Initial Decision Release No. 1401

Administrative Proceeding

File No. 3-16293

UNITED STATES OF AMERICA

Before the

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

In the Matter of

Laurie Bebo and

John Buono, CPA

Initial Decision

as to Laurie Bebo

August 13, 2020

Appearances: Benjamin Hanauer, Eric M. Phillips, Daniel J. Hayes, 

Timothy Stockwell, and Scott B. Tandy for the Division of 

Enforcement, Securities and Exchange Commission

Mark A. Cameli, Ryan Stippich, Jennifer L. Naeger, and 

Alexander B. Handelsman, Reinhart Boerner Van Deuren

s.c., for Respondent Laurie Bebo

Before: Jason S. Patil, Administrative Law Judge

Introduction

Respondent Laurie Bebo was the chief executive officer (CEO) of Assisted 

Living Concepts, Inc. (ALC), a publicly traded assisted living company that 

operated residences for seniors. For several years, she engaged in an elaborate 

scheme to hide that ALC was not meeting occupancy and financial covenants 

in its lease with Ventas, Inc., the landlord of eight facilities operated by ALC. 

To make it appear that the facilities had sufficient occupants to meet the 

covenant requirements each quarter, Bebo directed ALC personnel to include 

individuals who did not reside at the facilities. The false occupants included

current and former ALC employees, people who never visited or stayed at the 

facilities, individuals listed as occupants at multiple different facilities on the 

same day, and family members that were not employed by ALC. Bebo did not 

disclose her scheme to Ventas or obtain Ventas’s agreement. 
2

To further her scheme, Bebo falsified company records, directed ALC 

employees to create journal entries reflecting inflated revenues, submitted 

fraudulent financial information to Ventas, and lied to and hid information 

from ALC’s auditors. Through Bebo’s misconduct, ALC falsely represented, in

its periodic reports publicly filed with the Securities and Exchange 

Commission, that the company was in compliance with the covenants and that 

it did not believe that there was a reasonably likely degree of risk of breach. 

The company did not disclose that it failed to meet the covenant requirements.

Bebo certified the company’s public filings as accurate when she knew they 

were not and caused ALC to violate its reporting obligations.

Because of her misconduct, Bebo violated the antifraud provisions of 

Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5; Exchange 

Act Rule 13a-14’s certification requirements; Exchange Act Section 13(b)(5)’s

books-and-records and internal control provisions; Exchange Act Rule 13b2-1’s 

prohibition against falsifying books, records, or accounts; and Exchange Act 

Rule 13b2-2’s prohibition against company executives making false and 

misleading statements. Also, she caused ALC’s violations of Exchange Act 

Section 10(b) and Rule 10b-5, Exchange Act Section 13(a) and Rules 13a-1 and 

13a-13’s requirement that an issuer file accurate reports, Exchange Act Rule 

12b-20’s requirement that an issuer provide further material information to 

make its reports not misleading, and Exchange Act Sections 13(b)(2)(A) and 

(B)’s books-and-records and internal control provisions.

Significant sanctions are warranted. A cease-and-desist order, an officerand-director bar with the right to reapply after six years, and civil money 

penalties totaling $1,050,000 will be imposed.

Procedural History and Alternative Procedures

On December 3, 2014, the Commission issued an order instituting 

proceedings (OIP) against Bebo under Exchange Act Section 21C. The OIP 

alleges that Bebo engaged in misconduct and violated the securities laws 

summarized above. The Commission also instituted this proceeding against

John Buono, CPA, but later settled the proceeding as to him. Laurie Bebo, 

Exchange Act Release No. 74177, 2015 WL 366000 (Jan. 29, 2015).

Bebo answered the charges by generally denying the allegations and 

asserting affirmative defenses. See Answer (Ex. 375) (dated Dec. 31, 2014). The 

affirmative defenses mostly consist of assertions against the elements of the 

allegations, but also include defenses relating to the statute of limitations, 

alleged constitutional violations, and reliance on professionals. Id. at 10–13.
3

The hearing took place before another administrative law judge in 

Milwaukee, Wisconsin, over nineteen days in 2015. The judge issued an initial 

decision finding that Bebo violated the securities laws and imposed sanctions.

Laurie Bebo, Initial Decision Release No. 893, 2015 WL 5769700 (ALJ Oct. 2, 

2015). During the pendency of Bebo’s petition for review with the Commission, 

and after the Supreme Court decided Lucia v. SEC, 138 S. Ct. 2044 (2018), the 

Commission remanded the proceeding and directed that Bebo be given the 

opportunity for a new hearing before a judge who had not previously 

participated in the matter, unless the parties expressly agreed to alternative 

procedures. Pending Admin. Proc., Securities Act of 1933 Release No. 10536, 

2018 WL 4003609, at *1, *6 (Aug. 22, 2018). 

On remand, the proceeding was reassigned to a different judge, who 

adopted the parties’ agreement to alternative procedures instead of a new 

evidentiary hearing. See Bebo, Admin. Proc. Rulings Release No. 6412, 2018 

SEC LEXIS 3561 (ALJ Dec. 18, 2018). Under that agreement, the judge would 

decide the matter de novo on the existing record with the opportunity for Bebo 

to seek further discovery. See id. at *2–8. Later, the judge adopted the parties’ 

supplemental procedures and denied Bebo’s motion for summary disposition

that raised constitutional and statute-of-limitations defenses. See Bebo, 

Admin. Proc. Rulings Release Nos. 6571, 2019 SEC LEXIS 1094 (ALJ May 10, 

2019) (denying motion for summary disposition), and 6642, 2019 SEC LEXIS 

1836 (ALJ Jul. 24, 2019) (adopting parties’ supplemental term sheet). 

