[Editor's note: This is Part 2 of a multi-part series on the Mesquite Citizen Journal that examines the alleged corruption on the part of former Water District officials that took place at the Virgin Valley Water District between 2002 and 2010.]

Click here for Part I Former VVWD Officials and Business Owner Face Mounting Legal Woes

Click here for Part III Civil Court Documents Reveal Corruption in VVWD - Part III

Click here for Part IV VVWD Corruption Case: How They Allegedly Spent the Money-Part IV

A civil complaint filed in Clark County District Court by the Water District in March and amended twice after that, draws a widening circle of corruption that apparently continued for years, involving the two most senior officials responsible for protecting Virgin Valley water ratepayers.

Part I of this series covered the alleged corruptive actions of Michael Winters, General Manager of the VVWD, and Michael Johnson, the District’s Hydrologist, in an episode dating back to 2002 and 2005 allegedly involving John Lonetti, Jr., a wealthy land owner in Bunkerville, who also owns and is closing The Ranch Market. See Mesquite Citizen Journal story Former VVWD Officials and Business Owner Face Mounting Legal Woes

Both Winters, Johnson, and Robert Coache, former Deputy State Engineer, State of Nevada Division of Water Resources face criminal charges also, in separate actions filed by the Clark County District Attorney. We’ll look at those in a separate installment.

This article focuses on alleged corruption that took place in 2008 by Winters and Johnson with Coache’s help. The incident also focuses on Lonetti’s role in carrying out the allegations.

In order to understand the importance of the charges, it’s important to understand some of the technicalities of the “world of water in the west.”

Water is categorized by its origins. Groundwater is considered any water that originates from beneath the ground. That’s where the bulk of our drinking water comes from and is pumped up through wells.

Surface water is what you see flowing through the Virgin River. It’s less valuable than groundwater because it’s harder to prepare it for human consumption. It's mainly used for irrigating farms and golf courses.

All water usage must be approved by permit from the State Engineer and carries an identifying number. The permit specifies the acre feet per year (afy) that will be granted and also prescribes how the water will be used.

The water right shareholder has to demonstrate the purpose and use of that water upon application.

The monetary value of water rights is also set by the permit dates established by the State Engineer’s office. Older water rights are more valuable than newer ones.

Whoever got those rights first has first priority to using the water. So in an unforeseen chance the water should start drying up, those shareholders with the oldest dated application will continue to receive water while those with newer dates would have to forego obtaining water.

Water rights dated before 1929 are extremely valuable because they have fewer restrictions than rights granted after that year by legislative action. The date of the water rights carries with them whenever they are sold.

In 2008, Lonetti “received a letter from the State Engineer in response to a pending water permit application (Permit # 54383) that Lonetti had filed with the State Engineer wherein Lonetti had requested certain surface water rights from the Virgin River purportedly in order to irrigate 400 acres on Lonetti’s property,” says the civil complaint filed by the Water District.

The State Engineer’s response said that the office was no longer granting permits for water from the Virgin River. Lonetti was given two options: withdraw his 1990 application or explain why it should be granted.

Rather than doing either, Lonetti allegedly contacted Johnson “because Lonetti knew that Johnson had a close contact in the State Engineer’s Office.” That contact would later turn out to be Robert Coache.

“Johnson and Lonetti then entered into a written financial agreement whereby Rio Virgin, LLC, a company owned and controlled by Johnson and Coache, would receive from Lonetti twenty five percent of the proceeds for the sale of Permit 54383 (1,200 afy of water) and ten percent of the proceeds for the sale of Permit 3085 (600 afy of water), even though Lonetti’s stated purpose to the State Engineer for the 1200 feet of water was for irrigation purposes and not for purposes of sale,” alleges the civil complaint court document.

The agreement was signed by both men Feb. 1 2007, even though at the time Lonetti did not own the rights to Permit 54383. Apparently, both men were confident the permit would be approved eventually.

And it was.

At the end of June 2007, four months later, Lonetti received the permit approval for the water from the State Engineer. It was the first permit granted to a private land owner for Virgin River surface water the State office had issued in seven years.

The civil complaint alleges that Coache, a partner in Rio Virgin LLC with Johnson, “used his position of authority as Deputy State Engineer to ensure that Permit 54383 was approved.”

The court document goes on to say that “approximately six months after Permit 54383 was approved, Johnson initiated contact with Southern Nevada Water Authority (SNWA) to discuss SNWA’s interest in purchasing Permits 54383 and 3085 from Lonetti.”

During that timeframe, SNWA was on a buying binge, snapping up water shares throughout the entire region whenever and wherever they could. The mammoth agency drove water right share prices to record highs, in some cases paying over $80,000 per share. It was at the height of the housing bubble and population explosion in southern Nevada.

According to the civil complaint, based on Johnson’s recorded testimony to the VVWD Board of Directors, “Johnson also discussed the 2008 transaction with Winters. However, as Chief Hydrologist and General Manager, Johnson and Winters should have brought this available water from Lonetti to VVWD for purchase as VVWD was engaged in purchasing similar water rights in or about the same time period.”

All the while that SNWA was buying up water right shares, paying exorbitant prices, VVWD was also doing the same. The difference was that SNWA had deeper pockets, thereby allowing it to offer share holders much higher prices than VVWD could afford. Knowing that, Johnson and Winters, in carrying out their fiduciary responsibilities, should have first brought Lonetti’s offer to their own water district rather than the bigger one to the south.

But, they allegedly didn’t.

“Lonetti’s Permit 54383 consisted of 1,200 afy of water with a priority date of 1990 and Permit 3085 consisted of 601.97 afy of water with a priority date of 1914,” explain the court documents.

The earlier permit date made Permit 3085 much more valuable even though there were less acre feet of water associated with the permit.

When Johnson met with SNWA, he allegedly told the agency’s people that he was acting on behalf of VVWD but didn’t tell them he stood to personally profit from whatever transaction resulted from the meeting.

According to Johnson’s version of the story in the court documents, SNWA wasn’t interested in the 1,200 afy of water in Permit 54383 because of its Permit date of 1990. Rather, the agency wanted the 601 afy of water associated with Permit 3085 because of its Permit date of 1914.

Part III of this series will examine the trade of water shares between the Southern Nevada Water District and the Virgin Valley Water District that left VVWD with the short end of the stick.