John Wallace facing a criminal investigation

January 21, 2016

John WallaceThe South San Luis Obispo County Sanitation District Board of Directors voted unanimously Wednesday to take reports of malfeasance by former district administrator John Wallace to District Attorney Dan Dow, the Federal Bureau of Investigation and Attorney General Kamala Harris.

Carl Knudson, of Knudson and Associates, spent almost two hours presenting his report on past management practices and providing recommendations to avoid future malfeasance to the district board. Knudson also asked the board to seek a criminal investigation into Wallace, the owner of the Wallace Group.

Board President John Shoals said he had made mistakes and let some of the wrongdoing occur. In 2010, former sanitation district employees Scott Mascolo and Devina Douglas sent letters informing Grover Beach Council members, Arroyo Grande Council members and the Oceano Community Services District Board about misuse of public funds and problems with the plant complying with safety and health requirements.

District management responded by terminating the whistle-blowers and demeaning the credibility of news organizations, including CalCoastNews, that covered the allegations.

For about an hour, during public comment, citizens asked the board to seek criminal prosecution of John Wallace. Julie Tacker noted that federal grant money was in play which could allow the FBI to also investigate the criminal allegations.

Mike Byrd asked the board to also send the report to state engineering licensing agencies and the State Bar of California regarding allegations in the report of wrongdoing by sanitation district legal counsel Michael Seitz.

Wallace Groups public relations and communications expert Chris Gardner said Wallace had not had time to read the report and develop a response. Gardner asked the board to continue the item until Wallace had a chance to address the board.

Sanitation district board member Matt Guerrero said he thought Wallace should have an opportunity to respond to the allegations and asked that Wallace’s response be placed on a future agenda.

Shoals disagreed, and said that Wallace could speak during regular public comment, and that he would give Wallace additional time to respond to allegations in the report.

Arroyo Grande Mayor Jim Hill made a motion to carry out Knudsons suggestions regarding district operations and procedures, to pay Knudson approximately $14,205 for completing the investigation and to ask for a criminal investigation. The board voted unanimously to approve Hill’s motion.

don the beachcomber

Want to learn more about corruption in SLO County. Visit:


The warden threw a party in the county jail

The prison band was there and they began to wail

The band was jumpin’ and the joint began to swing

You should’ve heard them knocked out jailbirds sing

Let’s rock, everybody, let’s rock

Everybody in the whole cell block

Was dancin’ to the Jailhouse Rock

Spider Wallace played the tenor saxophone

Big Mike was blowin’ on the slide trombone

The drummer boy from AG went crash, boom, bang

The whole rhythm section was Tony’s Gang

Let’s rock, everybody, let’s rock

Everybody in the whole cell block

Was dancin’ to the Jailhouse Rock

Number forty-seven said to number three

You’re the cutest jailbird I ever did see

I sure would be delighted with your company

Come on and do the Jailhouse Rock with me

Let’s rock, everybody, let’s rock

Everybody in the whole cell block

Was dancin’ to the Jailhouse Rock

Sad sack Adam was sittin’ on a block of stone

Way over in the corner weepin’ all alone

The warden said, hey, buddy, don’t you be no square

If you can’t find a partner use a wooden chair

Let’s rock, everybody, let’s rock

Everybody in the whole cell block

Was dancin’ to the Jailhouse Rock

Shifty Nichols said to Bugs, for heaven’s sake

No one’s lookin’, now’s our chance to make a break

Bugsy turned to Shifty and he said, nix nix

I want to stick around a while and get my kicks

Let’s rock, everybody, let’s rock

Everybody in the whole cell block

Was dancin’ to the Jailhouse Rock

Dancin’ to the Jailhouse Rock

Dancin’ to the Jailhouse Rock

Dancin’ to the Jailhouse Rock

Dancin’ to the Jailhouse Rock


Pelican 1 writes:

“If only the LOCSD had been investigated with the same zeal and detail that the sanitation district has. Former board members would be serving time.

That is SO true. However, you make it seem like that window is closed.

As I exposed at this link:

… “more than 4,000” Los Osos PZ property owners are STILL stuck paying — on their property tax bill — for the Karners’ (AND The Wallace Group’s, I WILL point out) “better, cheaper, faster” fraud from 1998 – 2000, AND those property owners will continue to be fleeced for that fraud until the year 2033/34.

So, what I find so interesting about the Knudson Report, is what it REALLY does, is open a portal into Wallace’s (and everyone else that was involved with making a lot of money off of the Karners’ “better, cheaper, faster” fraud) involvement in Los Osos, and THAT fraud makes the South San Luis Obispo County Sanitation District mess look like peanuts. Peanuts.

But, like I also show, DA, Dan Dow, admits that he is “friends” with the Karners, and actually goes over to their home to raise campaign money.

So, Pelican, your take isn’t so much past tense, as it is present-and-future tense. The HUGE problem, however, is that the only agency that can free up $91,000 for a forensic audit into the LOCSD — dating back to its formation in 1999 — is the LOCSD Board itself, which, of course, they will never do.

I’d be happy to come on Dave’s show to discuss my stories, and the mountain of primary-source evidence that shows exactly how “more than 4,000” Los Osos PZ property owners — including lots of elderly on fixed incomes, that could use that money for things like food and medicine, instead of continuing to fund a fraud — are being fleeced every time they cut a check for their property taxes, but, for reasons I’m not clear on, he flat-out refuses to have me on his show to discuss this spectacular story. (Apparently, I’m also banned from KVEC… uh, by Dave ; -)

So, that leaves the Trib for this amazing story to get any traction, and we all know what that means: No traction. (Of course, I must also point out — and this take is not going to be popular on this site — not only has Dave known about this spectacular story for years, but so have Dan and Karen, and… well, nothing.)

