John Wallace arrested on felony conflict of interest charges

January 24, 2017

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

By KAREN VELIE

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.”

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