O'Callaghan appeared in court Tuesday and pleaded not guilty to two counts of conflict of interest and one count of public officer crime, all felonies. An extra allegation of "excessive taking" was also issued since the alleged loss is more than $65,000.
According to L.A. County Deputy District Attorney Max Huntsman, O'Callaghan is alleged to have participated in creating a contract between the city and O'Callaghan's wife, Kimberly O'Callaghan, in 2007 and 2009. Huntsman said the loss exceeds $140,000.
O'Callaghan's bail was set at $50,000. He is due back in court Dec. 3. He faces four and a half years in prison if convicted.
O'Callaghan resigned his city manager position last week.
The Associated Press contributed to this report.