Former Assisted Living Exec Asks 7th Cir. To Review Constitutionality of SEC Forum

Bloomberg BNA’s Corporate Law & Accountability Report is available on the Corporate Law Resource Center. This news service keeps corporate practitioners informed of legal developments of...

By Yin Wilczek

March 19 — Yet another federal appeals court now has the opportunity to consider whether the Securities and Exchange Commission's administrative forum is constitutional.

In a March 10 filing, Laurie Bebo, the former chief executive officer of Assisted Living Concepts Inc., asked the U.S. Court of Appeals for the Seventh Circuit to review a district court's conclusion that it had no subject-matter jurisdiction to consider whether the SEC violated her constitutional rights by suing her administratively rather than in federal court.

In dismissing her case, the U.S. District Court for the Eastern District of Wisconsin ruled that Bebo must litigate her claims before the SEC and—if necessary—the Seventh Circuit.

There are ongoing appeals on the same issue in the U.S. Court of Appeals for the District of Columbia—Jarkesy v. SEC and in the Second Circuit— Chau v. SEC.

SEC Case 

The SEC filed an administrative case against Bebo in December alleging that a statement in ALC’s disclosure documents regarding compliance with a lease agreement was false or misleading. According to the commission, Bebo and another former ALC official listed phony occupants at senior residences in order to meet certain occupancy covenants and avoid defaulting on the leases for the facilities.

The commission asserted that a default would have required ALC to pay the full remaining rent due on the lease—“tens of millions of dollars at the time.”

The next month, Bebo sued in federal court alleging that the commission's “unlimited ability” to sue administratively violates her constitutional due process and equal protection rights.

In her March 10 filing, Bebo asserted that “Section 929P(a) of the Dodd–Frank Wall Street Reform and Consumer Protection Act violates her rights to equal protection and due process under the Fifth Amendment to the United States Constitution.”

In addition, she claimed that the commission's “Administrative Law Judges, who preside over the Administrative Proceedings instituted by the SEC, are protected by multiple layers of tenure in violation of Article II of the United States Constitution.”

Bebo's brief is due April 20. She is represented by Mark Cameli, Reinhart Boerner Van Deuren SC, Milwaukee.

The SEC is represented by Jonathan H. Koenig, from the U.S. Attorney's Office in Milwaukee.

To contact the reporter on this story: Yin Wilczek in Washington at ywilczek@bna.com

To contact the editor responsible for this story: Ryan Tuck at rtuck@bna.com

The filing is available at http://www.bloomberglaw.com/public/document/Laurie_Bebo_v_SEC_Docket_No_1501511_7th_Cir_Mar_10_2015_Court_Doc.