Mayor Maureen O'Connor loses $1 billion gambling, San Diego stunned

O'Connor pleaded not guilty to a money laundering charge in an agreement with the Justice Department that defers prosecution for two years while she tries to repay the foundation and receives treatment for gambling.

Maureen O'Connor was a physical education teacher who won a seat on the San Diego City Council when she was only 25 years old, later winning two terms as the city's first female mayor as she charmed voters with a populist flair.

But her rapid rise was matched by her fall, culminating Thursday when she acknowledged in federal court that she took $2.1 million from her late husband's charitable foundation during a decade-long gambling spree in which she won — and lost — more than $1 billion.

O'Connor pleaded not guilty to a money laundering charge in an agreement with the Justice Department that defers prosecution for two years while she tries to repay the foundation and receives treatment for gambling.

O'Connor, 66, once had a personal fortune that her attorney estimated between $40 million and $50 million, inherited from her husband of 17 years, Robert O. Peterson, founder of the Jack in the Box Inc. fast-food chain. She is now virtually broke, living with a sister.

O'Connor walked across the courtroom with a cane, appearing frail and struggling to maintain composure at one point as her attorney wrapped his arm around her shoulder and placed his hand on her head.

At a news conference, she said she always intended to repay the foundation and appeared to blame her behavior on a brain tumor that was diagnosed in 2011.

"There are two Maureens — Maureen No. 1 and Maureen No. 2," said O'Connor, who declined to take questions. "Maureen No. 2 is the Maureen who did not know she had a tumor growing in her brain."

O'Connor's game of choice was video poker at casinos in San Diego, Las Vegas and Atlantic City, N.J. Her attorney, Eugene Iredale, said she played for hours at a time.

She won about $1 billion from 2000 to 2009, according to winnings that casinos reported to the Internal Revenue Service, but lost even more. Iredale said her net gambling losses topped $13 million.

News of O'Connor's gambling troubles and financial ruin elicited sympathy in her hometown. Magistrate Judge David Bartick told her that she left "a very strong legacy in the city of San Diego."

The U.S. attorney's office said O'Connor's medical condition influenced the decision to strike a deal, saying it may have been impossible to bring the case to trial. The tumor was removed but doctors submitted letters detailing significant ailments.

"Maureen O'Connor was a selfless public official who contributed much to the well-being of San Diego," said U.S. Attorney Laura Duffy. "However, no figure, regardless of how much good they've done or how much they've given to charity, can escape criminal liability with impunity."

O'Connor, the eighth of 13 children whose father was a boxer and nightclub owner and mother was a registered nurse, was elected to the City Council three years after graduating from San Diego State University. She was mayor from 1986 to 1992, San Diego's only Democratic leader over a four-decade span. She promoted community policing, championed the arts and oversaw completion of a downtown convention center.

O'Connor began gambling around 2001 as she struggled with pain and loneliness from the death of her husband from leukemia in 1994 and the passing of several close friends, said Iredale, who called it "grief gambling" in a court filing. Within four years, she was betting heavily.

O'Connor acknowledged taking $2.1 million from the R.P. Foundation between September 2008 and March 2009 to pay gambling debts, wager more and cover living costs. She was one of three trustees of the foundation, a nonprofit organization that supported the Alzheimer's Association, City of Hope, San Diego Hospice and other charities.

Her annual gambling winnings peaked at more than $200 million, said Phillip Halpern, an assistant U.S. attorney. Prosecutors said they didn't know exactly how much she lost but that she also borrowed money from friends and sold property to gamble.

O'Connor sold a home in tony La Jolla for $2.5 million in 2010 that is down the street from former Republican presidential nominee Mitt Romney.

She also sold the Heritage House Hotel in the Northern California coastal town of Mendocino for $7.5 million in 2005 to investors who defaulted, Iredale said. She sued and plans to turn over any damages to repay the foundation.