Former Central California water manager stole $25 million in water over 23 years, prosecutors say

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Santa Nella, CA, January 18, 2022 -The Delta-Mendota Canal runs south along the western edge of the San Joaquin Valley, parallel to the California Aqueduct for most of its journey, but it diverges to the east after passing San Luis Reservoir, which receives some of its water. The water is pumped from the canal and into O'Neill Forebay. Then it is pumped into San Luis Reservoir by the Gianelli Pumping-Generating Plant. (Carolyn Cole / Los Angeles Times)

The Delta-Mendota Canal runs along the western edge of the San Joaquin Valley. Prosecutors say the former general manager of the Panoche Water District stole more than $25 million worth of water from the federal canal over 23 years. (Carolyn Cole / Los Angeles Times)

The former general manager of a Central Valley water district has been charged with stealing more than $25 million worth of water over 23 years, the latest development in a years-long saga of corruption and theft, federal authorities said Thursday.

A federal grand jury returned a five-count indictment against 75-year-old Aptos resident Dennis Falaschi, according to the U.S. attorney's office for the Eastern District of California.

He faces one count each of conspiracy and theft of government property, and three counts of filing false tax returns, according to the indictment.

Falaschi was the general manager for the Panoche Water District, which serves portions of Frenso and Merced counties near Dos Patos, Firebaugh and Los Banos, according to court documents.

The indictment does not name the water district, but in 2018, then-California Atty. Gen. Xavier Becerra announced the arrest and filing of felony charges against five individuals for the misuse of public funds amid widespread corruption at the district.

Falaschi is among the defendants in the ongoing state case.

The water theft scheme began in 1992, according to the federal indictment.

That year, Falaschi was informed that an aging, abandoned drain turnout on the Delta-Mendota Canal, part of the federal Central Valley Project, was leaking water into a parallel canal that the water district controlled, the document stated.

A gate inside a pipe that connected the two canals had been cemented shut years earlier when the drain was abandoned, but the cement had cracked, according to the indictment.

After learning about the leak, Falaschi allegedly told a water district employee to install a new gate inside the standpipe, which could be opened and closed on demand, the document stated. He later told the employee to put in a lid with a lock on top of the standpipe, and a roughly two-foot elbow pipe angled at 90 degrees into the water district's canal.

"The lid concealed the theft because it prevented people from seeing that the gate inside the standpipe was functional," prosecutors said. "The elbow pipe further concealed and expedited the theft because it enclosed the water flow from the Delta-Mendota Canal into the water district’s canal and was installed in such a way that it was generally submerged under the water."

Falaschi then told employees to use the new gate and pipe to steal federal water from the canal "on multiple occasions," prosecutors said.

"He used the proceeds of the theft to pay himself and others exorbitant salaries, fringe benefits, and personal expense reimbursements," prosecutors said.

The diverted water was unmetered and traveled to a water district pump station, where it was lifted into the district's broader canal system, according to the indictment. It was combined with the district's other water sources and either sold to customers or pumped back into the federal canal so the district could collect water credits.

During the scheme, Falaschi allegedly told water district employees to misclassify the stolen water as reclaimed runoff from from farms in reports presented to the district's board of directors, court documents stated.

In all, more than 130,000 acre-feet of water was stolen, according to the indictment.

An acre-foot is the amount of water needed to cover one acre of land in a foot of water and is the standard unit of measurement in the water industry.

In April 2015, drought lowered the canals' water level enough for the pipe, lid and drain turnout to be discovered by authorities, according to the indictment.

Federal authorities also alleged Falaschi falsified tax returns from 2015 to 2017 and failed to report over $900,000 in income to the Internal Revenue Service that he received from private water sales, according to court documents.

The federal case comes after state officials opened an ongoing criminal case against Falaschi and four other defendants.

In 2017, investigators discovered 86 drums holding thousands of gallons of hazardous waste illegally buried in a Panoche Water District yard, according to coverage of the state case by The Times.

The state's case expanded to include allegations of misconduct that were revealed by an audit.

In a statement, Falaschi's attorney Marc Days said his client plans to plead not guilty to the federal charges.

"We just received the indictment and need additional time to review it," Days told The Times. "The indictment appears based on lies and misstatements."

The attorney said he plans to make further comments on the case "in the very near future."

If convicted on all federal charges, Falaschi faces a maximum sentence of 18 years in prison and up to $750,000 in fines, prosecutors said.

This story originally appeared in Los Angeles Times.

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