San Diego ex-mayor used charity funds to cover gambling debts

SAN DIEGO — She married a fabulously wealthy man decades her elder, and became the first female mayor of San Diego. But when Maureen O’Connor left public life, she spent countless hours seated in front of video-poker machines.

Over a nine-year period, she wagered an estimated $1 billion, including millions from a charity set up by her late husband, who founded Jack in the Box.

That was the portrait that emerged in court Thursday as the frail former mayor tearfully acknowledged she skimmed more than $2 million from a charity founded by her late husband, Robert O. Peterson.

O’Connor, 66, admitted in a plea deal that she had a gambling addiction and is nearly destitute. Her lawyer, prominent defense attorney Eugene Iredale, suggested that a brain tumor may have impaired her reasoning; he gave reporters copies of her brain scan from a 2011 surgery.

O’Connor’s rapidly declining medical condition “renders it highly improbable — if not impossible — that she could be brought to trial,” according to court documents filed by federal prosecutors.

“This is a sad day for the city of San Diego,” said Assistant U.S. Atty. Phillip Halpern. “Maureen O’Connor was born and raised in this town. She rose from humble origins.... She dedicated much of her life, personal and professional, to improving this city.”

The $1-billion gambling binge stretched from 2000 to 2009, according to court documents. In 2008 and 2009, when the fortune she had inherited was not enough, she began taking from the R.P. Foundation to cover her losses.

Despite being ahead more than $1 billion at one point, O’Connor “suffered even larger gambling losses,” according to prosecutors. Her net loss, Iredale said, was about $13 million.

She was considered such a high-roller that Las Vegas casinos would send a private jet to pick her up in San Diego. Records show that O’Connor won $100,000 at the Barona casino in San Diego County, while at roughly the same time she needed to cash a $100,000 check at the Bellagio in Las Vegas.

Those who knew the former political doyenne said she had become a recluse, inscrutable even to those she counted as friends.

“I considered myself one of her closest friends, but I would call her and she wouldn’t return my call,” said lawyer Louis Wolfsheimer. “I didn’t want anything from her, just to know how she was. But it looked like she was becoming reclusive.”

In a bargain with prosecutors, O’Connor agreed to repay $2,088,000 to the R.P. Foundation started by Peterson, which supported charities such as City of Hope, San Diego Hospice, and the Alzheimer’s Assn., and was driven into insolvency in 2009 by O’Connor’s misappropriation of funds, prosecutors said.

“I never meant to hurt the city,” an emotional O’Connor told reporters gathered at a restaurant close to the federal courthouse. She promised to repay the foundation but declined to answer questions.

Prosecutors agreed to defer prosecution for two years. If O’Connor violates no further laws and makes restitution, the charge of making illegal financial transactions may be dismissed. Under the agreement, O’Connor acknowledged her guilt but was allowed to plead not guilty.

If convicted, O’Connor could have faced a maximum 10-year prison sentence and a fine of up to $250,000.

The daughter of a boxer who made his living as a cabbie and sometime bookie, O’Connor, a Democrat, rocketed to political prominence in 1971 when she was elected to the City Council at age 25. A onetime champion swimmer, O’Connor was working as a physical education teacher at a Catholic school and was pushed into politics when a group of students she took to a City Council meeting was treated rudely.

She met Peterson, 30 years her senior, when the Republican known for supporting liberal candidates and liberal causes offered to contribute to her council campaign. Political reform was in the air, and once elected, O’Connor helped persuade the council to adopt contribution limits, a reform later emulated by the state.

A close ally of then-Mayor Pete Wilson, O’Connor served two terms on the council and later was appointed to the Port Commission.

After marrying Peterson, O’Connor became a political anomaly in San Diego: although wealthy, she cultivated a base of political support in lower-income neighborhoods south of Interstate 8, the traditional dividing line of San Diego politics. When she traveled in minority neighborhoods, adults would come from their homes to wave at her; to all, she was known merely as Maureen.

As mayor, O’Connor organized a Russian arts festival and prowled the streets with the police chief, talking to prostitutes as she and Chief Bob Burgreen looked for information about a string of killings targeting streetwalkers. She went incognito as a homeless person to see how the homeless were treated in San Diego; she worked on a city garbage truck to experience the day-to-day life of blue-collar city workers.

As a politician, O’Connor was often a favorite of reporters, the bane of pro-growth business interests, and a frustrating enigma to Democratic candidates who unsuccessfully sought her endorsement. She preferred the company of longtime friends and members of her family, particularly her twin Mavourneen; the two reside together in La Jolla.

In 1986, after then-Mayor Roger Hedgecock was driven from office by campaign code convictions, O’Connor was elected mayor, the first woman to hold that office. Three years earlier, Hedgecock, a Republican, had beaten O’Connor in a divisive, angry campaign. Reelected in 1988, she declined to seek a third term as mayor, leaving office in 1992.

Peterson, who had made a fortune in the restaurant, banking and hotel industries, died in 1994 at age 78, after a long battle with leukemia. The couple had no children. After leaving the mayor’s office, O’Connor dropped quickly from public life.

With the deaths of her other close friends — McDonald’s heiress Joan Kroc in 2003, newspaper publisher Helen Copley in 2004, and actress Mercedes McCambridge in 2004 — O’Connor devoted more of her time to gambling as the addiction took hold. She became a regular at casinos in California, Las Vegas and Atlantic City, winning enormous sums at video poker and other games but losing even more, according to court documents.

Finally, she liquidated her savings, sold numerous properties and auctioned off her personal effects. But when that was not enough, she turned to the foundation, on which she served as trustee. Transferring foundation money to her personal accounts violated the foundation’s tax-exempt status, prosecutors said.

Even when O’Connor won, she continued to gamble rather than repay the foundation, “throwing good money after bad,” prosecutors said.

In the end, the Internal Revenue Service launched an investigation after noting that she was writing checks of $100,000 to casinos to cover losses. In 2011, O’Connor underwent surgery for the brain tumor, leaving her physically impaired.

As part of her plea agreement, O’Connor agreed to settle “all tax liability resulting from her receipt” of money from the foundation. She also agreed to seek treatment for her gambling addiction.

Although she is currently without income or a bank account, O’Connor’s economic status could reverse if she wins a civil lawsuit filed against a German bank involved in the 2005 purchase of a resort in Mendocino County that O’Connor had purchased in 1998.

O’Connor sold the Heritage House for $19.5 million but has alleged that she was the victim of fraud in the sale. A settlement or victory at trial could provide the millions needed to pay restitution to the foundation and also the tax liabilities involved with the misallocation of its funds.

“No figure, regardless of how much good they’ve done or how much they’ve given to charity, can escape criminal liability with impunity,” said U.S. Atty. Laura Duffy.

One of O’Connor’s major worries, defense attorney Iredale said, “is fear of losing her reputation.”

tony.perry@latimes.com