2 former water officials arrested in alleged $1.3 million bribery scheme

By Dave Toplikar

Tuesday, May 10, 2011 | 6:06 p.m.

Authorities made a second arrest Tuesday afternoon in connection with an alleged extortion, bribery and money laundering scheme involving some $8.4 million worth of Nevada water rights.

Michael E. Johnson, 51, former chief hydrologist of the Virgin Valley Water District, was booked into the Clark County Detention Center on charges he conspired in the alleged scheme with Robert Alan Coache, 52, former deputy state engineer for Southern Nevada in the Nevada Division of Water Resources.

Coache was arrested Monday. Both men are each being held on $500,000 bail and are expected to have court hearings later this week in Las Vegas Justice Court.

The Clark County District Attorney's office has filed a 25-count complaint against Coache and Johnson, saying they were paid more than $1.3 million in bribes to help Bunkerville landowner John Lonetti Jr. sell two Virgin River water permits to the Southern Nevada Water Authority for about $8.4 million.

The complaint alleges the activity took place between Jan. 1, 2006, and Sept. 1, 2010. It says the two men set up a company, Rio Virgin LLC, to accept the $1.3 million from Lonetti and then paid themselves from that company.

The complaint lists 18 counts of money laundering and says the money paid by Lonetti to acquire the water rights was withdrawn from Rio Virgin LLC by Coache and Johnson.

A report filed by Metro Police Detective N. Chio says Chio and another officer first met about the case on Oct. 11 with several members of the Virgin Valley Water District and members of the district attorney's office, including District Attorney David Roger.

Water district board members had asked for the meeting to report "possible criminal misconduct" by Johnson.

Chio's report said the water board had earlier met in a closed session with Johnson because of several allegations of wrongdoing on his part.

During that closed meeting, Johnson admitted to the board that he had been a "consultant" for a wealthy landowner, John Lonetti Jr., without notifying the board — a violation of his position.

Johnson told the board at that meeting he had received fees in the "thousands of dollars" from Lonetti in exchange for unknown services involving a water rights transaction involving Lonetti, the Southern Nevada Water Authority and the Virgin Valley Water District, Chio's report said. After that closed hearing, Johnson resigned as chief hydrologist, the report said.

Chio said the water board's attorney also brought up allegations about a business connection that Johnson had with Coache and there were rumors that their relationship was used to facilitate several transactions in the past.

At that meeting, Metro was asked to investigate the allegations, Chio said.

Chio said in his report that the transaction involved Johnson serving as an intermediary to sell two permits Lonetti had to the Southern Nevada Water District.

Chio's report said Johnson met with John Entsminger, general counsel for the SNWA, who told him Lonetti wanted to sell two Virgin River permits, one of which was more valuable because it was from 1914 and had a higher priority than the other one, which was from 1990.

Enstminger told Johnson he wasn't interested in the 1990 permit. But then Johnson proposed a water swap.

He allegedly told Enstminger he could arrange for the Virgin Valley Water District to trade 890 acre-feet of water from the Bunkerville Irrigation Company with an earlier priority date in exchange for the 1,200 acre-feet in the 1990 permit — if the SNWA would first buy the two permits from Lonetti.

Enstminger agreed, Johnson got the Virgin Valley Water District to make the trade and the entire transaction was done in May 2008, with the $8.4 million transferred to Lonetti's trust on May 20, 2008, the report said.

Chio also said he was able to find that Coache and Johnson owned the Rio Virgin LLC and had set it up July 30, 2007.

And investigators also found that a deposit was made into the Rio Virgin LLC account of $1,327,500 from the Lonetti Trust on May 2, 2008, Chio wrote

"These funds were then subsequently used to purchase several homes and transferred into other individuals accounts belonging to either Johnson or Coache," Chio wrote in his report.

He also wrote that a wire transfer of $15,000 was discovered from Rio Virgin LLC to Johnson's personal bank account with a memo that said "Winters."

Chio reported he learned that money was paid to Michael Winters, the general manager of the Valley View Water District at that time, who would have had to approve the VVWD's trade of water acreage to make the water swap between Lonetti and the SNWA go forward.

Chio reported that after the $1.3 million was disbursed, the Rio Virgin LCC was dissolved, making it appear the sole purpose of Rio Virgin was to receive the money from the Lonetti Trust.

Chio also reported that on March 29, he and another officer interviewed Lonetti at his ranch in Bunkerville. Lonetti told Metro officers that in early 2006 he had tried to get a water permit to irrigate 400 acres on his property.

Lonetti said the permit was denied, so he went to Johnson to get his help in getting the permit and hired Johnson for an amount he wouldn't disclose, Chio reported. Lonetti said that was the only time he had hired Johnson, Chio said in his report.

Lonetti said he didn't know Coache, but he had heard about him from Johnson, and knew Johnson had connections in the state engineer's office, Chio's report said.

"Lonetti admitted to writing a check from Johnson's consulting fee to Rio Virgin LLC," Chio's report said.

CORRECTION: Clarification: In an earlier version of this story, John Lonetti's first name was incorrectly written as Michael Lonetti. "Michael Lonetti" is how Lonetti's name is listed in the criminal complaint. | (May 12, 2011)