The proceeding was reassigned to me in September 2019. Bebo, Admin. 

Proc. Rulings Release No. 6684, 2019 SEC LEXIS 3365 (ALJ Sept. 27, 2019). I 

held a closing oral argument on February 6, 2020, and then admitted into 

evidence, as Joint Supplemental Exhibit No. 1, memoranda prepared by the 

law firm Milbank, Tweed, Hadley & McCloy LLP, which conducted an internal 

investigation of ALC. See Bebo, Admin. Proc. Rulings Release No. 6731, 2020 

SEC LEXIS 408 (ALJ Feb. 10, 2020). I also allowed the parties to seek 

admission of handwritten attorney notes underlying the Milbank memoranda 

and address the admissibility of Division exhibits that were excluded at the 

prior hearing. See id. The Division responded that it did not object to admission 

of the handwritten notes and no longer sought admission of the previously 

excluded exhibits. Div. Post-arg. Br. at 4 (Feb. 13, 2020). Bebo provided the 

notes, which I now ADMIT as Joint Supplemental Exhibit No. 2. 

As agreed by the parties, this initial decision (1) is based on the existing 

hearing record, except for Bebo’s Exhibit No. 2187 (expert report of David B.H. 

Martin) and Sections VI.A, VI.B, and VII of Bebo’s Exhibit No. 2185 (expert 

report of John Durso), which have been withdrawn; (2) makes all factual 

findings and legal conclusions de novo, with no deference to or consideration of 

any statements or determinations made by the first judge; (3) considers the 
4

parties’ arguments raised throughout the proceeding and all their briefs; and 

(4) takes into account the parties’ other agreed terms. See Bebo, 2018 SEC 

LEXIS 3561, at *2–8; Bebo, 2019 SEC LEXIS 1836, at *2–6. All arguments 

inconsistent with this decision have been considered and rejected.

Preliminary Issues

Before my findings of fact and legal conclusions on the merits, I address 

three preliminary issues: Bebo’s constitutional arguments, the weight that I 

give to the Milbank memoranda, and Bebo’s credibility.

This proceeding does not violate the U.S. Constitution.

Bebo challenges the validity of this proceeding on constitutional grounds. 

She argues that the statute authorizing the Commission to bring the 

proceeding is unconstitutional on its face because it violates equal protection 

and due process, that the Commission discriminated against her by bringing 

this action as an administrative proceeding rather than in federal court, that 

the administrative law judges were improperly appointed and are protected by 

too many layers of tenure protection, and that the course of the proceeding 

lacked due process. For the reasons discussed below, I find these constitutional 

challenges to be without merit.

Constitutionality of Dodd-Frank Section 929P(a)

Section 929P(a)(2) of the Dodd-Frank Wall Street Reform and Consumer 

Protection Act, Pub. L. 111-203, 124 Stat. 1376, 1863 (2010), gave the 

Commission the authority to impose civil penalties in cease-and-desist 

proceedings under the Exchange Act. Before the enactment of this section, the 

Commission could impose civil penalties in administrative proceedings against 

regulated individuals and entities. Since its enactment, remedies available to 

the Commission in an administrative proceeding are generally coextensive 

with remedies available in federal court. Bebo argues that this statute violates 

the Constitution because it allows the Commission “unguided discretion” to 

choose the forum for bringing an action against a respondent and thereby 

choose whether a jury trial is available. Resp’t Post-hr’g Br. at 220 (Aug. 3, 

2015). Bebo argues that this violates the rights of equal protection and due 

process and that Section 929P(a) is unconstitutional on its face. Id. at 221.

The Commission lacks the power to invalidate an act of Congress as 

unconstitutional. William J. Haberman, Exchange Act Release No. 40673, 

1998 WL 786945, at *3 n.14 (Nov. 12, 1998), pet. denied, 205 F.3d 1345 (8th 

Cir. 2000). Even so, I will analyze Bebo’s claim that this portion of Dodd-Frank 

is unconstitutional for two reasons. First, Bebo was directed to first defend 

herself in this proceeding and then raise her constitutional claims before a 
5

court of appeals, despite the Commission’s lack of authority to decide this issue. 

See Bebo v. SEC, 799 F.3d 765, 773, 775 (7th Cir. 2015). Second, although the 

Commission lacks jurisdiction to invalidate a statute, the public interest may 

warrant a proceeding’s dismissal if enforcement against a particular 

respondent would be unconstitutional. If Bebo is correct that Section 929P is 

facially unconstitutional, it would necessarily be unconstitutional as applied to 

her, and dismissal would be appropriate. See Wash. State Grange v. Wash. 

State Republican Party, 552 U.S. 442, 449 (2008) (“[A] plaintiff can only 

succeed in a facial challenge by ‘establish[ing] that no set of circumstances 

exists under which the Act would be valid,’ i.e., that the law is unconstitutional 

in all of its applications.” (quoting United States v. Salerno, 481 U.S. 739, 745 

(1987))). 

