The former CEO of a senior living provider must wait until an in-house process at the Securities and Exchange Commission is complete before bringing a constitutional challenge in the fraud case against her, a federal appeals court unanimously ruled on Monday.
Laurie Bebo, formerly of Assisted Living Concepts (ALC), had filed a lawsuit against the agency earlier this year, maintaining that the SEC’s internal proceedings, using an administrative law judge instead of a federal judge and jury, would deprive her of her rights to equal protection and due process. The 7th U.S. Circuit Court of Appeals, however, ruled 3-0 to dismiss the suit, saying it lacks jurisdiction at this time.
The SEC filed fraud charges against Bebo and ALC’s then-CFO, John Buono, in late 2014, alleging that they directed employees to include phony residents in occupancy rate and coverage ratio calculations for eight properties from 2009 to 2012. The two were seeking to avoid defaulting on the financial covenants in a lease agreement with Chicago-based real estate investment trust Ventas Inc., which owned the eight ALC-operated facilities at the time, according to the SEC. If ALC defaulted, it would have been required to pay tens of millions of dollars to cover the remaining rent due for the full term of the lease, the agency said.
Listed among the fake residents, according to the SEC, were Bebo’s family and friends—including one friend’s 7-year-old nephew, as well as former and current employees of ALC. “The SEC Enforcement Division alleges that without including these non-residents in the calculations, ALC would have missed the covenant requirements by significant margins for several consecutive quarters,” the agency stated in a December 2014 press release announcing the charges.
ALC terminated Bebo’s employment in mid 2012. The company changed its name to Enlivant last year after having moved its headquarters from Menomonee Falls, WI, to Chicago in late 2013. Enlivant is part of the portfolio of TPG Capital. According to TPG’s website, Enlivant and its subsidiaries own and/or operate more than 200 communities in 19 states, serving more than 9,000 residents.
Buono settled his case with the SEC earlier this year. An SEC administrative law judge heard Bebo’s case in June but has not ruled yet.
Some other federal judges recently have found that the appointment of administrative law judges may be unconstitutional, contrary to the ruling of the 7th U.S. Circuit Court of Appeals.