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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This kind of thing happening in slo is exactly why I support “Fire Adam Hill.”


If you have information about malfeasance and conflicts of interest please contact District Attorney Dan Dow’s integrity unit. Now is the time to come forward to coroborate these charges and help the DA unwind this web of corruption.


Dan Dow need look no further than a $91,000 forensic accounting and operational report prepared by a top notch Forensic Accounting Firm.


Discloser writes:

If you have information about malfeasance and conflicts of interest please contact District Attorney Dan Dow’s integrity unit.

Dan Dow’s integrity unit? That’s hilarious.

Uh, quick question: What happens if Dow is “friends” with the people that commit the “malfeasance and conflicts of interest” and fraud, and even goes over to their homes to raise campaign money?

Contacting his so-called “integrity unit” sounds like a complete waste of time, ‘cuz, I REEEELLY don’t think he’s going to be prosecuting his “friends” (his word) that give him money.

By the way, quick show of hands: Everyone that had Dan Dow over to your house while he was campaigning for DA, raise your hand.

O.K. I’m seeing one hand in the air.


Rotary membership doesn’t come with a ‘get out of jail free’ card.

Jim Anderson

Unless the judge is Rotary…


Once again had this matter been left up to the Trib and KSBY, it would have remained buried. Take a moment and think about that.

Knudson and Associates have done all the legwork. I’m fairly sure the sanitation district board will take it to the SLO DA.

The huge question is whether the SLO DA will decide to prosecute? If he does, Wallace and company are going to prison.

I bet Fat Tony ends up eating his gun if he’s convicted.


I’m one of the Cotati citizens that was contacted about Dianne Thompson by citizens of Arroyo Grande. Their gut feelings about Dianne Thompson were right and Cotati is still recovering from the damage she caused.

While it is not official, everyone here knows she was fired. It took six months to get rid of her. When she was finally out of the door, the city council at its next meeting passed unamiously some resolutions on personnel policy about the city manager’s position, nicknamed the “how to fire a city manager faster” resolutions. She went about 30 miles away to Ross in Marin County, but her reputation caught up with her there, and she wasn’t hired as the city manager when she was interim city manager.

She had to move out of the area to get a position. She is smart, but it would have been best for her to “lay low” after what happened up here.

Don’t let her get to your city finances. There is so much crap she did with ours. In 2014, she manufactured a financial emergency that allowed an extra sales tax measure that was sunseting to be extended for 9 years and increased to 1% extra to pass at a special election. The predictions touted by her was that they’d have to sell off city buildings and shudder the police department. There were no sources in the predictions, and now the prediction doesn’t make sense. The city of Cotati now has the highest sales tax rate in Sonoma County.

The sales tax measure was advertised to benefit “essential city services”, such as the police, roads, and recreation. Dianne Thompson, three months after it passed, snuck into the budget book that acceptable uses were capital improvement projects and community development. The city has never had the bookkeeping methods to track the sales tax funds. The measure that was sunsetting (Measure A), was supposed to have annual audits of the monies. In the five years it was in effect, no audits were completed…all when Dianne Thompson was city manager.

There’s more, but I’d be writing to midnight. Our two newspapers know about the corruptness going on in Cotati. They have been provided evidence that what is going on is true. Yet, they write crap supporting the corrupt city council and libel anyone that challenges the city. A few of us have “disappeared” from their Facebook page/stories for the last year, because the paper is worried about libel suits.

You all deserve someone truly that is for the common good of your city. Good luck.


This was on another article about corruption that I cut and pasted here. We have more problems than just Kristen Barniech, Jim Guthrie and Barbara Harmon.

I found this very disturbing to say the least.


Well John, seems our Karma just ran over your dogma.


Tell all your neighbors and friends about the raping of the San District by good ole millionaire John Wallace. Ferrara and Nichols and Seitz must be included in this guilty foursome.

Tell your co workers.

Do not reley on the Trib or Dave to spread the news.

If this is important to you, send an email to your friends.

This CANNOT stay here.

John Wallace is already putting big bucks up ready to fight that the Knudson report is shamed and stays with no action.

Go to the San District meeting tonight at AG chambers at 6 pm

Go to the Board of Supes and get on TV

Go to the AG, GB and OCSD and demand YOUR Reps make a change.

This does not even touch the 1 million dollar fine!!!!! And getting larger every day.



Spread the word on FB, your friends will care when our sewer rates double or triple.

This matters!

Wallace is a thief…millions of our dollars have vanished, the ratepayers have been robbed.

Seitz, Ferrara, Nichols and other board and council members (who will undoubtedly claim they knew nothing) helped drive the getaway car, and need to be held accountable too.


Not a word about this in the morning Tribune. No surprise here. Prediction: Their “reporters,” probably Cynthia Lambert, are busily interviewing Wallace in order to produce a piece where his denials overwhelm the actual facts. Sandy Duerr must be having a fit with this situation; John is her good buddy. She’s been able up to now to ignore the clear trail of graft tied to Wallace. Now it is only a matter of time before Duerr’s collection of questionable amigos begin to fall like the crooks they are. What the heck is her motivation, protecting this scum?


This really should be of no surprise to anyone. Here’s Velie’s CalCoastNews report from FOUR years ago. Had it not been for the miraculous election of Mayor Jim Hill, Wallace would remain forever untouched.


Email Sandra Duerr at

Ask her when the Tribune is going to do a story on the Knudsen Report.

Ask her when she’ll resign from the Wednesday Rotary Club.