Equal Protection

Bebo argues that because Section 929P gives the Commission authority to 

bring an enforcement action in an administrative proceedings or in federal 

court, it divides respondents into two classes, treated unequally. But unlike in 

the two cases that she cites, Baxstrom v. Herold, 383 U.S. 107 (1966), and 

Humphrey v. Cady, 405 U.S. 504 (1972),

1 Section 929P does not create any 

objectively identifiable classes of people to be treated differently. See Engquist 

v. Or. Dep’t of Agric. , 553 U.S. 591, 601 (2008) (“[T]he basic concern of the 

Equal Protection Clause is with ... legislation whose purpose or effect is to 

create discrete and objectively identifiable classes.” (quoting San Antonio 

Indep. Sch. Dist. v. Rodriguez, 411 U.S. 1, 60 (1973) (Stewart, J., concurring)

(first alteration in original))). Instead, it gives the Commission discretion over 

the choice of forum. The Commission’s discretion is not limited to one 

statutorily defined group, such as prisoners, while others are not subject to 

that discretion. See Humphrey, 405 U.S. at 512; Baxstrom, 383 U.S. at 114–15. 

Bebo separately challenges this discretion in an as-applied, class-of-one 

challenge, which is addressed below. For her facial equal protection challenge, 

Section 929P “neither burdens a fundamental right nor targets a suspect 

class.” Romer v. Evans, 517 U.S. 620, 631 (1996). Because Bebo has not shown 

that the statute even involves a legislative classification—let alone an 

irrational one—her claim fails. Cf. Heller v. Doe, 509 U.S. 312, 319–20 (1993).

 

1 Baxstrom addressed a New York statute that determined availability of 

jury review for civil commitment based on whether an individual is 

incarcerated, 383 U.S. at 110, and Humphrey addressed a Wisconsin statute

that allowed non-jury process for civil commitment of some prisoners in 

contrast to a general civil-commitment statute, 405 U.S. 511–12.
6

Section 929P does not on its face treat any class of person differently from any 

other. 

Bebo’s argument that Section 929P “clearly discriminates against an 

identifiable group—respondents who intend to exercise their constitutional 

right to a jury trial in an SEC enforcement action”—is wrong. Resp’t Const. 

MSD Reply Br. at 4–5 (Apr. 3, 2019). Even if this were an objectively 

identifiable class, the statute does not prescribe different treatment for people

inside and outside of the group. Some people inside the group receive their 

preferred outcome—a jury trial in federal court. There is no indication that the 

statute was designed to discriminate against any class of respondents. Bebo’s 

arguments about unfettered discretion and arbitrariness are not valid facial 

attacks on the statute. Bebo has not established that Section 929P is 

unconstitutional in every application. Wash. State Grange, 552 U.S. at 449.

Due Process 

Bebo argues that Section 929P violates due process because it allows the 

Commission to penalize a citizen for asserting the Seventh Amendment right 

to a jury trial. Resp’t Const. MSD Br. at 17 (Mar. 1, 2019); Resp’t Post-hr’g Br. 

at 224–27. But there is no evidence that the Commission has targeted her or 

anyone else on this basis. The Supreme Court has confirmed the 

constitutionality of nonjury administrative proceedings. The statute simply 

allows the Commission to choose between two lawful forums. 

The Seventh Amendment provides that “[i]n Suits at common law, ... the 

right of trial by jury shall be preserved.” U.S. Const. amend. VII. The right to 

a jury trial extends to statutory causes of action, so long as the statute “creates 

legal rights and remedies ... enforceable in an action for damages in the 

ordinary courts of law.” Curtis v. Loether, 415 U.S. 189, 193–94 (1974). But 

there is a distinction for “cases in which the Government sues in its sovereign 

capacity to enforce public rights.” Atlas Roofing Co. v. Occupational Safety & 

Health Review Comm’n, 430 U.S. 442, 450 (1977). When enacting a statute 

with a new public right, Congress has the authority to assign adjudication of 

the public right to an administrative agency without the right to a jury trial. 

Id. And Congress may do this “even if the Seventh Amendment would have 

required a jury where the adjudication of those rights is assigned instead to a 

federal court of law.” Id. at 455

Congress was thus permitted to assign the adjudication of public rights 

under the Exchange Act to the Commission. The statutory causes of action in 

this proceeding are exactly the type of public rights that the Court has 

approved for nonjury adjudication because the “statutory cause of action 

inheres in, or lies against, the Federal Government in its sovereign capacity.” 
7

Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 53 (1989); see Atlas Roofing, 430 

U.S. at 461 (Seventh Amendment does not bar Congress from assigning 

enforcement of workplace health and regulations to administrative tribunal).

Bebo argues that the statute violates due process because it gives the 

Commission the ability to bring in action in an administrative forum or in 

federal court. Bebo suggests that the Commission might bring an action in 

federal court, wait to see if the defendant asserts the right to a jury, and then 

dismiss that action and bring an administrative proceeding instead. Bebo 

presents no evidence of this ever having occurred but argues that the fact it 

could hypothetically occur is enough to invalidate the statute. Resp’t Const. 

MSD Br. at 17. 

United States v. Jackson, 390 U.S. 570 (1968), one of two decisions that 

she claims support her, did not involve prosecutorial discretion to choose 

between forums. Resp’t Const. MSD Br. at 14–15. In Jackson, the Supreme 

Court invalidated part of a federal statute that exposed criminal defendants to 

the death penalty if they asserted their jury trial right in certain cases but did 

not provide for the possibility of capital punishment in the event of a guilty 

plea or waiver of a jury trial. 390 U.S. at 570–71, 582–83. Nothing in DoddFrank suggests that the Commission’s choice of an administrative forum or the 

range of sanctions available in this forum are causally connected to the 

assertion of a constitutional right.

