October 2, 2015 / 10:02 PM / in 3 years

Ex-CEO who challenged SEC in-house court must pay $4.2 million

(Reuters) - A former chief executive of Assisted Living Concepts Inc was ordered to pay $4.2 million on Friday after losing a closely-watched challenge to the U.S. Securities and Exchange Commission’s use of in-house enforcement proceedings.

An SEC administrative law judge ruled that Laurie Bebo, the former CEO, had engaged in a fraudulent scheme by listing fake occupants at some of the company’s senior citizen residences to avoid a default under the teams of the facilities’ lease.

SEC Administrative Law Judge Cameron Elliot ruled that Bebo deserved the “greatest possible sanction,” given the egregiousness of her conduct at Menomonee Falls, Wisconsin-based Assisted Living Concepts from 2009 to 2012.

Even on the witness stand, he said, Bebo’s testimony “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.

The judge ruled that Bebo must pay a $4.2 million civil penalty. He also ordered her barred from acting as an officer or director any securities issuer.

Andrew Ceresney, the SEC’s enforcement director, said the agency was “pleased with the ruling.” Bebo’s lawyer, Mark Cameli, declined to comment on whether she would appeal.

The ruling came after Bebo lost a closely-watched appeal in August at the 7th U.S. Circuit Court of Appeals in Chicago challenging the constitutionality of the SEC’s in-house court proceedings.[ID:nL1N10Z1LY]

The SEC has pursued more enforcement cases in-house rather than in federal court, using authority it obtained through the 2010 Dodd-Frank law.

Critics say this deprives defendants of protections they enjoy in federal court, such as the ability to take depositions, and makes it easier for the SEC to win.

Several similar lawsuits are pending that, like Bebo’s, challenge the constitutionality of the SEC’s use of administrative proceedings.

Two federal judges have ruled it is likely unconstitutional. Other courts have dismissed the cases, saying the commission itself gets the first go at hearing the issue.

In a 3-2 decision Sept. 3, the commission rejected such a constitutional challenge by an ex-radio show host, Raymond Lucia.

In his ruling on Friday, Elliot himself called Bebo’s constitutional argument “meritless,” saying she had failed to establish a violation.

The case is In the Matter of Laurie Bebo, U.S. Securities and Exchange Commission, Administrative Proceeding No. 3-16293.

Reporting by Nate Raymond in New York

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