Attorneys defend Walters in sale of country club

There's no evidence that a group of golf course developers intentionally withheld pertinent financial information when they sold Stallion Mountain Country Club to investors in 2006, attorneys for Walters Golf Group argued Thursday in U.S. District Court.

A lawsuit before Judge Philip Pro, FSP Stallion vs. Michael Luce et al, alleges that owners and operators of the struggling Las Vegas golf course devised a fraudulent scheme to sell it to "unsuspecting investors" for millions of dollars more than it was worth.

The deal was structured such that the $24.4 million offering price would be financed through a $15.2 million secured loan on the property, with Bill Walters as personal guarantor. Walters also developed Bali Hai Golf Course on a ground lease from Clark County.

Stallion Mountain was sold in July to Ohio-based Tartan Golf Management for $3.8 million. It was foreclosed upon by Community Bank of Nevada in 2008, and later placed in receivership with the Federal Deposit Insurance Corp.

Primary defendants in the case are Michael Luce, Joe Munsch and Walters, who operated Stallion Mountain Golf Course under Fairway Signature Properties, a Delaware-based limited liability company. The lawsuit names the individual partners as well as multiple companies each had.

Plaintiffs are investors who purchased interests in the golf course through IRS Code 1031 Exchange, or tenant-in-common, limited liability companies.

The lawsuit claims the plaintiffs were fraudulently induced to purchase tenant-in-common interest in Stallion Mountain based on false and misleading representations and material omissions concerning the value of the golf course.

"Fairway did not misrepresent nor did they omit information in the PPM (private placement memorandum," attorney Dan McNutt said in the courtroom. "The projections in the PPM were absolutely credible and we believed they would be achieved. The money was on the back end of the deal. We all wanted this to succeed."

Attorney Thomas FitzGibbon, representing Direct Capital Securities, said investors were given financial statements and projections on Stallion Mountain that showed 46,000 rounds of golf played on the course in 2005, and a projected 51,000 rounds for the next year.

Munsch is highly regarded as one of the best golf course experts in the country, FitzGibbon told the judge. Stallion Mountain was going to reduce the price for a round of golf in off-peak times, which would hopefully lead to an increase in rounds played, the attorney said.

"Their (plaintiffs') claim is that 51,000 is misleading. It's only a 10.7 percent increase. Anybody who didn't think a 10.7 percent increase in rounds ... if that wasn't believable, they shouldn't have invested. They're saying these people didn't believe it was going to happen. Mr. Walters had 15 million reasons to believe it would," FitzGibbon said.

Adam Thurston, attorney for the plaintiffs, said the issue of whether those cash-flow projections were misleading has to go to jury trial, which is set for December.

The principals of Stallion Mountain were intimately familiar with its business operations, including financial performance, historic growth rate, revenue potential and risk factors, the lawsuit said.

They used a trailing 12-month period for cash-flow projections over the next eight years. What they didn't disclose was a financial performance in decline, Thurston said.

"We're saying that's an out-and-out lie because they did not disclose these downward trends from April 2004 up until the time the PPM was created and we started closing the deal on these TIC interests," Thurston said. "We're not just saying you had to disclose a drop in rounds when you closed two golf courses. It's not just dropping 36 holes, but you were on a decreased trend for the remaining 18 holes. They decided to withhold material information."

Judge Pro did not issue a requested summary judgment Thursday but did indicate he would dismiss some of the federal claims for securities fraud, and that a ruling on other actions would be forthcoming.

Contact reporter Hubble Smith at hsmith@reviewjournal.com or 702-383-0491.