The second case on which she relies, Blackledge v. Perry, 417 U.S. 21 

(1974), was not a facial challenge and did not strike down the “state statutory 

regime” that authorized prosecutorial discretion. Resp’t Const. MSD Br. at 17. 

The Court found unconstitutional the application of that discretion—bringing 

a felony charge against the defendant after he exercised his right to appeal to 

a jury on the original misdemeanor conviction. Perry, 417 U.S. at 28–29. Bebo 

might have a claim, then, if the Commission carried out her hypothetical, but 

it is not a valid facial attack on the Exchange Act. 

Under Atlas Roofing and Granfinanciera, Congress could have assigned 

adjudication of public rights under the Exchange Act solely to an 

administrative forum. Congress instead chose to assign adjudication to the 

Commission’s administrative process and the federal judiciary—and gave the 

Commission the discretion to choose the forum. The Constitution permits this. 

Equal Protection—Class of One

Bebo asserts that the Commission violated her constitutional right to 

equal protection by bringing an administrative proceeding against her when it

brought actions against others in federal court. In general, equal protection 

claimants must establish that they are a member of a protected class. But the 
8

Supreme Court has also recognized equal protection claims brought by a “class 

of one.” A class-of-one claim arises when the claimant is treated differently 

from similarly situated individuals without a rational basis for the difference. 

Vill. of Willowbrook v. Olech, 528 U.S. 562, 564 (2000). Bebo asserts that the 

Commission has arbitrarily treated her differently from similarly situated 

litigants, and she has sought discovery to support this claim. See Resp’t Supp’l 

Post-hr’g Br. at 43 (Sept. 30, 2019). But Bebo’s class-of-one argument fails 

because the Commission’s discretionary choice to bring this action in an 

administrative forum cannot be attacked in a class-of-one equal protection 

claim.

The Supreme Court has explained that some categories of governmental 

decision-making involve discretionary, individualized choices and are not 

amenable to class-of-one discrimination claims. Engquist, 553 U.S. at 603. “In 

such cases the rule that people should be ‘treated alike, under like 

circumstances and conditions’ is not violated when one person is treated 

differently from others, because treating like individuals differently is an 

accepted consequence of the discretion granted.” Id. The Supreme Court 

illustrated this point with a hypothetical of a traffic officer giving speeding 

tickets. If the officer gives a speeding ticket to one speeder but not to some 

other drivers going the same speed, the ticketed speeder has no cognizable 

class-of-one claim—such a claim would be “incompatible with the discretion 

inherent in the challenged action.” Id. at 604.

The Commission’s choice of forum is one of those discretionary actions that 

cannot be challenged on a class-of-one basis. Federal courts have held that 

“Engquist precludes [class-of-one] challenges to prosecutors’ decisions about 

whom, how, and where to prosecute.” Charles L. Hill, Jr., Exchange Act 

Release No. 79459, 2016 WL 7032731, at *2 & n.21 (Dec. 2, 2016) (citing United 

States v. Green, 654 F.3d 637, 650 (6th Cir. 2011)); United States v. Moore, 543 

F.3d 891, 901 (7th Cir. 2008)). The conclusion that class-of-one claims are 

incompatible with discretionary decisions in prosecutorial enforcement of the 

criminal laws applies with equal force to administrative enforcement of the 

securities laws. See Del Marcelle v. Brown Cty. Corp., 680 F.3d 887, 905 (7th 

Cir. 2012) (en banc) (Easterbrook, C.J., concurring) (“[T]here is no class-of-one 

doctrine in federal administrative law, any more than in criminal law.”). 

The Commission has repeatedly found that a class-of-one equal protection 

challenge to proceeding in an administrative forum is not legally cognizable. 

See Hill, 2016 WL 7032731, at *2 & n.21; see also Mohammed Riad, Exchange 

Act Release No. 78049A, 2016 WL 3627183, at *50 (July 7, 2016), set aside on 

other grounds, No. 16-1275 (D.C. Cir. Sept. 19, 2018); David F. Bandimere, 

Exchange Act Release No. 76308, 2015 WL 6575665, at *17–19 (Oct. 29, 2015), 

pet. granted on other grounds, 844 F.3d 1168 (10th Cir. 2016); Timbervest, LLC, 
9

Advisers Act Release No. 4197, 2015 WL 5472520, at *28–30 (Sept. 17, 2015), 

set aside on other grounds, No. 15-1416 (D.C. Cir. Nov. 19, 2018). These three 

Commission decisions have been set aside as a result of Appointments Clause 

challenges and the Supreme Court’s decision in Lucia and are therefore not 

binding precedent. Nevertheless, the reasoning in these decisions remains 

persuasive and sound. “[T]he Commission’s decision to bring charges in one 

forum rather than another is an inherently discretionary one,” and for the 

reasons set forth by the Supreme Court in Engquist and the Seventh Circuit 

in Moore, a respondent cannot challenge that decision on a class-of-one basis. 

Riad, 2016 WL 3627183, at *50. 

Because Bebo cannot prevail on her equal protection class-of-one claim, 

her request for discovery to support it was properly denied.

