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.

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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.

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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.

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The aforethought of malice or knowledge to do wrong that John Wallace brought to his involvement to the South San Luis Obispo County Sanitation District knew no bounds.

Every 2-3 San District vote in favor of his theft (warrants), his despotic behavior (human resources violations), his lies as GM.

It was the District’s job to 1) oversee and 2) listen to the ratepayers.

We have to stop allowing ourselves to be stifled. We have to show that we are educated on the topics at hand. We refuse to be bullied and marginalized any more.

No more.

No more.

Speak up every time.

Trust your gut and your brain.

Quit hiding behind a keyboard and a pseudonym.

This is our chance to support Mayor Jim Hill and former Mayor Debbie Peterson in their years-long quest for truth.

John Wallace is a felonious cancer in our community.


There are three directors, not five.


I stand corrected in my typo. I go to the meetings so I am aware they are 2-1 votes. Fingers got to flying in my frustration.


I have to say, as an avid Oceano CSD Board watcher, that the Knudson report reveals that the Oceano representatives; Jim Hill (long before he became Mayor of AG), Lori Angelo and Matt Guerrero stood up to Ferrara, Nicols and Wallace and voted no on more occasions than not. KUDOS Oceano!!! (Now get smart about Ogren). They tried to stop what was happening, but were out voted by the “Approval Duo.”

Let’s hope they all support sending the Knudson report to the DA. Oceano, for one, cannot support the doubling of sewer rates (over the next 5 years) that are on the block for ratepayers beginning in late February.


FYI: Paavo Ogren used to work for John Wallace, then later on was hired in 2014 in Oceano to the tune of $200k per year.


Yet another ratepayer RIP-OFF!


Yep, I could go on and on about John Wallace and his connections. I know A LOT about it.




You must chill.


Bill Nichols: a joke that is not funny.


John and Mike live in a sewer submarine, a sewer submarine, a sewer submarine,

And their friends are all aboard, many more of them belong in jail.

And they live a life of ease, stealing funds from you and me,

Everyone of them (Everyone of them) has all they need (Has all they need)

[Full speed ahead,Tony, full speed ahead!

Full speed over here, sir!

Action station! Action station!

Aye, aye, sir, fire!

Heaven! Heaven!]

Sky of blue (Sky of blue) and sea of green (Sea of green)

In their sewer (In their sewer) submarine (Submarine, ha, ha)

They all live in a sewer submarine

Sewer submarine, sewer submarine

We all live in a sewer submarine

Sewer submarine, sewer submarine

They all live in a sewer submarine

Sewer submarine, sewer submarine

They all live in a sewer submarine

Sewer submarine, sewer submarine……


Neither Seitz – an attorney and married to the little Missus

nor Wallace – her employer, legally responsible for personnel records

can agree on how long Mrs. Seitz was employed.


It was more than eight months. Source: I was there.


I, too, was there, as I worked for WG for many years. It was somewhat of a joke around the office when she (Sharon Seitz) was hired – everyone found it suspicious that John would hire his attorney friend’s wife for a position that was unnecessary. John created a position for her, so he could hire her. I remember it upsetting the real HR person (Kathy) off because she now was going to have a “boss” (a director of HR) to answer to.


Wallace was the former GM of Avila Beach CSD. pretty much Bankrupted us! Also a huge reason Avila’s historic Fire Department is gone (since 1913). Cal Fire saved us.

We had staff that could fix certain things at the waste water plant and even held water treatment licenses but instead Wallace would bring his own guys in at $300+ an hour to make the repair.This was during the 90’s and in my opinion most of the District Board had their head up their asses letting Wallace do anything. Innocent until proven guilty but I hope the Bastard gets his ass handed to him

It’s about time this guy gets caught with his crap. Best thing Avila Beach did was get rid of this guy but by then it was too late. This man is corrupt and I am positive that the legal system will take care of him.

Former Avila Beach Retired Firefighter/Engineer


I am hopeful John Wallace ends up in jail. Nobody EVER questioned anything John said or did, I worked for him for years and saw this firsthand. I cannot believe it’s been this long before he got investigated – this should have happened 10 years ago!


Karen Velie and Arroyo Grande mayor Jim Hill will be on my show Thursday at 5:05 p.m. to discuss this story. Listen live at


Whoa…Karen Velie?

Folks, THIS is big.


Woo hoo!!! Finally!!!


I challenge you to get Dan Dow as a guest as well. That would be very interesting.

Rich in MB

Great Show tonight Dave…what is amazing to me is just how the Political and Journalist Establishment fought tooth an nail to quash this scandal. Pull the thread and the sweater comes unraveled!


“Silence in the face of evil is itself evil: God will not hold us guiltless. Not to speak is to speak. Not to act is to act.” — Dietrich Bonhoeffer

To the Sanitation District Board and DA Dan Dow…grow a pair and DO SOMETHING!!

You have a “fiduciary” responsibility to protect the people you swore to serve!


Dan Dow is too busy prosecuting people exercising their first amendment rights.