DA files felony charges against John Wallace in conflict-of-interest case

John Wallace
John Wallace jjohnston@thetribunenews.com

Update 9:49 a.m.:

John Wallace’s attorney, Dennis Law, issued the following statement regarding the charges Wednesday morning:

“John Wallace served the South San Luis Obispo County Sanitation District for more than 27 years, always with direct board and legal approval and in plain view of the public and regulators. He is dismayed by the unprecedented action and confident the facts of the case will clear the air.”

Original story:

The San Luis Obispo County District Attorney’s Office has filed felony criminal charges against former South San Luis Obispo County Sanitation District administrator John Wallace, saying he violated conflict of interest laws during his long tenure as district administrator

The office filed the charges after a 10-month investigation into complaints that between July 26, 2011, and Feb. 28, 2013, Wallace made, participated in, or influenced governmental decisions and made contracts in which he had a financial interest, according to a district news release.

“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,” District Attorney Dan Dow said in the release. “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.”

Specifically, Wallace is charged with two felony counts of violating Government Code section 1090 and two misdemeanor counts of violating Government Code section 87100. Wallace’s arraignment on the charges is expected within the next couple weeks.

A request for comment from Wallace was not immediately returned Tuesday.

The investigation comes after a 626-page report was filed with the District Attorney’s Office detailing Wallace’s management practices while he was administrator.

The report, authorized by the district, concluded that Wallace mismanaged the agency for close to a decade, prompting its board of directors to unanimously vote in 2015 to send the report to the county District Attorney, the state Attorney General and the FBI to review for possible criminal charges.

Dennis Law, who represents former South San Luis Obispo County Sanitation District administrator John Wallace, rejected claims that Wallace had misused his position with the district to benefit the Wallace Group. Here, Law speaks before the distri

The report, which was filed by Knudson and Associates, also detailed evidence of a conflict of interest and said Wallace misused his position to repeatedly hire his own private company, Wallace Group, to do engineering and administrative work for the district.

The report found that between 1999 and 2009, the number of hours the Wallace Group billed to the district grew from about 81 hours per month to more than 663 hours per month, and monthly invoices increased from $3,600 to a high of $70,000. The number of Wallace Group employees charging hours to the district also grew from seven in 1999 to 28 in 2010.

During that time, Wallace and the board of directors were the only ones who reviewed and approved billings from the Wallace Group, according to the report.

The report also detailed a decline in the district’s overall revenue, amid growing expenses. The plant operated at a deficit each year during that span of time, the report states.

The sanitation district board had hired Knudson and Associates in 2015 to do an independent investigation in an attempt to put to rest lingering public concerns over controversies that had plagued the district over the years. In addition to conflict of interest concerns, the district had faced lawsuits from former employees, notices of violation from state regulators and a $1.1 million fine for a massive sewage spill in 2010.

Wallace told The Tribune at the time the report was released that he was saddened the board would not give him more time to correct “discrepancies in the report and factual information” before sending it to law enforcement.

“Obviously we are disheartened because we thought it was a fair request to give us more time,” he said.

Wallace’s lawyer would later say at a sanitation district meeting that the claims of malfeasance were unfounded.

Kaytlyn Leslie: 805-781-7928, @kaytyleslie

Related stories from San Luis Obispo Tribune