John Wallace arrested on felony conflict of interest charges

January 24, 2017

John WallaceEditors Note: “The criminal complaint against John Wallace is attached below the article.


The San Luis Obispo County District Attorney’s office has filed felony conflict of interest charges against 73-year-old John Wallace, the former administrator of the South San Luis Obispo County Sanitation District. The announcement came Tuesday.

After conducting a 10-month investigation into allegations that Wallace was funneling money from the sanitation district to his private engineering company, The Wallace Group, the district attorney filed two felony counts. Wallace is accused of having financial interest in a contract that he made in his official capacity. Wallace is also charged with two misdemeanor counts of using his government position to influence a decision in which he has a financial interest.

“The public has the right to expect that their elected and appointed officials and their administrators will carry out their duties in a lawful, ethical and professional manner,” said District Attorney Dan Dow. “The District Attorney’s Public Integrity Division will thoroughly and fairly review all matters referred to us and will pursue charges such as these whenever appropriate.”

In 2010, CalCoastNews exclusively reported on accusations that Wallace had been funneling millions of dollars from the sanitation district to his private engineering company without proper oversight. The sanitation district serves the residents of the Oceano Community Service District, Arroyo Grande and Grover Beach and is governed by a three-person board consisting of one representative from each community.

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. Both ended up losing their jobs shortly after they became whistleblowers.

In 2011, the San Luis Obispo County Grand Jury, prompted by the CalCoastNews investigation, mounted an investigation into Wallace and the sanitation district board of directors.

Following its investigation, the Grand Jury recommended that the district board consider hiring independent management and that it evaluate and compare organizational and operational alternatives for the district. The San Luis Obispo County Auditor Controller’s Office was tasked with looking into the conflict of interest allegations.

“The Grand Jury finds the district is in a state of denial regarding the conflict of interest and, as a result, the district has taken no effective steps to mitigate the conflict,” the report says. “The Grand Jury concluded that, as a result, the board and the district are exposed to a number of financial, legal and public trust issues.”

Ex-mayor Tony Ferrara

Ex-mayor Tony Ferrara

At that time, former Arroyo Grande Mayor Tony Ferrara, Arroyo Grande Council Woman Caren Ray, Grover Beach Mayor John Shoals, former Grover Beach Councilman Bill Nicolls and former Oceano Community Services Director Matt Guerrero supported Wallace and claimed the allegations were unfounded.

In Oct. 2011, the SLO County Auditor Controller’s Office provided its investigation report to the sanitation district board saying, “there are reasonable controls in place and operating adequately to mitigate the perceived conflict.”

Nevertheless, former Grover Beach Mayor Debbie Peterson and Arroyo Grande Mayor Jim Hill battled to have an investigation launched into the allegations and to remove Wallace from his administrative position at the sanitation district.

In 2015, the district hired Carl Knudson of Knudson & Associates who confirmed conflict of interest allegations and asked the sanitation district board to send his report to criminal investigators.

On March 4, the sanitation district sent the SLO County District Attorney’s Office the Knudson report and asked county prosecutors to investigate the allegations of criminal misconduct.

Wallace’s is slated to be arraigned within the next couple of weeks.

People v John Wallace-Complaint by CalCoastNews on Scribd

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Wallace is a GOOD MAN. But he was caught in the wave of opportunism — and its negative implications — in being closely allied with Ferrara.

So was disgraced Steve Adams. So may be Karen Ray, who joined their party at the time and has reemerged as a Councilmember in Arroyo Grande.

I feel sorry for them, because it was the “developer interests: that may have “greased their palms” and seduced them to optimize their conceived power to deviate from the honest political interests that supported them. They appear to be good people carried away by their lusts for power.

With all due respect Otis. stupidity does NOT trump accountability. If you are going to feel sorry for anyone, it should b the hard working taxpayers.

Thanks. Pelican1. Your comment is correct. I am wrong in feeling sorry for them.

No doubt that Wallace, Ferrara, Adams and the like start off honest and with good intentions.

THEY GOT TOO COMFORTABLE and slid into greed and ” knowing what is best instead of asking the people”

Caren Ray and the AG Council at the time, including Old Boy Joe Costello poo pooed the Grand Jury Report about the San District that highlighted this conflict of interest.


he was not “arrested” like the article’s title indicates. Just more FAKE news to watch out for. Think about that before you take my post down Karen.

Ramorrobay, the DA’s office can’t just issue a press release with felony charges. It would have been necessary to carry out an enforced meeting with the accused. Standard operating procedure is to arrest and charge. There are eyewitnesses. Can you provide evidence that he was not arrested?