ALJ Appointment

Bebo argued in her post-hearing brief that Commission administrative 

law judges are “inferior officers” whose appointment must conform to the 

requirements of the Appointments Clause. Resp’t Post-hr’g Brief at 229. This 

argument proved correct. In 2018, the Supreme Court held that Commission 

administrative law judges were subject to the Appointments Clause. Lucia v. 

SEC, 138 S. Ct. 2044, 2049 (2018). Because the judge who heard Lucia was not 

appointed in a way that conformed to the requirements of the Constitution, the 

Supreme Court ordered a new hearing before the Commission or a properly 

appointed administrative law judge. Id. at 2055.

The Commission has implemented the remedy prescribed by the Supreme 

Court in all cases, including this one, pending before it at the time of the 

Court’s decision. The Commission cured the underlying Appointments Clause 

deficiency by ratifying, as head of a department, the prior appointment of its 

administrative law judges. Pending Admin. Proc., Exchange Act Release No. 

32929, 2017 WL 5969234, at *1 (Nov. 30, 2017); Pending Admin. Proc., 

Exchange Act Release No. 83907, 2018 WL 4003609, at *1 (Aug. 22, 2018) (“In 

an abundance of caution and for avoidance of doubt, we today reiterate our 

approval of their appointments as our own under the Constitution.”).

Ratification by the proper authority cures a prior unauthorized action as long 

as the party ratifying had the authority to do the act at the time the act was 

done and also has the authority at the time of ratification. FEC v. NRA 

Political Victory Fund, 513 U.S. 88, 98 (1994); see FEC v. Legi-Tech, Inc., 75 

F.3d 704, 709 (D.C. Cir. 1996). That condition is satisfied here.

The Commission vacated the initial decision previously issued and 

ordered that “respondents be provided with the opportunity for a new hearing 

before an ALJ who did not previously participate in the matter.” Pending 
10

Admin. Proc., 2018 WL 4003609, at *1. Bebo was provided with that 

opportunity.

Bebo argues, however, that the Supreme Court’s decision in Lucia 

“rendered the OIP in this case legally invalid and statutorily defective.” Resp’t 

Const. MSD Br. at 23. Bebo asserts that since the OIP ordered a hearing before 

an administrative law judge and the Commission’s administrative law judges 

were, at the time the OIP was issued, not properly appointed, “the OIP never 

instituted valid proceedings and was itself a nullity.” Id. at 24. The only way 

for the Commission to proceed against Bebo, she asserts, would be to issue a 

new OIP, and because that proceeding would be barred by the statute 

limitations, this case must be dismissed. Id. at 25.

That logic is flawed. The original OIP complied with the requirements of 

the Exchange Act and the Commission’s Rules of Practice. See 15 U.S.C. § 78u3(b) (requiring the OIP for a cease-and-desist proceeding to set a hearing date 

30 to 60 days after service); 17 C.F.R. § 201.200(b) (requiring the OIP to state 

the nature of the hearing, legal authority and jurisdiction under which it is 

held, a statement of the fact and law to be considered, and the nature of any 

relief sought). The Commission had the authority to institute the proceeding 

and order a hearing before an administrative law judge. 15 U.S.C. § 78v. An 

OIP issued by the Commission does not depend on the valid appointment of an 

administrative law judge, as the Commission could assign a proceeding to itself 

at any time. Nothing in Lucia changed that.

Bebo argues that because none of the administrative law judges employed 

by the Commission at the time the OIP was issued was validly appointed, the 

OIP was defective. But the case law she cites is not on point. In Pereira v. 

Sessions, 138 S. Ct. 2105, 2110 (2018), for example, the Court found invalid a 

notice to appear at immigration removal proceedings that did not provide the 

time and place for the hearing. The applicable statute required the notice to 

contain the time and place. Id.; 8 U.S.C. § 1229(a)(1)(G)(i). The OIP in this 

proceeding, by contrast, contained everything required by statute and the 

Commission’s own rules. Bebo also points to cases holding that a defect in a 

hearing officer’s appointment “was an irregularity which would invalidate a 

resulting order.” United States v. L.A. Tucker Truck Lines, Inc., 344 U.S. 34, 

38 (1952); see also Freytag v. Commissioner, 501 U.S. 868, 879 (1991); Papasan 

v. Allain, 478 U.S. 265, 276 (1986). But here, as in Tucker Truck Lines, the 

invalid appointment is not a defect that “deprives the Commission of power or 

jurisdiction,” and the defect in appointment of the administrative law judge 

did not cause the OIP to become a nullity. 501 U.S. at 38.
11

ALJ Tenure Protection

Bebo challenges as unconstitutional the tenure protection afforded to 

administrative law judges. The previous presiding administrative law judge

rejected this argument in an order denying Bebo’s motion for summary 

disposition for constitutional violations. Bebo, Admin. Proc. Rulings Release 

No. 6571, 2019 SEC LEXIS 1094, at *7–8 (ALJ May 10, 2019). Although the 

Supreme Court has not expressly ruled on this issue, there is no basis to set 

aside the prior ruling, as explained below. See Lucia, 138 S. Ct. at 2050 n.1 

(declining the solicitor general’s invitation to address the removal issue).

Commission administrative law judges are afforded tenure protection. An 

administrative law judge may be removed from office “only for good cause 

established and determined by the Merit Systems Protection Board.” 5 U.S.C. 

