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SEC Administrative Actions Face Challenge

MILWAUKEE (CN) - Securities regulators are using the Dodd-Frank Act to trample a former CEO's right to a trial by jury, she claims in a federal complaint.

Laurie Bebo, the former head of Assisted Living Concepts Inc., filed the complaint on Friday over a portion of the Dodd-Frank Wall Street Reform and Consumer Protection Act that allows the Securities and Exchange Commission to hold administrative proceedings on charges that would have previously been tried in federal court.

"That is, the SEC has been given unlimited discretion to bring enforcement actions against unregulated persons either in federal district court or in internal administrative proceedings," the complaint states. "There are no statutes or regulations to guide these decisions."

Bebo says the SEC began investigating her company, Assisted Living Concepts, in 2009, ultimately issuing 43 subpoenas for testimony or documents, taking 55 days of on-the-record testimony and collecting "millions of pages of documents (approximately 270 gigabytes of data)."

The agency said its investigation supported charges that Bebo had gone behind the backs of investors to falsify occupancy rates at the company's facilities, including in ratios units that were rented to company employees.

Bebo maintains that the disclosure-fraud allegations are unfounded since the board of directors and several members of management allegedly knew about and even encouraged this practice.

Regardless of the facts of the case, Bebo argues that the SEC is violating her due-process rights in trying her via administrative proceedings.

"Dodd-Frank affects (sic) a wholesale transfer of Ms. Bebo's constitutional right to a jury trial to the government itself," the complaint states (italics in original).

The administrative proceedings Bebo faces do not allow her to subpoena the majority of the company's upper management because they are Canadian citizens, the complaint states.

The administrative law judge who will try Bebo in such administrative proceedings, moreover, is appointed by an SEC commissioner, according to the complaint.

Bebo also challenges the allegedly multiple layers of protection from removal that the SEC's administrative law judges enjoy.

By bringing charges through administrative proceedings, the SEC is allowed to circumvent a jury trial when it benefits their case, Bebo says. This will cause her harm, whereas trying her in federal court would not harm the SEC.

In addition to a finding that Section 929P(a) of the Dodd-Frank Act is unconstitutional, Bebo wants the court to strike down "the statutory and regulatory provisions providing for the position of SEC ALJ and the tenure protections for that position."

The administrative proceeding against Bebo must be enjoined, she says. Mark Cameli with Reinhart Boerner Van Deuren represents Bebo.

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