John Wallace’s attorney threatens sanitation district

February 4, 2016

By KAREN VELIE

An attorney for former South County Sanitation District administrator John Wallace asked the district board Wednesday to rescind their decision to send allegations of criminal malfeasance to multiple law enforcement agencies and then alleged the district faced legal liability if it did not cooperate.

Two weeks ago, the board voted to send the 124 page Knudson Investigations report of mismanagement and malfeasance to the FBI, the San Luis Obispo District Attorney and the Attorney General. Carl Knudson has worked for more than 40 years as a fraud investigator and has testified as a certified fraud expert in more than 50 federal and state trials and proceedings.

However, sanitation district staff said Wednesday they had been busy with other tasks and had not yet taken the report to law enforcement.

On Wednesday evening, the sanitation district board provided Wallace time to respond to the allegations in the Knudson report.

Wallace asked the board to reject the report and not to send it on to law enforcement. In support of his request, Wallace said the allegations in the report were untrue, it was based on hearsay not facts, and that the bookkeeping under his leadership was meticulous.

Approximately 75 people attended the board meeting forcing some to listen to the meeting from an adjacent room. In addition, three Arroyo Grande Police officers stood at the entrance to City Hall.

Following Wallace’s speech, the board allowed the public to respond. Of the 24 speakers, 10 asked the board to send the report to law enforcement and 14 spoke on Wallace’s behalf.

Wallace supporters were made up primarily of Wallace Group employees and service club members.

Several local Rotarians spoke of Wallace’s impeccable character before asking the board not to send the report to law enforcement.

“I have known John Wallace for a decade,” attorney Bill Herreras said. “My experience with John is honesty, integrity and good moral character.”

Wallace Group employees also touted Wallace’s community service work. Wallace Group principle Kit Carter said the rate payers who pushed for the investigation did not have the intellect to understand what was going on.

Several rate payers who supported the investigation said that the San Luis Obispo Grand Jury had come to the same conclusion as Carl Knudson and that it was important to let law enforcement either verify the allegations or exonerate Wallace.

“This is not about character,” Coleen Martin said to the board. “This is about your fiduciary duty to the rate payers.”

Attorney Dennis Law with the San Luis Obispo law firm of Andre, Morris & Buttery, said Knudson’s investigation was inadequate, did not include sufficient interviews with Wallace Group employees and should not be sent on to law enforcement. Law said he represents Wallace and the Wallace Group.

“You made a reference to law enforcement that has appeared in the newspaper,” Law said. “There is harm happening today, now, immediately to him and his business. So, what I feel needs to happen, you need to rescind the decision regarding the references to law enforcement. If their was a technical approval of the report, as a part of you action, you need to rescind it.”

After public comment, the board asked Wallace to provide it a copy of his response and took no other action.

When asked about Laws allegations of liability to the district, San Luis Obispo based attorney Stew Jenkins expressed surprise. Jenkins said that California Civil Code Section 47(b) provides an absolute privilege for matters brought up in proceedings such as sanitation district meetings.

In addition, the California Supreme Court had held in the 2004 Hagberg case that it is absolutely privileged to refer a government audit to law enforcement specifically to assure the open communication between citizens and public authorities responsible to investigate and remedy wrongdoing, Jenkins said.