John Wallace accused of malfeasance

January 18, 2016

John WallaceBy KAREN VELIE

Former South San Luis Obispo County Sanitation District administrator John Wallace is accused of extortion and conflicts of interest in an investigative report that was made public Sunday. The investigation by Knudson and Associates recommends the district board take the information to law enforcement for possible prosecution.

The sanitation district provides sewer services to about 38,000 customers in Arroyo Grande, Grover Beach and the unincorporated town of Oceano. John Wallace is the owner and president of the Wallace Group, a private engineering consulting firm located in San Luis Obispo.

In 2009, two employees from the sanitation district, Scott Mascolo and Devina Douglas, reported misuse of public funds and problems with the plant complying with safety and health requirements to several regulatory agencies and CalCoastNews. Douglas and Mascolo were eventually terminated leading both to file whistle-blower lawsuits.

Nevertheless, multiple public agencies continued to contract with Wallace and his friend and attorney for the sanitation district Michael Seitz. Sharon Seitz, the wife of Michael Seitz, was the director of the Wallace Group’s human resources department.

While Sanitation district legal counsel Michael Seitz was bringing in large paychecks for his work on the Mascolo and Douglas’ whistle-bower lawsuits, Sharon Seitz was billing the sanitation district for her research on Douglas and Mascolo’s claims.

During interviews with Carl Knudson, Seitz claimed his wife only worked for the Wallace Group for eight months while Wallace claimed she worked for him for two to three years. Both Wallace and Seitz financially benefited from the ongoing legal battles, which rate payers funded.

According to Knudson, the practice of rewarding Seitz and Wallace for their incompetence is a potential conflict of interest in violation of the 1999 “Sarbanes-Oxley” law.

The Knudson report details several instances where Wallace attempted to use or used his public office to financially enrich his company.

For example, in 2009, Wallace threatened to close the state parks dump station in Oceano if the state did not pay Wallace Group $300,000 for engineering plans for a new discharge site. Wallace claimed the state facility was leaking Formaldehyde into the sewage plant. A claim that was later proven untrue.

State Parks recreation specialist Dena Bellman contacted former Grover Beach Councilman Bill Nichols and asked to meet with him regarding the alleged extortion attempt. Nichols arrived at their meeting with Wallace who allegedly smirked at the state employee, according to the report. This is one of the incidents of malfeasance Knudson recommends law enforcement investigate.

For the past seven years, multiple business owners have voiced concerns that Wallace was attempting to use his position as a contracted engineer for the Arroyo Grande Public Works Department. His job was to review and approve proposed project engineering plans. Several business owners said Wallace offered to fast track their projects if the Wallace Group, at a much higher than standard rate, was hired as the developer’s engineer.

The sanitation district board is comprised of three members, one from Arroyo Grande, Oceano and Grover Beach. Former Arroyo Grande mayor Tony Ferrara and Nichols regularly battled against former Oceano board members including Jim Hill and Lori Angelo, who questioned spending and conflicts of interest allegations made by Douglas and Moscolo and published exclusively by CalCoastNews.

In 2011, the San Luis Obispo County Grand Jury validated accusations that Wallace had been funneling millions of dollars to his private engineering company without proper oversight. Wallace, Ferrara and Nichols said the Grand Jury was wrong.

According to the Knudson report, under Wallace’s leadership expenses substantially exceeded revenues while Wallace Group’s income from the sanitation district swelled. Wallace regularly assigned district bookkeeping and financial work to the Wallace Group even though plant employees could have performed the work at a much lower cost.

“The trend in billings by the Wallace Group grew steady from $3,600 and 81 hours a month in 1999 to over 600 hours and $70,000 per month by the end of 2010,” according to the report.

San District 1

In addition, the district’s financial reports did not match other financials. Every year, from 2008 through 2012, the district’s “QuickBooks accounting data for revenue and expenses was substantially lower than data listed on the audited financial statements,” according to the report.

In 2013, Grover Beach mayor Debbie Peterson requested a forensic audit of the district. Amid the allegations of mismanagement, Wallace announced his retirement in Feb. 2013.