§ 7521. Bebo argues that this is a problem because members of the Merit 

Systems Protection Board may themselves be removed “only for inefficiency, 

neglect of duty, or malfeasance in office.” 5 U.S.C. § 1202(d). And the Supreme 

Court has assumed—but not decided—that the Commissioners may only be 

removed under the same standard. Free Enter. Fund v. PCAOB, 561 U.S. 477, 

487 (2010).2 In Free Enterprise Fund, the Supreme Court invalidated the duallayer tenure protection given to members of the PCAOB in the Sarbanes-Oxley 

Act. Id. at 492. According to Bebo, administrative law judges’ multiple layers 

of tenure protection interfere with the President’s ability to oversee the 

executive branch in the same way. Resp’t Const. MSD Br. at 20 (citing Free 

Enter. Fund, 561 U.S. at 484). 

The Commission has rejected the argument that administrative law 

judges’ tenure protection offends the Constitution. E.g., optionsXpress, Inc., 

Securities Act Release No. 10125, 2016 WL 4413227 (Aug. 18, 2016). In 

optionsXpress, the Commission identified three relevant reasons why the 

current removal restrictions are permissible: (1) administrative law judges 

perform adjudicative rather than core executive functions; (2) the Commission 

has other means to exercise control over its administrative law judges; and (3) 

the adjudicatory system set up by the Administrative Procedure Act, including 

tenure protection for administrative law judges, has a long history. Id. at *51–

52.3

 

2 The Securities Exchange Act of 1934 predated the Supreme Court’s 

decision Humphrey’s Executor v. United States, 295 U.S. 602 (1935), and the 

statutory text contains no mention of tenure protection.

3 The Commission also noted that civil servants who are not officers may 

have multiple layers of removal protection, 2016 WL 4413227, at *51, but the 
12

Adjudicative function

In Free Enterprise Fund, the Court noted that its holding that the 

PCAOB’s tenure protection was unconstitutional did not address the tenure 

protection afforded to administrative law judges. Free Enter. Fund, 561 U.S. at 

507 n.10. The Court explained that, contrary to members of the PCAOB, 

administrative law judges “perform adjudicative rather than enforcement or 

policymaking functions.” Id. This difference in function is important because 

the Court has approved limitations on presidential removal authority for 

positions with purely adjudicatory functions. Wiener v. United States, 357 U.S. 

349, 356 (1958); Free Enter. Fund v. PCAOB, 537 F.3d 667, 699 n.8 (D.C. Cir. 

2008) (Kavanaugh, J., dissenting) (“ALJs perform only adjudicatory functions 

that are subject to review by agency officials, ... and that arguably would not 

be considered ‘central to the functioning of the Executive Branch’ for purposes 

of the Article II removal precedents.”); cf. Seila Law LLC v. CFPB, 140 S. Ct. 

2183, 2200 (2020) (recognizing an exception allowing restrictions on removal 

of “inferior officers with limited duties and no policymaking or administrative 

authority”); Morrison v. Olson, 487 U.S. 654, 691 (1988) (finding restrictions 

on removal permissible where the President’s need to control an official is not 

“central to the functioning of the Executive Branch”). According to one legal

scholar, the “insulation of adjudicators from removal at will” is a “longstanding 

and largely unquestioned understanding [that] has developed into a very 

strong convention.” Naomi Rao, Removal: Necessary and Sufficient for 

Presidential Control, 65 Ala. L. Rev. 1205, 1247–49 (2014) (“[T]here are some 

good reasons for the conventional and established view that the President’s 

control does not require at will removal for administrative law judges or other 

officials who solely adjudicate within the executive branch.”).

Other means of control

The problem the Supreme Court saw in the structure of the PCAOB was 

one of control. The Court found that the Commission, lacking the power to 

remove PCAOB members, could not adequately control its functions. Free 

Enter. Fund, 561 U.S. at 504. The PCAOB could “take significant enforcement 

actions ... largely independent of the Commission,” and the Commission lacked 

the “effective power to start, stop, or alter” PCAOB investigations. Id. In stark 

contrast, the Commission has all those powers over its administrative law 

judges. It chooses what proceedings, if any, are to be presided over by an 

administrative law judge. 17 C.F.R. § 201.110. It may direct that any matter 

before an administrative law judge be submitted to it for review at any time. 

 

Supreme Court’s holding that administrative law judges are officers eliminates 

that argument.
13

Id. § 201.400(a). It may review any initial decision by an administrative law 

judge, and this review is plenary both as to law and facts. Id. §§ 201.410–.411; 

see 5 U.S.C. § 557(b) (“On appeal from or review of the initial decision, the 

agency has all the powers which it would have in making the initial decision 

except as it may limit ....). With these effective means of control, there is no 

doubt that the final agency decision in an administrative proceeding is the 

Commission’s. The public could readily determine “on whom the blame” for a 

bad decision “ought really to fall.” Free Enter. Fund, 561 U.S. at 498 (quoting 

The Federalist No. 70 (Alexander Hamilton) (Jacob Cooke ed. 1961)). This 

control reduces the constitutional need for authority to remove judges at will.

Significant history

In Free Enterprise Fund, the Supreme Court highlighted the “highly 

unusual” structure of the PCAOB. Free Enter. Fund, 561 U.S. at 505. It quoted 

then-Judge Kavanaugh below observing that “the most telling indication of the 

severe constitutional problem with the PCAOB is the lack of historical 

precedent” for an independent agency “appointed by and removable only for 

cause by another independent agency.” Id. at 505–06 (quoting Free Enter. 

