The SEC plans to review an administrative judge’s initial decision against Laurie Bebo, the former CEO of nursing home operator Assisted Living Concepts. Bebo in October was ordered to pay $4.2 million and hit with other sanctions for accounting and disclosure violations that included a scheme to falsify occupancy rates at the company’s facilities.
The SEC is set to review its administrative judge’s initial decision against Laurie Bebo, the former CEO of nursing home operator Assisted Living Concepts Inc.
Bebo in October was ordered to pay $4.2 million and hit with other sanctions for accounting and disclosure violations stemming from a scheme to falsify occupancy rates at the company’s facilities. The decision came after both a federal judge in Milwaukee and the Seventh Circuit Court of Appeals refused to halt the SEC’s case against Bebo, declining to hear her constitutional challenge against the proceedings before the case was decided.
The SEC on December 8 granted review of the decision by administrative law judge (ALJ) Cameron Elliot, according to the agency’s Rule of Practice 411, which sets out the process for reviewing decisions by administrative judges. The SEC can affirm the decision, reject it, or modify it. Bebo is set to file her opening brief by January 28, with the SEC staff due to file a day later. Decisions by administrative judges are not final until approved by the full commission.
Bebo, along with former Assisted Living Concepts CFO John Buono, were charged in December 2014 with manipulating occupancy numbers to meet the requirements of a lease agreement and avoid default. The SEC, in its cease-and-desist order, accused Bebo of concocting a plan to count company employees and their family members as occupants, while misleading investors, the board and the company’s landlord.
In the initial decision, Elliot chastised Bebo for her testimony during the hearing, in which she “had the breathtaking audacity to tell, under oath, what largely amounted to a fairy tale”.
“The simple truth is that Bebo concocted an elaborate fiction, started telling it over six years ago, and has never stopped,” Elliot wrote. “On balance, the public interest weighs in favor of imposing the greatest possible sanction against her.”
Bebo, in addition to the civil penalty, is permanently barred from serving as an officer or director of a publicly traded company. Elliot also criticized Bebo for deceiving the company’s auditor, Grant Thornton LLP.
In a separate but related action, the SEC in December charged Grant Thornton and two of its partners for “ignoring repeated red flags and fraud risks” at Assisted Living and another company, Broadwind Energy. The audit firm admitted wrongdoing, agreeing to pay a $3 million penalty and give up $1.5 million in fees.
The SEC’s case against Bebo, and her lawsuit against the commission, were both closely watched, coming amid a broader debate about the SEC’s use of in-house proceedings to pursue fraud cases that would otherwise be heard in federal court. Critics say the agency’s use of administrative judges, which has expanded under the Dodd-Frank Act, is unfairly slanted against the accused. Compared to defendants in federal court, respondents in administrative hearings have only limited discovery, less time to prepare their case, and no access to a jury trial.PL111-203
The SEC has sought to fend off some of those criticisms by proposing to amend its rules for administrative proceedings to allow for the pre-hearing deposition of witnesses, among other changes. The proposals were issued in September in Release No. 34-75976, Amendments to the Commission’s Rules of Practice, and Release No. 34-75977, Amendments to the Commission’s Rules of Practice.