US Atty: Former San Diego Mayor Maureen O'Connor misappropriated funds

US Atty: O'Connor tried to pay off gambling debts

SAN DIEGO - Former San Diego Mayor Maureen O'Connor entered a deferred federal prosecution Thursday in which she acknowledged misappropriating millions of dollars from her deceased husband's charitable foundation, gambling away the money she took.

Read: Charges against O'Connor

Read: Deferred prosecution agreement

As part of the agreement, O'Connor, 66, agreed to repay more than $2 million to the R.P. Foundation, settle all tax liability resulting from receipt of the funds, and receive treatment for her gambling addiction.

O'Connor has also undergone serious and significant medical treatment recently after a brain tumor was removed in 2011. The tumor was in an area of the brain that involves "logic, reasoning and judgment," said O'Connor's attorney, Eugene Iredale.

O'Connor's husband, Jack in the Box and Southern California First National Bank founder Robert O. Peterson, died in 1994. She said three of her 12 siblings and two best friends have also died. O'Connor said she began to gamble heavily in 2001.

"I did borrow the money from my husband's foundation. I always intended to pay it back and I still intend to pay it back. It was at the time that in my life... where I lost my husband, I lost three of my siblings, I lost my two best friends," O'Connor said. "Most of you that know me here that I never meant to hurt the city I loved."

Iredale said the former mayor lost more than $13 million playing video poker at casinos over the past decade.

"She played video poker on machines that were programmed to pay out 80 percent of the money that was put in, so that the more you play the more you lose," Iredale said.

According to court documents, between 2000 and 2009, O'Connor won more than $1 billion while gambling in Las Vegas, Atlantic City and San Diego. Despite the huge winnings, O'Connor suffered even greater losses -- resulting in a sizeable net loss, prosecutors said.

In order to stay afloat financially and continue her gambling spree, O'Connor liquidated her savings, sold numerous real estate holdings and auctioned valuable personal items. She also obtained second and third mortgages on her residence in La Jolla, according to prosecutors.

O'Connor pleaded not guilty to a charge of engaging in unlawful monetary transactions, which will be dismissed as long as she remains law-abiding for the next two years, gets treatment for her gambling addiction and tries to pay the money back.

If she does not obey all laws, she could face 10 years in prison.

All parties agreed that O'Connor's medical condition render it highly improbable -- if not impossible -- that she could be brought to trial.

"We think largely as a result of the brain tumor, she had engaged in a period of compulsive gambling in which she systematically gambled away an inheritance that was left to her of several million dollars," said Iredale.

During the hearing, Magistrate Judge David Bartick acknowledged the former mayor's contributions to San Diego.

"You have left a very strong legacy for the city of San Diego," Bartick said.

Outside of court, prosecutors agreed.

"Today is a sad day for the city of San Diego. Maureen O'Connor is a lifelong resident of the city. She was born and raised here," said Assistant U.S. Attorney Philip Halpern.

Attorney Maria Severson said O'Connor has a more than $7 million lawsuit pending in Superior Court against three people and a German bank over the sale of a Mendicino County hotel in 2005. If the lawsuit is successful, more than $2 million will be paid toward restitution, she said,

O'Connor was elected to the San Diego City Council at age 25 in 1971. She was a physical education teacher before entering politics.

In 1986, she was elected mayor to serve out the term of then-Mayor Roger Hedgecock. She was re-elected to serve out a full four-year term from 1988 to 1992. She was the city's first female mayor.

O'Connor married Peterson in 1977.

Team 10 researchers gathered the following financial information on the R.P. Foundation:

-- $2.1 million in assets in 2009 and 2008
-- 2008 and 2009 show no contributions to outside charities
-- In 2008, the foundation sold "art" for $19,012
-- 2007 does show contributions to several outside charities, including the San Diego Police Department Christmas fund, in the amount of $50,000

The accountant who prepared the tax filings had no comment when contacted by Team 10.

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