Drama may further derail Desert Line

OCOTILLO — The only sign of movement on the long-disabled Desert Line is the absence of any movement at all — most notably, the rusted-out rail cars visible from Interstate 8 near Coyote Wells that stand as a reminder to unfulfilled promises of restoring rail service from the west.

Imperial County officials have been in the dark on the state of the railroad for what could be as long as a decade, hearing next to nothing from representatives of the Desert Line, except for a few drop-ins to hear about big plans that went nowhere.

Jack Terrazas, Imperial County supervisor for the western desert regions of the county, where the line sits dormant, might have been the last county official to sit down with anyone representing the railway.

“We haven’t heard a thing down here for years,” Terrazas said Monday upon learning about allegations of fraud and financial mismanagement with the line’s operator, Pacific Imperial Railway.

Neither Terrazas nor the county’s executive officer, Ralph Cordova, knew that the line’s management had changed hands, something that happened back in July 2012.

The company was recently awarded a 99-year lease to operate cargo rail service from the Desert Line’s owner, San Diego Metropolitan Transit System. It has reportedly been under scrutiny by the U.S. Attorney’s Office over past questionable dealings of key executives, stakeholders and management personnel of Pacific Imperial, many of whose investors were remnants of Carrizo Gorge Railway, the former rights holder.

The now-defunct Carrizo Gorge Railway was the last company to reach out to Imperial County officials, Cordova said Friday.

The railway, formerly known as the San Diego & Arizona Eastern Railroad, hasn’t been fully operational since a tropical storm in the ‘70s and vandals destroyed portions of the railroad.

Railway has local ties

With a series of interconnected storylines that involve potentially shady dealings tied to and around the railway, more questions than answers have arisen about the future of the Desert Line and the men who are leading its rebirth.

Some of those men have local ties as well, including one of the parties involved in a takeover of Pacific Imperial, Jeff Kinsell of investment banking firm Kinsell Newcomb & De Dios, which was behind the public-private partnership to build a new Calexico Port of Entry.

Kinsell, who spoke to the Imperial Valley Press on Friday, said he is now a member of the Pacific Imperial Board of Directors and that his firm was key in the corporate restructuring of Pacific Imperial.

It is unclear whether any of the new owners, of which Kinsell Newcomb & De Dios is apparently part, is being investigated by the U.S. Attorney’s Office. The agency, according to another published report, would not confirm nor deny any ongoing investigation.

What might have initially raised enough suspicion for a probe is former Carrizo Gorge Railway officials’ allegations that Pacific Imperial’s principal shareholders were involved in numerous questionable ventures that ran the gamut from fraud and tax delinquency to financial mismanagement, according to published reports.

In the minutes from a Dec. 13, 2012, MTS Board meeting, former Carrizo Gorge official Gary Sweetwood wrote a detailed letter urging the agency to delay a decision approving an operating agreement between MTS and Pacific Imperial. Sweetwood detailed alleged fraud and theft by Pacific Imperial principals Charles McHaffie and Donald Stoecklin as it related to a deal between the two men and shareholders of Seau’s Restaurant in Mission Valley, including the late Junior Seau’s ex-wife, Gina Seau.

A lawsuit has since been filed against McHaffie by Gina Seau in which she alleges to have been bilked out of $2.5 million by McHaffie, according to published reports.

Key in making the introduction between the Seau’s investors and McHaffie is Eduardo Valerio, according to Sweetwood’s letter to MTS.

Valerio wasn’t just the go-between for McHaffie and Stoecklin and the Seau’s people, though. He was also a representative of Carrizo Gorge Railway in some capacity, according to Cordova.

Sometime between 2002 and 2004, Valerio approached the county along with Carrizo representatives whose names Cordova can’t remember.

Valerio met with county officials to investigate the permitting needed to build an intermodal facility on the Desert Line near Ocotillo that would serve as a drop-off point for truck cargo heading west, which would then make its way from Ocotillo to San Diego via the Desert Line.

Cordova said the county would have had little to do with such a venture besides a few building permits. He didn’t hear from Valerio much after that.

When contacted by the Imperial Valley Press on Friday, Valerio would not comment on his association with the railway other than to say he was a “friend of the proponents.”

Hunters take aim at train

As it stands, the lion’s share of the reported U.S. Attorney’s Office investigation likely came at the urging of U.S. Rep. Duncan Hunter (Jr.), R-Alpine, who wrote a letter to San Diego-area U.S. Attorney Laura Duffy in October asking for an investigation into Pacific Imperial and how it was awarded its 99-year lease from MTS.

The Hunter family has had a long history as vocal opponents of reprising the Desert Line, starting with former U.S. Rep. Duncan Hunter Sr., R-Alpine, who at the time of his vehement opposition in 2003, was Imperial County’s Congressional representative.

As a longtime high-ranking congressman in matters related to national security, Hunter Sr. believed the rail line would be ripe to be exploited for drug and human smuggling from Mexico to the U.S. Portions of the Desert Line dip into Mexico from Tijuana to Tecate.

Hunter Sr., according to story in the Imperial Valley Press in 2003, questioned the ability to defend the border with the train in operation.

Hunter Sr.’s objections were not unfounded or without premonition, as Carrizo Gorge Railway was subject to at least one $1.6 million fine from the Department of Homeland Security.

A “Notice of Penalty” obtained by the San Diego Reader shows that Carrizo officials were fined by Customs and Border Protection for train cars that were officially recorded as being empty but later found to contain 202 pounds of marijuana.

That Hunter connection was among the last topics of discussion between Carrizo representatives and Supervisor Terrazas, who spoke with Carrizo officials about Congress’ reluctance to support reopening the Desert Line for those very reasons.

Carrizo principals did not expect much support from the newly elected Hunter Jr. at that time given his father’s staunch opposition, Terrazas said.

Terrazas indicated that Carrizo officials planned to do an end-around Congress by first striking up a deal with Mexico over making sure security was in place for the train over the 40-mile length it runs in Mexico.

That deal never happened, to Terrazas’ knowledge, and he never heard from Carrizo Gorge Railway again.

The future of the Desert Line?

Besides Kinsell Newcomb & De Dios’ involvement, there seems to be little known about the new owners/investors in Pacific Imperial. That will all change in March, as Jeff Kinsell acknowledged to the Imperial Valley Press, that a status report from Pacific Imperial is due to the MTS board.

Kinsell said he will be at that meeting, but declined to preview the report.

It’s as yet unclear whether the specter of past Pacific Imperial business dealings will follow this new ownership, but the association of Kinsell casts a shadow over the new board.

Kinsell and another Kinsell Newcomb & DeDios principal, as well as the city of Victorville’s assistant city manager, were all named in a complaint filed by the Securities and Exchange Commission for false and misleading statements related to an airport bond offering in 2008.

Kinsell, according to the SEC filing, was accused of misusing funds in that case to keep Kinsell Newcomb & De Dios financially afloat.

He has long disputed SEC’s allegations.

Clearly there has been more action involving the world around the Desert Line than on it. But Cordova, for one, remains hopeful that good might yet come from an opening of the line, if that ever happens.

“We would want to see the line developed. It would provide for economic development in Imperial County and the information that we have received in the past is that it could be good,” he said. “But each of the projects as presented to us haven’t panned out.”

Photos by Alejandro Davila

This story originally appeared in the Imperial Valley Press, Feb. 10, 2015.*