Ex-San Diego mayor to repay over $2 million taken from charity for gambling

SAN DIEGO (Reuters) - A former San Diego mayor accused of raiding her late husband's charity to cover high-stakes casino debts agreed with federal prosecutors on Thursday to pay more than $2 million in restitution and undergo treatment for her gambling addiction.

Maureen O'Connor, who was mayor between 1988 and 1992, was married to Robert O. Peterson, the founder of the Jack in the Box fast-food restaurant chain, and it was from his charitable foundation that she embezzled money to cover her gambling losses.

Peterson died in 1994, leaving his wife as one of three R.P. Foundation trustees who were specifically barred from receiving any personal financial benefit from the charity.

Court documents in the case show that O'Connor ran into financial trouble after she amassed winnings of more than $1 billion between 2000 and 2009 while gambling in various casinos in Las Vegas, San Diego, and Atlantic City, New Jersey.

She gambled away all her winnings and ultimately racked up debts of more than $13 million, according to O'Connor's lawyer, Eugene Iredale.

In order to stay afloat financially while continuing to gamble, O'Connor liquidated her savings, sold off numerous real estate holdings and valuable personal belongings and even took out second and third mortgages on her home.

Left with few if any assets by the fall of 2008, according to court records, O'Connor turned to her husband's foundation and pilfered more than $2 million from the charity to cover her debts, bleeding the foundation's coffers dry.

She sought to conceal the pilfering of funds as personal "loans," prosecutors said.

"I will repay the loans," O'Connor said outside of San Diego's federal court. "I always meant to."

The rare deferred-prosecution agreement settles the criminal case against O'Connor, whose frail health made it unlikely she could be brought to trial, prosecutors said. The former mayor underwent surgery in 2011 for removal of a brain tumor and has since suffered additional medical complications.

Iredale said the tumor played a role in O'Connor's extreme gambling behavior by damaging parts of the brain that control reasoning and judgment.

Under her deal with prosecutors, O'Connor admitted to the embezzlement in court, promised to undergo treatment for her gambling addition, agreed to repay the misappropriated funds and settle tax obligations with the Internal Revenue Service.

In a statement announcing the agreement, U.S. Attorney Laura Duffy said O'Connor was once a "selfless public official who contributed much to the well-being of San Diego."

"It truly saddens me to see her at this place in her life," Duffy said. However, she added, "No figure, regardless of how much good they've done or how much they've given to charity, can escape criminal liability with impunity."

Had O'Connor been convicted of the single charge against her, making a prohibited financial transaction, she faced a maximum sentence of 10 years in prison and a $250,000 fine.

If she satisfies all the conditions of her deferred prosecution, the government has agreed to dismiss the case in two years' time, Duffy's office said in a statement.

(Reporting by Marty Graham; Writing Steve Gorman; Editing by Cynthia Johnston, Gary Hill, Bernard Orr and Paul Simao)