On May 6, the district voted unanimously to hire Knudson to do an investigation. Two weeks later, Seitz resigned.

Under Wallace, the district regularly exceeded its more than $6 million per year budget and ran at a deficit. Currently, the district is running at less than 50 percent of its budget, with overages being placed in a reserve account.

San district 2

Carl Knudson has worked for more than 40 years as a fraud investigator. As an IRS special agent, Knudson investigated drug trafficking cases which were eventually chronicled in two books, Washed in Gold and Dark Alliance. Knudson has testified as a Certified Fraud expert in more than 50 federal and state trials and proceedings.

Get links to breaking news, like CCN on Facebook.


One thing on the Knudson report I would like to clarify. “Kate” worked for the District, not for Wallace Group as stated in the report. Also, Kate did as requested, writing the Standard Operating Procedures, SOPs. She was given directions for district staff on what the procedure was, what it entailed, district staff reviewed the written procedure, and approved the written procedure. Either myself, Bob Barlogio, or shift supervisor, approved the written procedures. In no way is Kate to blame for procedures not accepted by district staff.


Interesting story. Good job.

This story reminds me of my 2010 story, at this link:

… where I show how Wallace, and of few of his consultant friends (including the Karners in Los Osos, with Gary Karner’s SWA Group) deliberately (repeat: deliberately) created the Los Osos sewer disaster starting back in 1998, for the sole reason so they could make a lot of money. And it worked, perfectly.

As I phrased it: “Nice work if you can manufacture it.”

We can also toss in the Seitzs on that unbelievably environmentally damaging scam.

It’s kinda funny if you think about it — it’s the exact same players involved with the South County Sanitation District scam AND the Los Osos sewer disaster scam, for, like, the exact same reasons: So they can make a lot of money, of course.

It’s a good thing for the people responsible for these scams — like Wallace and the Karners — that they are “friends” with District Attorney, Dan Dow.

Smart. That’ll keep ’em outta trouble.

Dave writes:

There is no way the Trib can ignore this story and remain a legitimate news source…

Welp, the Trib ignored (and continues to ignore) the amazing story behind the cause of the Los Osos sewer disaster — that STILL has the perps cashing in today — and that’s why looooong ago I termed the Trib “worse than nothing.”

Of course, this site hasn’t touched the story either. Same with New Times. Sooooo… uh, you know… just sayin’.


It will be interesting to see how The Tribune handles this story. Editor Sandra Duerr and John Wallace are both members of the Wednesday Rotary Club in San Luis Obispo. There is no way the Trib can ignore this story and remain a legitimate news source, but one has to wonder what their angle will be given past coverage.

Meanwhile, there’s enough credit to go around: Karen, Jim Hill, the original whistleblowers, and yes, even Debbie, who helped keep the story alive.

People can make a difference.

Public officials can be honest and ethical.

Investigative reporting is absolutely necessary.


“remain a legitimate news source”, are you kidding, The Tribune hasn’t been one for many years.


i think Dave is playing “reverse” psychology.


Where is Dan Dow? Forcing district taxpayers to spend hundreds of thousands of dollars to reveal John Wallace as a fraud when it is the DA’s purvey. The DA still will be too busy promoting himself to levy charges here.


THE WORD on this MUST get out. Dave?

Since the Trib could not even tell us who won the football games on Saturday, my guess is the Tribune will mull this for over a week before bringing negativity on buddy Wallace and Ferrara.

This is a “news”paper that printed Steve Adams full resignation letter….


You mean Steve Adam’s “Non-resignation” resignation letter that was never submitted and accepted by the A.G. city council? And who was on the city council at that time?, plus how can there have ever been a resignation letter?, Adams claimed a few months later that he was fired.


We must be vigilant to remind the voters who just let this continue:

Caren Ray (who wants to be the next mayor),

Jim Guithrie,

John Shoals,

Bill Nichols ( his wife is now on the GB Council)

and of course the crazies I cannot begin to mention in Oceano.

Go Hill and Peterson!

Make this public and personal!

