Transcripts detail bribe in Virgin River water rights deal

The Southern Nevada Water Authority would have delayed an $8.4 million deal to buy Virgin River water rights in 2008 had it known a local regulator stood to profit from the deal, grand jury transcripts show.

John Entsminger, the water authority's assistant general manager, told the grand jury that the Virgin River Water District's chief hydrologist at the time, Michael E. Johnson, was intimately involved in brokering the deal but never informed him of his financial stake.

"If we had any knowledge of a personal interest by an employee of the Virgin River Water District, we would have put on the brakes and figured out what needed to be done, including possibly terminating the transaction," Entsminger testified.

He told the grand jury that he would have been concerned to hear that Robert Coache, then a deputy state engineer who played a big role in granting water rights in Southern Nevada, had a financial interest in the Virgin River deal.

Johnson, 51 and Coache, 52, are charged in a 50-count indictment with taking a $1.3 million bribe to help wealthy Bunkerville landowner John Lonetti Jr. sell his Virgin River rights to the water authority. Lonetti, 77, has not been charged in the Las Vegas police investigation.

Part of the $8.4 million deal involved swapping water rights between the authority and the Virgin River Water District, whose officials didn't know about Johnson's dealings with Lonetti, according to the grand jury transcripts.

Though the deal is tainted by the indictment, District Attorney David Roger said Tuesday there is no reason for water authorities to undo it.

"In this case you have two water agencies that do not appear to be criminally culpable," Roger said. "Therefore, the transaction between the two entities is valid."

Water authority spokesman Scott Huntley said his agency is happy with the deal.

"We don't have any intention of reviewing it," he said. "We have verified that we got the water we paid a fair price for, and really, from our end of the deal, that is what is in our interest."

The Virgin River Water District filed a lawsuit in March against Johnson, accusing him of breaching his "duty of loyalty" to the district through his secret dealings. The district wants to recover his share of the money involved in the case for its ratepayers, the residents of Mesquite and Bunkerville, the lawsuit said.

Jason King, a deputy state engineer at the time in Carson City, told the grand jury that he never would have signed a key permit that paved the way for the water deal had he known that Coache was going to profit from it.

"For someone to work for the state engineer's office to be involved in the sale of water rights, which is what we do day in and day out, is a conflict of interest and ... you don't do that," testified King, who now runs the engineer's office.

Nate Chio, the lead detective in the investigation, testified that during a search of Coache's home, he found a file labeled "John Lonetti" that contained Lonetti's address and cellphone number and copies of the state permits Lonetti needed to sell his water rights.

The file also contained a handwritten diagram of the roughly "50-50 split" between Coache and Johnson of the
$1.3 million, with documents establishing Rio Virgin LLC, a partnership the defendants used to launder the money, Chio said.

Coache and Johnson, both free on $250,000 bail, are accused of running a series of financial transactions through Rio Virgin, including the purchase of several homes.

Police obtained a court order to seize two of the homes but have not physically taken possession of them nor evicted their residents. They have filed the seizure documents in District Court and with the Clark County recorder to prevent the owners from selling the properties.

Chio testified that Coache tried to influence the testimony of a friend who had incorporated Rio Virgin for the two defendants.

He said the friend, contractor Steven Templeton, had "done a complete 180" in a second interview with detectives a couple of days after discussing the investigation with Coache.

In the second interview, Templeton attempted to put distance between Coache and Rio Virgin, Chio testified.

The indictment alleges Coache and Johnson carried out the bribery scheme between January 2006 and May 2008 and laundered the proceeds until Sept. 13.

Coache retired from his state job in May 2010, and Johnson resigned under fire from the Virgin Valley Water District in August.

Contact Jeff German at jgerman@reviewjournal.com or 702-380-8135.