Well I think we would all like to see Wallace arrested – he certainly deserves to be! However, if he was arrested, he wasn’t taken to county jail according to their booking logs, so as much as we’d like to see it happen, the headline might be a little premature.

New Times says he will be turning himself in with his attorney on Jan 31st.

He was not physically arrested but for all intents and purposes it is the same thing. He will get an arraignment date and show up to answer charges. The only difference is that he did not go through the formal booking process that someone would if they were physically arrested on the spot for something. You are splitting hairs here and your “FAKE news” assertion just makes you look stupid.

Arrested doesn’t always mean taken into custody, you can be booked and released. Now I don’t know if this happened but with a good attorney and what appears to be a citizen with no arrest history and not a flight risk he probably was booked and released, either with bail or on a Own Recognizance agreement. Pretty straight forward and pretty painless.

I don’t think this blindsided Mr. Wallace and I bet he was prepared in advance…

L.A.RamsFan, I agree that Wallace was prepared in advance. His tight network of informers includes current SSLOCSD administrator Gerhardt Hubner. Hubner has worked extensively with Wallace and has a history of serious HR problems going back to his early days at the water board. Wallace’s friend and Gerhardt’s proponent John Shoals has controlled SSLOCSD for years by making sure his cronies Bill and Barbara Nicolls, Matt Guerrero, Mary Lucey, Paavo Ogren, Gerhardt Hubner and Wallace get lucrative jobs and political positions. They create allies and cover their backs by first asking, “What can we do to make you happy?” Any who do not accept their offer to fulfill their wishes, whether it be money, public position, or dope, become the targets of systematic attacks on their reputations unless they keep quiet. It doesn’t get any uglier than this. Good people are beaten down and the corrupt retain power.

One other thing Ramorrobay,

Before accusing this publication of fake news have some proof in hand. There’s a lot of us out here that take exception to that remark, I for one do!

This publication has a PROVEN track record of doing just the opposite and taking the heat for it. So please step lightly there sport!

I will agree that CCN has done some courageous and intensive reporting when other sources have either not noticed or ignored problems in government. However, CCN has also sometimes blurred the truth in its rush to get a “good story” out. On balance, I am glad they are here but I don’t automatically accept their reporting as “the truth, the whole truth and nothing but the truth.” (They are also not inclined to admit to serious errors in their reporting which is a greater flaw in my judgment.)

“WASTE” just has so many meanings here.

Good job CCN…you were the first to uncover Wallace. Obviously the TT doesn’t have the guts to any investigative reporting. I can’t wait for them to leave town then you will be the only news worth reading in SLO County!!

Definitely makes one wonder about the future of the Wallace Group engineering firm. Many of our friends and neighbors work there and are good people.

Innocent until proven guilty for sure, but will they be able to keep the doors open?

There is nothing in the article that would indicate that the engineering firm did anything wrong.

It is a well managed company with contracts far and wide, so I doubt that it will impact their operation.

The business steered their way is most likely a small portion of their overall business. Not worth the risk for such a limited reward.

It was Mr. Wallace who may have done something wrong. But you’re right innocent until proven guilty.

“There is nothing in the article that would indicate that the engineering firm did anything wrong.” Seriously MrYan?

The firm is John Wallace if you haven’t noticed!

Criminal allegations have a way of steering future customers away from doing business with a firm. It will be interesting.

You may be right in the private sector but in the public sector this type of thing actually sometimes brings them together, the old birds of a feather saying.

This is what has held up the process for so long. Many good people have worked with or for the Wallace Group and none want to be implicated by association, so their eyes and ears are closed and they can’t see or hear the truth.

discloser, I totally agree – I worked there for many years and saw a lot of this first hand. John Wallace was in cahoots with so many people and he always seemed to have an attitude that he was untouchable.

If you could ask the people who have left the firm and the reason they left, I think it would shock you. It’s a dirty game that John Wallace plays, and everyone’s always been so afraid of him. There are many good folks that still work there, and I’m sure 90% of them have no idea how Mr. Wallace operates – he is THAT good.

Personally I couldn’t be happier that he’s being investigated. He has thought of himself as untouchable for decades. I hope he sits in a jail cell and eats Cup’O Noodles for the rest of his years.

Wow, exWGemployee, you really need to bring your information to the District Attorney’s office. Wallace is slick, and who knows what he might get away with when this goes to trial. Your insight could validate the claims.

Many who work there are fine engineers and honest people.

