A federal grand jury returned a five-count indictment Thursday against Dennis Falaschi, a former general manager of Panoche Water District, charging him with conspiracy, theft of government property, and filing false tax returns, U.S. Attorney Phillip A. Talbert announced in a news release.

Falaschi, 75 years old and now residing in Aptos, exploited a leak in the Delta-Mendota Canal and engineered a way to steal more than $25 million worth of water from the federal Central Valley Project, according to court documents.

The Panoche Water District is headquartered in Firebaugh and serves farmers in Fresno and Merced counties, who grow a variety of crops on 38,000 acres.

The scheme allegedly began in 1992 when Falaschi learned that an abandoned drain turnout near milepost markers 94.57 and 94.58 on the Delta-Mendota Canal was leaking water into a parallel canal under the Panoche Water District’s control.

Falaschi told an employee to install a new gate inside a standpipe at the spot of the leak so that the site could be opened and closed on demand, according to court documents. In addition, the employee was told to install a lid and lock to conceal and secure the apparatus. The original gate in the standpoint had been cemented shut years earlier.

Water Thefts Discovered in 2015

Falaschi subsequently told employees to use the site to steal federal water from the Delta-Mendota Canal on multiple occasions before the site was discovered in April 2015. He used the theft proceeds to pay himself and others exorbitant salaries, fringe benefits, and personal expense reimbursements, prosecutors contend.

Additionally, Falaschi was charged Thursday with filing false tax returns in 2015 through 2017. According to court records, he failed to report more than $900,000 in income to the Internal Revenue Service that he received from private water sales.

Assistant U.S. Attorney Joseph Barton is prosecuting the case, which was investigated by the Interior’s Office of Inspector General, IRS-Criminal Investigation, and the FBI.

Panoche Agreed to Repay $7.5 Million to Bureau of Reclamation

In 2021, Panoche agreed to pay the U.S. Bureau of Reclamation nearly $7.5 million to compensate for the “unauthorized diversion of water” from two federal canals, The Sacramento Bee reported.

The district also agreed to pay $798,000 plus $172,000 in interest to the San Luis & Delta-Mendota Water Authority, which delivers water from the Bureau of Reclamation to Panoche and 28 other member districts.