But, being the eternal optimist that I am, I do hold out hope that the Knudson Report will eventually lead back to the massive fraud that is being (present tense) perpetuated on the people of Los Osos… until the year 2033/34. I mean, Wallace’s name is ALL over that, and in really, really, REEEELLY bad places.

Finally, if I were to give John Wallace a bit of legal advice, I would recommend that he strike a deal with prosecutors, where he testifies against the Karners, in exchange for a reduced sentence. [Of course, the prosecutor just can’t be the Karners’ “friend,” Dan Dow.]

(Oh, and, John? You’re welcome : -)


Ron, I’m afraid I would send to prison all those who were responsible for killing the TRI-W project and absconding with more than $6 million taxpayers dollars. They are nothing but criminals, some posing as community activists…which is in and of itself..criminal.


Welp, Pel, if the audit started at the District’s formation, in 1999, that would also include 2005 – 2007, right? Why just start at the Tri-W scam (that has Wallace’s name all over it)? That’d miss all the good stuff.

Imagine what that would turn up. Oh lord, SLO County government would never be the same. I mean, we’re talking about one of the largest (if not THE largest) wo/man-made water pollution events in human history… completely unobservable.

“Approximately 1 million gallons per day” — PER DAY — of water pollution, for the past 16 years, when the formation of the LOCSD killed the county’s then-“ready to go” sewer project. It’s absolutely stunning if you think about it: The formation of the LOCSD is directly responsible for more than 3 billion gallons of water pollution in SLO County.

From our local water board:

“One million gallons per day of sewage continues to be discharged to the (Los Osos) community’s groundwater and seeps to Morro Bay State and National Estuary.”

… including today, and tomorrow, and the next day, etc.

Yeck! (What a story. I’m so stoked that I have it all to myself.)

And, as long as I’m here, am I the only one that finds this situation a little odd: Where a government agency needs to spend a ton of taxpayer money to fund an investigation into government “malfeasance,” and THEN turn that investigation over to investigators that are funded by taxpayer money?

Isn’t that what we’re already paying investigators to do… uh, investigate?

Sounds like some form of double-taxation to me.

But, when the government malfeasance-ers are “friends” with the DA, I guess that’s the only option.



One day I would like to sit down with you and go over that number of $6 million. Do you know exactly where it went? I do and it no one “absconded” with it.

I’m in the book, let’s do coffee.



If local government agencies have been approached and have failed to take action, members of the public can take a case against the perpetrators for misuse of funds.


What action has been taken by the whistleblowers for justice against both Wallace and the sanitation board for compensation for unlawful termination?


The employed whistle blowers reached a deal with the District and cannot speak unless subpoenaed.


And now they must agenize the ONE MILLION DOLLAR FINE!

Pay it and move on!


Frequently, an agreement can be reached with regulators that allow the money to be used as part of a mutually agreed system upgrade instead of just paying a fine. The district will be able to negotiate with the EPA and the WRB and the Coastal Commission and CAL EPA. The agencies generally use the fines to get power over how the treatment plants are built and operated.


sounds like extortion.


“Sounds like?” Welcome to SLO county!

Mike Byrd

It’s my understanding that’s exactly what the water board proposed. Their mission is to protect water quality and that’s what they were seeking to do. Wallace, however, would have had to admit wrongdoing and he refused. So the litigation commenced and continues. Wallace and Seitz were, in essence, being paid huge sums of money by district ratepayers to defend their own actions. The litigation was nothing short of a long, rich gravy train for them.

Now imagine for a moment if there had been an indemnification clause in Wallace’s contract requiring him to defend himself and the district for his own actions and decisions. There would never have been a lawsuit if Wallace was paying hundreds of thousands of dollars instead of receiving it.



I have all the original contracts and Im pretty confident the original 86 contract stated the District will provide indemnity for Wallace unless he is proven to have acted illegally in his duties as Administrator. If he is found guilty for the the numerous allegations in the Knudsen report and WQCB violations, he should be held financially responsible for the losses we have all suffered for his less than ethical,moral or legal management practices.



Ferrara, and Seitz decided it would be better to sue the State Water Board rather than try to settle the fine.

Ratepayers have now spent more than $1 million to fight a $1 million fine, with NO end in sight.

Shoals and Guerrero / Lucey refuse to get the district out of litigation. Hill has tried to stop the madness for a year, he’s the lone voice of reason.

If all this sounds crazy and unbelievable–show up to a meeting, come see for yourselves.


Do not forget this was Seitz’s plan all along. Fact, a reduced fine of around $300K to settle this was offered to the District, Seitz and Wallace refused to pay this because it would admit some level of responsibility on Wallaces part for the spill, and God forbid Wallace admits his incompetence. This would have been the end of the litigation, however it continued while Seitz made bank on legal fees with the intent of running out the time legal time line. As told here Seitz has already made more in fees than the fine would have cost and its still taking not settled. Lucey needs to be canned, she is an ignoramus with no capacity for public service, same with the other two.


I firmly believe, when government employees engage in criminal behavior related to their job they should lose their pension.



The scouring of misdeeds in the South County began with Costello & Ferrara being voted out of office.

Mayor Hill has led the charge for the investigation at the Sanitation District.

He has my vote again in November.

If you want the change: real transparency, VOTE for Jim Hill. Start telling your friends and neighbors now what he has done here.

Pledge to get the Tony Ferrara posse our of office ( Guthrie and KFB!)


absolutely the truth. without Ferrara gone, the independent investigation never happens, and Wallace has no fear in him.


I don’t believe that Wallace is part of an employee pension plan because he was a contract employee. But, Federal law makes it almost impossible to strip an employees pension benefits. However, if the District won a lawsuit they could try to collect any judgement awarded by a court. It could take a long time. They might have to wait until he dies and then go after his estate.