BY ELLIOT SPAGAT Associated Press
SAN DIEGO -- A former San Diego mayor and fast-food heiress acknowledged Thursday that she took $2.1 million from her late husband's charitable foundation in a decade-long gambling spree when she wagered more than $1 billion.
Maureen O'Connor, 66, pleaded not guilty in federal court to a money laundering charge under a deal with federal prosecutors that allows her to defer prosecution for two years as she works to repay the debt.
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 at the Barona Resort & Casino near San Diego.
Her net gambling losses topped $13 million from 2001 to 2009, the lawyer said. He estimated his client's personal fortune once totaled as much as $50 million but said she is now virtually broke.
It marked a stunning fall for O'Connor, a former physical education teacher who was elected to the City Council when she was 25 and became San Diego's first female mayor in 1986. A two-term Democratic leader in a city known for electing Republicans, she won support with a populist flair and stewardship over major civic projects including a downtown convention center.
Her inheritance came from her husband of 17 years, Robert O. Peterson, the founder of the Jack in the Box chain who died of leukemia in 1994. O'Connor kept a high profile for several years after he died, donating to charitable causes such as hospice care and alleviating homelessness.
O'Connor began gambling around 2001 as she struggled with pain and loneliness from the death of her husband and several close friends, said Iredale, who called it "grief gambling." Within four years, she was betting heavily.
Reports from casinos to the Internal Revenue Service put her cumulative winnings at more than $1 billion from 2000 to 2009, but she lost even more money.
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. In April 2009, she won $100,000 from the Barona casino.
On Thursday, 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 later, 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."
The U.S. attorney's office said O'Connor's medical condition influenced their decision to delay prosecution for two years, saying it might have been difficult or impossible to bring the case to trial. The tumor was removed but her doctor submitted a letter that says she suffers from residual fatigue and cognitive deficit.
"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 could face a maximum sentence of 10 years in prison if convicted on one count of engaging in monetary transactions in property derived from unlawful activity.
Iredale said O'Connor lost several properties, including one in tony La Jolla down the street from a home of 2012 Republican presidential nominee Mitt Romney that sold for $2.5 million in 2010.
She is now living with a sister.
"She's embarrassed, she's ashamed, she's afraid," Iredale said.
O'Connor 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 has pledged to turn over any damages she wins to repay the foundation.