and connects to eastern markets.

The problem was the rail line needed more than a $100 million in repairs, including improvements to multiple bridges and tunnels, according to MTS.

Using a 2009 appraisal report of a 5,685-acre property in Baja Mexico, known as Rancho Tembabichi, officials with PIR claimed they had the assets needed to raise the money to fix the rail line.

Recently, Congressman Duncan Hunter wrote several letters to Paul Jablonski, CEO of MTS, calling into question PIR’s ownership of Tembabichi and the company’s financial solvency.

It turns out, the property’s real owner is Linda Laree Child de la Toba, whose married name is Linda Chavez, according to a copy of the appraisal report obtained by CityBeat. The exceedingly obtuse document also shows upon close inspection that the appraisal is actually for a far-fetched development project referred to as “Rancho Utopia.”

Donald Stoecklein, CEO of PIR and owner of Stoecklein Law Group, did not dispute CityBeat’s reading of the document.

“That’s like buying into one of these buildings before it’s built,” he said, adding, “Certain parts of the property had to be developed out, yeah.”

Located on undeveloped desert roughly 50 miles east of the small Baja town of Ciudad Constitucion, the property is only accessible by off-road vehicle, small plane or boat, according to the appraisal. There is no electricity, plumbing or running water. Several wells provide drinking water for a small fishing community living on the northeastern part of the property.

To meet the stated value of roughly $563 million, the appraisal outlines an eye-popping list of projects that would need to be completed, including a desalination plant, a sewage-treatment plant, a landfill system, agricultural reservoirs, a 100-acre solar-and-windmill electricity farm, a high-rise condominium with parking, a low-rise resort hotel and spa, a marina, a yacht clubhouse, an 18-hole PGA golf course, a fire station, a library, a non-denominational worship facility, a mixed-use complex with restaurants and retail outlets, a 25-acre freshwater fish farm and hatchery and an airport.

Using preferred stock in PIR, Stoecklein said he bought the property somewhere around 2011 from the Nevada Group, which is owned by Jory. The group, he said, had owned the property since the “early ’80s” and sold it to him for around $200 million in PIR stock.

“Once I did that, I was going to use it to leverage it against and go borrow money to essentially build out the railroad,” he said.

In 2013, Stoecklein hired professional fundraiser Ernie Dahlman as PIR’s CEO. Dahlman, in turn, brought on 30-year railroad veteran David Rohal to run the operation as president. The new team convinced Stoecklein that having the Tembabichi property on PIR’s books looked suspicious. While the Nevada Group agreed to “buy” back Tembabichi, the controversy surrounding PIR had only begun.

Before setting off to find investors for PIR, Rohal sank $750,000 of his own money into the project. PIR hired a payroll company, employed an accountant, created a human-resources department and retained a Washington D.C.-based lobbying firm to compete for grants.

In late December, they headed to Wall Street to look for investors. At first, prospects seemed promising with potential backers pledging about $30 million, Rohal said.

“They were excited about the business potential and our track record,” he told CityBeat.

However, things quickly began to fall apart when seasoned Wall Street investors did their homework on Jory and his associates, Rohal said. “They told us they were the worst background reports that they’d ever seen.”

Donald Stoecklein, Pacific Imperial Railroad CEO
Photo by Joshua Emerson Smith

At the same time, PIR’s new accountant began to get concerned that hundreds of thousands of dollars were being paid to a company owned by Jory called AC Funding. At that point, Rohal said, PIR had only about $3 million and a few beat-up locomotives; he didn’t understand why the company was making the payments.

An independent forensic audit, contracted by Dahlman and Rohal, found that PIR had paid AC Funding close to $1.17 million, much of which was billed as consulting services with no corresponding statement of work and a “questionable” stock transaction.

Having personally signed the checks, Stoecklein—whose law group took home more than $250,000 during that time—said a large portion of the money paid to AC Funding was loan repayments.

“I talked them into putting a million dollars up, early on, just to tee it up until we could get some money in the door,” he said, referring to Jory.

Calling those checks “loan repayments” is a “fiction,” Rohal said. “Why would you be repaying loans in the startup phase?” With the company nearly broke, Dahlman and Rohal brought their concerns to officials at MTS, who promptly sided with Stoecklein and PIR.

“I think the real question is, if they have been swindled out of that money, why haven’t they filed a lawsuit?” said MTS spokesperson Rob Schupp. “Why haven’t they brought any claims?” 

Rohal said he’d consulted with attorneys and was told that though he’d likely prevail in a lawsuit, it was doubtful PIR would pay up.

If Dahlman and Rohal do decide to file a lawsuit, they won’t be the first.

In 2002, MTS granted Carrizo Gorge Railway (CZRY) the right to operate the rail line, but starting around 2006, the company began facing significant shareholder and creditor disputes. The controversy started shortly after Jory and his business partner Charles McHaffie became heavily involved in CZRY and its efforts on the Desert Line.

While Jory served at various times as both a stockholder and the president of CZRY, McHaffie’s role was more nebulous. Acting as the face of the company at public and private meetings, McHaffie claimed to have routinely gone without formal payment for his work, relying on “loans” from his boss to survive.

In a 2007 court proceeding in connection with a yet-to-be-paid judgment of roughly $1.6 million against him, McHaffie denied having any money. He said he had done some “consulting work” for Jory, but added, “I don’t know if I got paid from him.”

To pay for necessities, such as food for his son, McHaffie said, Jory loaned him money, often cash. He went on to explain that he lived in a house in Rancho Santa Fe with a $2,500 a month rent, which, he testified, he wasn’t consistently obligated to pay.

“Do you believe you owe rent this month?” asked the lawyer questioning him.

“It hasn’t been a subject of conversation or topic for me,” McHaffie responded.

Since 2006, CZRY has been involved in more than 40 lawsuits and subject to state, county and federal tax liens, as well as numerous judgments. At one point, Gina Seau, wife of the late football player Junior Seau, sued McHaffie for about $2.5 million, claiming he suckered her into a scam involving the rail company.

All told, it’s been widely reported that the principles involved in CZRY and PIR have been named in more than 120 lawsuits.

Still, Jablonski and MTS seemed happy in 2012 to hand over the 99-year operating lease to PIR after its principle players ran CZRY into the ground.

In response to a 2012 lawsuit brought by a disgruntled CZRY shareholder seeking to block MTS from granting PIR the operating lease, Karen Landers, general counsel for MTS, submitted a declaration under oath that in part reads:

“MTS has met with PIR and its bankers and confirmed that the project is moving forward and that PIR appears able to obtain the financing needed. This financing will be secured by assets controlled by PIR and not associated with CZRY.”

While PIR no longer claims to own Tembabichi, has scant resources and faces allegations of fraud, Stoecklein said he will continue to try to raise the money needed to rehabilitate the rail line. For example, he said, Los Angeles-based firm Diamond Capital Advisors has recently shown interest in PIR.

“The irony is that all this publicity that it’s been given, I get calls here every day wanting to get involved in the railroad now. I never got those before. So whatever’s happened is like the old Donald Trump line: ‘All press is good press.’” 

On a side note, Stoecklein mentioned to CityBeat that he and the Nevada Group still have plans to move forward with the large-scale development project in Tembabichi—for which, yes, they’re looking for investors.

“I have a whole development plan, golf course, a hotel; you could have all that,” he said. “You could cattle-raise on a portion of it.”

Write to joshuas@sdcitybeat.com and follow him on twitter @jemersmith.




 
 
 
 
 
 
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