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SEC Returns CEO’s Fire on Due-Process Issue

MILWAUKEE (CN) - Administrative proceedings by the Securities and Exchange Commission do not trample due-process rights, the agency told a federal judge.

The defense comes in response to a lawsuit the agency faces from a former CEO it is investigating, Laurie Bebo.

In her January complaint, Bebo said 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 said the SEC is violating her due-process rights in trying her via administrative proceedings.

In a 57-page opposition brief, the SEC countered that Bebo lacks support under the Dodd-Frank Wall Street Reform and Consumer Protection to halt the proceedings against her via preliminary injunction.

"Put simply, plaintiff cannot establish two basic requirements of any request for a preliminary injunction, namely, that she is reasonably likely to succeed on the merits and that she will suffer irreparable harm if her motion is denied," the brief signed by Justice Department attorney Jean Lin states.

For the SEC, Bebo's has zero chance of success because the U.S. District Court for the Eastern District of Wisconsin does not have jurisdiction over Bebo's claims.

"An exclusive remedial scheme created by Congress channels claims like plaintiff's through the administrative process with direct review in the courts of appeals, thereby depriving this court of jurisdiction," the brief states.

Relief from problems with the administrative process is not available to Bebo until the administrative law judge has made a recommendation, the SEC says. At that point, she must bring her dispute to the appeals court, according to the brief.

Though Bebo says the proceedings violate her right to a jury trial, the SEC noted that Congress has endorsed this process.

"She merely dislikes the discretion that the SEC is afforded to bring enforcement actions either in district court or in an administrative proceeding," the brief states. "But equal protection principles do not prohibit Congress from authorizing the SEC to choose the forum in which to enforce the federal securities laws."

As for Bebo's claims regarding administrative law judges does, the SEC disputes the position that these employees are officers.

"SEC ALJs' functions are limited," the brief continues, "and do not include issuing final decisions: only the commission can issue those," which it does based on the recommendations of administrative law judges.

Finally, the SEC says Bebo's claim anticipates a potential future violation of civil rights rather than seeking to remedy an ongoing violation.

"But plaintiff could prevail in the administrative proceeding and, in any event, any procedural due process claim by Plaintiff at this stage is premature," the brief states.

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