Prediction: After the next meeting the trib will cover the meeting and mention a controversial report that is still being looked into and then drop the whole matter.

Have you seen the list of Rotarian’s that Wallace and Durr hang with? She can do nothing because she will sour her chamber, Rotarian buddies.

Conflict of interest ?, I wonder if the Mcclatchy overlords know yet?


I’m not surprised! John has ties to the Tribune, he has always been able to keep certain news topics out of the local papers. Sandy and Cynthia are both friends with John Wallace, and I don’t think they would never turn against a friend. Beautiful little SLO is full of people all “in bed” together, it’s about time some of these scumbags get called out for their dirty work. Shame on the Trib for not reporting on one of the wealthiest Engineers in the whole County doing it’s citizens this way!

I worked for Wallace Group for years and saw a lot of this stuff firsthand. Crooked things would happen, and everyone was so afraid of John that nobody would ever say anything. I’m not sure why everyone’s always been so scared of him. I couldn’t be happier that he’s finally getting investigated………Hopefully he lands in jail, where he belongs!


So you all watched in dismay as he screwed, and extorted everyone who he disliked in the name of a dollar and you said nothing. We’ll no is your change to expose him first hand in the coming legal matters he face. Some advice for you, get in Wallaces face so you can watch him turn red,babble like an idiot and watch and the veins pop from around his shit eating grin. Eventually one of us could bring on a heart attack and he’d drop in his tracks and save everyone the waste air he is. Wallace is nothing but a professional liar, a big mouthed ass kissing nutless sack of nothing, a legend in his own mind, you have nothing to fear telling him what he is, you’ll feel better after you do.


Same ol’ snoid! Settle down, Billy Ray. Not everyone is in a position where they can stand up to the Wallaces of the world as they risk losing their jobs. And you never know, exWGwmployee just might be working behind the scenes to do good. let’s keep our collective fingers crossed that exWGemployee and others in his same position do the right thing when/if they are asked to do so.


Snoid and CalCoastOutrage, I have NOTHING to do with the Wallace Group or John Wallace any longer. If I knew of these things with the San District, I would have spoke up at the time. Things didn’t “jive” sometimes at work, and that’s why I was always suspicious. The things I did know about, I did speak up about. For example, I called the County on him for things like when he built a “tack shed” on his property and as soon as it was signed off by the County he turned it into a gorgeous (complete with a view of his private pond) guest home on his hillside property on Oconnor Way (near Cuesta College). He was fined thousands because I turned him in – you can call Code Enforcement and ask for those records. I did some sneaky turning in of him as time (and opportunities) allowed.

Most folks know what kind of turkey he is, as one employee (I still talk to employees of his) said today, “John Wallace has finally lost his luster” and that he is “shaking in his boots”. Many of his employees do not agree with the way he does things, but again, everyone’s so scared of him, nobody says anything.

John Wallace is a very powerful man in SLO County, he has ties to every nook and cranny from the News stations, the newspapers, Cal Poly and Cuesta Colleges, many powerful local attorneys, politicians, the State Assemblyman (Katcho Achadjian) and nearly every employee at the City and County. He knows all the wealthy folks, in all different and they all hob-knob together.

Jim Anderson

CalCoastOutrage Not everyone is in the position to have a spine? B***Sh**! The spineless are to blame for not standing up. Crooked men like Wallace attract men like Adam Hill. Stand up or bend over.


Snoid, I did not know of the San District dirty-dealings while I was employed there, or else I would have turned him in at the time. Now is my chance, for sure, and if they need any witnesses, I’d be glad to help bust his ass. I am a believer in “you reap what you sow” and it’s finally coming around to get him!

As far as his “shit eating grin” you speak of, anyone that’s ever done business with him knows about his smirk and that grin. It was always joked about at the office that he’s missing the entire tip of his nose (He REALLY is) because of his lying – his nose grew and so he had to have the doctors cut it off LOL. I know that’s a terrible thing to say, but I don’t particularly care….this was a long time coming!


Is this OETT Billy Ray?


Well, I must be either oblivious or naive. I worked at WG for many years too and had no idea that this was going on. In retrospect, sure it was weird that 3 or 4 or 5 engineers worked full time for this tiny CSD. One thing that I do know that has not been reported is that WG billed the SCCSD at a LOWER rate than most other clients. For years they billed the CSD at an old rate schedule.If John is guilty of these accusations I’d frankly be surprised. Also, I never heard anyone at WG discuss that they suspected that this was happening.


John Wallace is THAT good – even his closest managers knew nothing about these happenings. When the money’s coming in, and you’re rolling in it, nobody asks questions.

what the

$$$ That is her motivation in protecting Wallace and Adam Hill. They pay her to lose all standards of journalism and become a mouthpiece and a tool. It should be illegal to call a publication like the Tribune ‘news.’ Thank you CCN for print the truth and setting the standard in SLO.


Sandra Duerr for years now has been thinking herself as editor of a magazine. Magazines promote their editors as stars and require them to mingle in the social and cultural scene. It’s fun and exciting. In contrast, the lot of the editor of a daily newspaper of record is a lonely one lest exactly what has been brought up here be perceived to be coloring the editorial direction.

Ben Bradlee started the unfortunate trend of celebrity editors after Watergate. His relationship with the Kennedys was later revealed and most agreed that this very relationship was the reason so many potential scandals were ignored by the WP. Today, too many editors of small market newspapers think they are running the Post. In SLO, the community is much too small to fully avoid personalities that your paper may investigate, but it is not so small that those persons can’t be kept at arm’s length. Ms Duerr doesn’t even appear to try.