Perhaps we should clog up Wallace’s sewer line at his multimillion dollar home.


he also has one of the nicest offices in the whole of SLO county. Pristine. I wonder why.


Even the mere suggestion to vandalize wallace’s house is stooping to his level. This is not the road we want to follow. Let the courts give him what he deserves.


Rot in Hell Wallace,you deserve no less than to sit out the rest of your miserable days in 6×8 eating shit sandwiches. Must feel exhilarating knowing your have screwed the public, so many elderly and financially challenged. Big man you are John, must be proud of yourself and the life you have built. How do you sleep at night and look others in the eyes as you slip their bankroll out their pockets. Perhaps you were deprive of allowance as a child and now its catch up time, what gives john, john, things get outta hand for you somewhere down the line and greed blinded you? Quoting from Web MD, “A psychopath doesn’t have a conscience if he lies to you so he can steal your money he won’t feel any moral qualms”.

Inform yourselves folks with Mr. Knudsens report which is available on the SSLOCSD website under the agendas and board packs for details. Ferrara spoke what may be the only words of truth in his political career, in that he said the public should blame the Board of directors (him) for Wallace’s continued robbing of the public. Nichols is exposed as the turd he is as well standing by Wallace’s side time and time again aiding and abbeting the criminal activity. Its time they all pay for decades of fleecing the public and helping themselves to our hard earned incomes.


obviously a pos w/o conscience.


Turds of a feather…flush together.


I think we can all agree this guy is slime and he and cohorts need to pay the price. However we should honor Scott Mascolo and Devina Douglas who have paid a negative price of having their integrity and lives challenged by Wallace.

The involved community needs to recognize them for their bravery and spirit.

How many of us are brave enough to go up against the Big Guys knowing that the Big Guys might slam us into the sewer pit of life? Mascolo and Douglas are heroes in my eyes and should be treated as such.


They should be suing Wallace, Ferrara and the like NOW civilly.

PLEASE go get those millionaires


Slam dunk civil trial.

Mike Byrd

Take away thoughts:

1. Wallace, Seitz and maybe a couple of board members should be prosecuted, probably by the Attorney General because the odds of our local DA fully challenging such power may be beyond expectation.

2. Both should be sued to recover the money stolen.

3. Both should lose their state licenses for moral turpitude.

4. The indefensible lawsuit with the state should cease immediately and the state should be encouraged to waive fines on the condition the district complete the redundancy projects in a timely manner.

5. And last but not least, Debbie Peterson, whether you support her candidacy or not, deserves our appreciation for persistently pursuing this, accumulating the evidence and fighting for this investigation to her own political peril.


I agree with you on point one. Dan Dow is in way over his head. The district had to spend hundreds of thousands of dollars on this exercise. An exercise Dan Dow should have been performing the last year, not the district taxpayers.


Make note that Dow has only been DA for a year. I am not sure it’s fair to expect him to get up to speed on the issue, push for an investigation, and come to some findings in that amount of time.

But I certainly hope he pushes hard on these dirtbags now that the information is out there.


So how long do we wait for Mr. Dow to get up to speed and start doing his job?, 18 months, 2 years, ???? Seems odd then that during his “up to speed time” he pushes for OT pay. Was he not ready to do the job from day one? I don’t recall him saying that during the election.


BS. He has been a SLO county DA for years, only the elected one for the last year- so he should have been well aware of this issue when he took office.


Absolutely, Mike! Perfectly stated.


Knudson found exactly what I found and wrote about here;

See page 69 of his report where discusses the boxes returned to the district. They were not in order, as the district was charged for and pages missing, yet no inventory to compare. Knudson quotes the current FBI Director, “We don’t know what we don’t know.”

JB Bronson

We know who the scum bags are in this story. There is not enough money to change their legacy of selfish corruption.

The heros are Mascolo and Douglas who had to have known what it would cost them to do the right thing, yet do the right thing they did.

A demonstration of courage not known to the cowards who continue to attract our attention for their selfish grab for power, money, and status, leading to their eventual demise.

Welcome to this group John Wallace.