And Shoals.

John Wallace continued getting contracts because the county auditor said no conflict of interest. It is interesting that Auditor Controller Jim Erb and John Wallace both support Adam Hill and donated to his campaign. Hopefully the board of supervisors will take a look at Jim Erbs job performance and remove him from being in charge of whistleblower complaints. County employees know nothing reported is actually confidential as Jim Erb informs his buddy’s of which employees are reporting wrongdoing.

It is important to note John Wallace’s close ties to Paavo Ogren and Bruce Gibson. It is sad that some of the Democrats in this county do not care if someone is corrupt, only if they register as a Democrat.

How will Bob Cuddy, a “reporter” who has repeatedly come to John Wallace and Tony Ferrara’s defense, try to spin this in the SLO New Times?

Good ol’ Boy –local–politics do not favor one party over the other. I could regale you with similar cozy relationship’s with republican counterparts as well.

You make it about Democrats–claiming only Democrats do this kind of stuff. While Republicans are so pure and free of similar motivation. Give me a break.

If you dig into it you’d find that business people donate to everyone, not just one side. Just look at Donald Trump’s political donation’s–there’s a lot of Dem’s mixed in with Republican’s.

So instead of taking the bait and making this about one side versus the other. Why one is good and the other is evil. Why don’t you dig into it a bit more and take issue with money in our politics–and the influence it buys. And the backroom deals they create. On both sides.

I would suspect you’d find that most local business people contribute politically to whatever side holds control over the issue they want addressed. The smart ones give to both sides to hedge their bets.

From my inter-action with Mr. Wallace over the years I would be quite surprised to learn that he was a card carrying commie liberal blindly supporting Democratic causes.

I always went away from my inter-actions with him with the opposite impression.

On the opposite side of the coin……

It is sad the Republican’s in this county do not care about facts, just results.

But such claims about Republicans do not further dialog or rationale discussions. Such claims only serve to pick a fight…Just as you intended with your desire to make this about Democrats. Needlessly.

Go pick your nose instead. You’ll get more purchase there than the argument you put forth, and most likely get better results.

Technically, MrYan, *you* are the one who brought up republicans, you are the one who feels the comment is about all democrats, etc. In short, you are the one bringing up every point you have a problem with. That speaks volumes.

The reason it is “all about democrats” here is because SLO is mostly liberal democrats who run government. Not just elected officials, but the un-elected, unaccountable bureaucrats often are quite vocal in their politics. Why do you think District 3 re-elected a leech like Adam Hill?

So all of your “claims about Republicans” that no one but you has made is a bit odd. It’s like those homeless guys who walk around arguing with themselves (or some imaginary foe).

What a bunch of crap, roy; if the writer meant both parties, he would not have said Democrat. The idea that in this county it’s only the Democrats that are corrupt is ludicrous. Sure, Hill is a piece of work, that does not make all Democrats bad and Republicans good. You think Wallace is a liberal Democrat? Heck, I’ve got a bridge you might like to buy…

I guess you missed the point Roy…and took the bait…I made up the BS about republicans to demonstrate how everything becomes a partisan issue. And to get your goat I guess. You want it to be partisan…for the sport of it…or a need to lay blame…I can enjoy the sport too, with my baseless comments about Republicans, but it doesn’t get us anywhere does it?

The issue is corruption. It isn’t about a party. Malfeasance is the issue.

Quit thinking the other side doesn’t possess ethics. Morals. And have the goodwill of the nation at heart and you might start making worthwhile arguments.

We can differ in opinion and both still be good Americans.

That point is lost on a good many who post here..

True, MrYan. Both Tony Ferrara and Bill Nicolls are Republicans. However, those who built a wall of protection around John Wallace – John Shoals, Matt Guerrero, Caren Ray, and Adam Hill are Democrats, as is Wallace. This is public record and can be confirmed with Tommy Gong’s office. Unfortunately, the bad actors in SLO County are predominately Democrats – a tight group who work in tandem assured of the protection of the Tribune.

Arrested ?????????

If the SLO County Auditor Controller’s Office found no malfeasance in it’s investigation, may one conclude that it’s officers are either in collusion with Wallace or incompetent? I think that office should be investigated.

Who heads the Auditor Controller’s office?, a little check there might easily determine if it is incompetence or collusion.

The County’s investigation (audit) was extremely limited in scope. They didn’t look at the quantity of documents that were included in the Knutsen report.

Even Mr. Knudson’s search was limited by the District Board’s limited scope. There is more there. Much more.