Stallion Mountain Country Club case could hinge on key date

The critical date in determining whether former Stallion Mountain Country Club owner William Walters must pay damages to the buyers in a failed golf course sale could turn out to be Feb. 28, 2006.

In opening statements to an eight-person federal jury on Monday, attorneys focused on different sides of the date, which marked the change of control. The 26 buyers emphasized the months before the sale, when they contend that Walters and business associates hid a declining performance behind sunny projections. But the defense spent much of its time replaying the aftermath, contending that the recession that hammered golf and real estate across Las Vegas, and that perceived miscues by the buyers themselves caused them to lose their investment.

Walters, a gambler and land developer who bought Stallion Mountain in 1997 when it had 54 holes, sold off two pieces for housing development in subsequent years and was trying to shed the final 18 holes in 2005. The course sold to 26 people who each created their own limited liability corporation, for $24.5 million in early 2006. This included a $9.2 million cash down payment, with each buyer contributing $100,000 to $700,000, plus a $15.3 million loan from the now-failed Community Bank of Nevada.

By mid-2008, finances had deteriorated to the point that buyers stopped making payments, leading to a foreclosure at the end of the year.

Methodically laying out the deal's structure for the jury, buyers' attorney Adam Thurston depicted his clients as making their decisions based on a prospectus, known as a private placement memorandum. In putting the document together, Thurston said, Walters left out critical details: Worsening performance, failure to make internal budgets and a pessimistic forecast in an appraisal by PricewaterhouseCoopers.

Fraud can be either be an outright lie or a failure to tell all the facts, Thurston told the court.

"We have both kinds of fraud here but mainly the kind where somebody doesn't tell you something," he said.

About 20 of the buyers, many with large thatches of gray hair, sat in the courtroom as Thurston described them as ordinary people, including a retired pilot, the owner of a small restaurant, a librarian and a retired schoolteacher.

But Walters' attorney wasted no time in portraying them as affluent people -- the deal required buyers to have at least $200,000 annual income or $1 million in net assets -- who bought Stallion Mountain as a tax shelter.

In the end, Stallion Mountain was sunk by "a bad economy and bad decisions that led to a bad result for every single person involved in this," said Dennis Kennedy, Walters' attorney.

He listed miscues such as firing course managers -- longtime associates and acquaintances of Walters -- and installing an outsider who did not deliver a promised buyer in 2008 and wrecked the course in order to collect water conservation incentives from the Southern Nevada Water Authority.

"Does this sound like a group of people who thought they were defrauded and cheated?" Kennedy asked rhetorically.

Instead, he said Walters was the biggest loser because he personally guaranteed the $15.3 million loan for the buyers.

In ruling on a separate Stallion Mountain case, the Nevada Supreme Court in October wrote that the Federal Deposit Insurance Corp., which seized Community Bank, was seeking $12.5 million from Walters as the unpaid balance.

The trial is expected to continue into mid-February.

Contact reporter Tim O'Reiley at toreiley@reviewjournal.com or 702-387-5290.