Fund, 537 F.3d at 699 (Kavanaugh, J., dissenting)); see Seila Law, 140 S. Ct.

at 2201. The system of administrative law judges, including their removal 

protections, has a history that dates back to 1946. See Administrative 

Procedure Act, Pub. L. 79-404, § 11, 60 Stat. 237, 244 (1946) (“Examiners shall 

be removable by the agency in which they are employed only for good cause 

established and determined by the Civil Service Commission ... after 

opportunity for hearing and upon the record thereof.”). The removal protection 

was not ancillary to the APA, but a significant objective of Congress in creating 

a fairer adjudicatory system.

* * *

Because administrative law judges are limited to an adjudicatory role and 

have no executive or policymaking function, are subject to control through the 

Commission’s plenary review of any matter at any time, and have a long 

history of removal protections, the problems with multiple layers of tenure 

protection identified by the Supreme Court in Free Enterprise Fund are not 

present. The removal protections do not violate the Constitution.

Finally, even if the removal protections were unconstitutional, the remedy 

would be severance of the removal protections, not dismissal. See, e.g., Free 

Enter. Fund, 561 U.S. at 508–09. That remedy provides no help to Bebo. See 

Collins v. Mnuchin, 938 F.3d 553, 592–95 (5th Cir. 2019) (en banc), cert. 

granted, No. 19-563 (July 9, 2020). Invalidation of the actions of an 

unconstitutional agency or officer are limited to those cases where actors “were 
14

granted power inconsistent with their role in the constitutional program” or 

“were not properly appointed” because in both cases the actors “were vested 

with authority that was never properly theirs to exercise.” Id. at 593. By 

contrast, where the problem is that a properly appointed officer is “too distant 

from presidential oversight to satisfy the Constitution’s requirements,” the 

“only judgment” Bebo is “entitled to is the one the Supreme Court has given in 

similar removal-restriction cases,” which is severance of the offending removal 

protections. Id. at 593, 595; see also Seila Law, 140 S. Ct. at 2210–11; cf. Barr 

v. Am. Ass’n of Political Consultants, Inc., 140 S. Ct. 2335, 2356 (2020) 

(Kavanaugh, J., plurality op.) (rejecting challenge to “the Court’s current 

approach” to severability, which “is constitutional, stable, predictable, and 

commonsensical”). Therefore, even if Bebo’s tenure protection argument were 

correct, dismissal of the proceeding would not be the appropriate remedy. 

Procedural Due Process

In Bebo’s post-hearing brief, she raised many objections to the process 

afforded in the original hearing—both to the general structure and rules of the 

Commission’s administrative proceedings and also to specific evidentiary 

rulings. She also asserted that the Division’s conduct in preparing witnesses 

for the hearing compromised “the fundamental fairness of the hearing.” Resp’t 

Post-hr’g Br. at 245. 

Due process is afforded in Commission administrative proceedings.

Bebo asserted that in this administrative proceeding she was given

inadequate time to prepare her defense; lacked sufficient access to evidence

and witnesses compared to a similar action in federal court; and, because the 

Federal Rules of Evidence and Federal Rules of Civil Procedure did not apply, 

unreliable evidence was admitted against her. Resp’t Posthr’g Br. at 238–41, 

247–51.

The Supreme Court has held that the Due Process Clause requires “some 

form of hearing ... before an individual is finally deprived of a property 

interest.” Matthews v. Eldrigde, 424 U.S. 319, 333 (1976). “The fundamental 

requirement of due process is the opportunity to be heard ‘at a meaningful time 

and in a meaningful manner.’” Id. (quoting Armstrong v. Manzo, 380 U.S. 545, 

552 (1965)); see also Jonathan Feins, Exchange Act Release No. 41943, 1999 

WL 770236, at *7 (Sept. 29, 1999) (“Administrative due process is satisfied 

where the party against whom the proceeding is brought understands the 

issues and is afforded a full opportunity to meet the charges during the course 

of the proceeding.”).

The Commission’s Rules of Practice provide for a hearing that provides 

the meaningful process required by the Constitution. “[C]ourts have 
15

consistently held that agencies need not observe all the rules and formalities 

applicable to courtroom proceedings.” McClelland v. Andrus, 606 F.2d 1278, 

1285 (D.C. Cir. 1979). It is not a violation of due process that the rules permit 

the admission of evidence that would be excluded under the Federal Rules of 

Evidence. See EchoStar Comm’ns Corp. v. FCC, 292 F.3d 749, 753 (D.C. Cir. 

2002) (explaining that administrative agencies may consider hearsay if it 

appears reliable). Nor is it a violation that discovery is more limited than would 

be the case under the Federal Rules of Civil Procedure. See NLRB v. Valley 

Mold Co., 530 F.2d 693, 695 (6th Cir. 1976) (“It is well settled that parties to 

judicial or quasi-judicial proceedings are not entitled to discovery as a matter 

of constitutional right.”); see also Hill, 2016 WL 7032731, at *3 (“[T]he fact that 

the Federal Rules of Civil Procedure and the Federal Rules of Evidence do not 

apply in administrative proceedings is not a violation of due process.”); cf. Opp 

Cotton Mills, Inc. v. Adm’r of Wage & Hour Div. of Dep’t of Labor, 312 U.S. 126, 

155 (1941) (“[I]t has long been settled that the technical rules for the exclusion 

of evidence applicable in jury trials do not apply to proceedings before federal 

administrative agencies in the absence of a statutory requirement that such 

rules are to be observed.”). The discovery permitted was not insignificant, and 

the entire record was sufficiently substantial to provide for a meaningful and 

vigorous defense of the allegations. 

