Water rights deal points to inside job

As with so many lucrative heists, authorities allege the Virgin Valley Water District caper was an inside job.

Businessman and land owner John Lonetti owned a ranch along the Virgin River near Bunkerville and had groundwater to sell. After lengthy delays and a lot of frustration, he eventually found some experienced assistance to help solve his problems. In May 2008, Lonetti received $8.4 million for his water rights.

All it cost him, he later admitted, was a $1.3 million payment to Rio Virgin, LLC, a diminutive concern that happened to be associated with then-VVWD Chief Hydrologist Mike Johnson and Deputy State Water Engineer Robert Coache. As quickly as it appeared, the limited liability company vanished. As you might have guessed, it didn't hurt to have Johnson on board as a "consultant." According to published reports, the water agency estimates it overpaid Lonetti by approximately $4 million.

It took nearly three years, but in May 2011 a Metro investigation into the 2008 transaction resulted in a weighty criminal complaint being filed by the Clark County District Attorney against Johnson and Coache, who had since left their positions. Criminal charges include extortion, bribery, and money laundering. Although Johnson has admitted he failed to disclose his business relationship with Lonetti, both former water officials have denied wrongdoing.

Lonetti signed a proffer agreement with the Clark County District Attorney's office and wasn't charged with a crime. He appeared to be under the impression that privately hiring Johnson as a consultant in an effort to expedite the protracted effort to acquire some water rights while selling others was simply part of the cost of doing business.

Attorney Mark Dzarnoski represents Lonetti and asserts his client has been wrongfully portrayed in the press coverage of the water rights sale. Although Lonetti was interviewed under oath and signed off on the prosecution proffer, his attorney says no special deals were cut. Lonetti simply wasn't charged, no doubt in part because an extortion charge must have a victim.

It's nothing personal, Dzarnoski said Tuesday, but "it's pretty hard for him to do that when he doesn't view himself as a victim of a crime."

That, I suspect, is part of the problem with the case as it proceeds toward trial.

Of course, it wasn't the first time something like that had happened inside the VVWD. In fact, the district bought 590 acre feet of water for nearly $8.9 million from Lonetti in 2005 — about $3 million more than it was reasonably worth. Johnson and Coache were associated with that deal, too, according to a civil complaint.

The case hasn't generated much regional press, but was featured on the cover of the recent edition of High Country News with an article by Matt Jenkins. With the case scheduled to proceed to trial in April, the criminal questions are far from answered, Jenkins reports, and even the lead Metro detective in the investigation has admitted in a deposition in the civil matter that "There's no direct evidence. It's all circumstantial."

That's true, but the prosecution would appear to have a well-informed insider witness in Lonetti, who admits Johnson worked on his behalf and was well paid for it.

According to the VVWD's 2014 proposed settlement agreement, "Johnson has recently conceded and the court's finding is that Johnson breached his fiduciary duty and acted dishonestly by, among other things, failing to disclose that Johnson consulted for and would receive payment from Lonetti. The court had also ruled that Johnson was Lonetti's agent and that Johnson and Coache were partners."

That adds up to an inside job. Whether the charges stick is another matter.

John L. Smith is a columnist for the Las Vegas Review-Journal and a fourth-generation Nevadan. Contact him at jsmith@reviewjournal.com. On Twitter: @jlnevadasmith.