As for the time allowed for preparation of that defense, the hearing was 

held over several weeks in April, May, and June 2015, four to six months after 

the OIP was issued. Moreover, the issuance of the OIP was not the first 

moment Bebo learned of the allegations against her. She was aware of the 

Commission’s investigation from at least October 2013, when the Division first 

took her investigative testimony. In June 2014, the Division informed her that 

it was recommending an enforcement action against her, and she made her 

first of three Wells submissions in August 2014. In any event, the 

Commission’s remand order afforded Bebo the opportunity for a new hearing 

and consequently more time to prepare a defense. The parties instead agreed 

to proceed with the record created in the first hearing, with minor exceptions, 

so Bebo cannot continue to claim that she was afforded insufficient time. 

Regardless of the opportunity provided on remand, the time provided did not 

violate due process.

Evidentiary rulings did not violate due process.

Bebo asserts that various evidentiary rulings made during the hearing 

were unfair and prejudicial. These rulings include allowing the Division to 

admit declarations as evidence, admitting unreliable evidence, partially 

quashing a third-party subpoena sought by Bebo, prohibiting certain questions 

on cross-examination of witnesses, and denying the opportunity to seek 
16

discovery of possible spoliation of evidence by a third party. Resp’t Post-hr’g 

Br. at 249–62.

The parties’ agreement for the conduct of the proceeding on remand 

provided that, with several narrow exceptions, no new discovery would take 

place. Bebo, 2018 SEC LEXIS 3561, at *2–8. This waived any objection to the 

denial of discovery about spoliation. The parties agreed to preserve objections 

to the admissibility of admitted evidence for review by the Commission but did 

not contest the bulk of those decisions following remand. Id. at *8 (“As to 

evidence that was previously admitted in the record, all admissibility 

objections would be preserved for Commission review. However, all evidence 

previously admitted would remain admitted for the purpose of [the presiding 

judge’s] review and the parties would continue to be able to make arguments 

about the weight or relevance of such evidence.”). Because I have not been 

asked to review the admissibility of this evidence, it would be inappropriate to 

find that the evidence’s admission was a violation of due process. In any event, 

as the Commission may cure procedural and evidentiary errors upon de novo 

review, Bebo’s disagreement with prior rulings is not a valid basis for 

dismissal. See Ronald S. Bloomfield, Securities Act Release No. 9553, 2014 WL 

768828, at *10 & n.54 (Feb. 27, 2014), pet. denied, 649 F. App’x 546 (9th Cir. 

2016).

Bebo has not established misconduct by the Division.

Bebo argues that the Division improperly influenced witnesses during the 

investigation by mentioning criminal referrals and the Fifth Amendment 

privilege against self-incrimination. Resp’t Posthr’g Br. at 242–45. Bebo also 

asserts that certain witness testimony reflects rehearsal and is unreliable. Id. 

at 245–47. But Bebo points to no authority showing that the Division’s conduct 

was improper, and there is no evidence that any witness was coerced to testify 

falsely. As for witnesses, I independently reviewed the testimony and have 

reached my own conclusions about reliability.

* * *

Bebo’s due process objections are without merit.

The Milbank memoranda and notes help corroborate some testimony 

and resolve some inconsistencies.

The parties disagree about the weight and interpretation to be given to 

Milbank attorneys’ interview memoranda for those witnesses who testified live 

at the prior hearing, and, by logical extension, the notes underlying those 

memoranda. See, e.g., Div. Supp’l Post-hr’g Br. at 22-24 (Sept. 27, 2019); Resp’t

Supp’l Post-hr’g Reply Br. at 25-30 (Nov. 4, 2019); see also Jt. Supp’l Exs. 1 & 
17

2. The parties’ adopted stipulation is dispositive of the permitted use of the 

Milbank interview memoranda, as the parties agreed that the relevant 

memoranda “may be admitted into evidence and utilized by the parties for the 

purposes of identifying impeachment or corroboration material and 

supplemental briefing”; the parties also stipulated that no sponsoring witness 

was needed, the memoranda were prepared by Milbank attorneys in the course 

of an internal investigation, and they were not verbatim witness statements 

unless explicitly indicated by quotation marks. Bebo, 2019 SEC LEXIS 1836, 

at *3. 

There is no dispute that the witness statements in the interview 

memoranda and notes are hearsay. See Fed. R. Evid. 801(c); Hook v. Regents 

of Univ. of Cal., 394 F. App’x 522, 530–31 (10th Cir. 2010).4 In Commission 

administrative proceedings, the weight of hearsay evidence is evaluated based 

on several non-exclusive factors, including 

the motives or potential bias of the declarant; the 

availability and credibility of the declarant; whether the

statements are contradicted or consistent with direct 

testimony; the type of hearsay (e.g., sworn, written, 

attributable to an identified person); the availability of 

the missing witness and any attempts to compel witness 

testimony; and whether or not the hearsay is corroborated 

by other evidence in the record.

Amendments to the Commission’s Rules of Practice, 81 Fed. Reg. 50,212, 

50,226–27 (July 29, 2016); see also Hoska v. U.S. Dep’t of the Army, 677 F.2d 

131, 138–39 (D.C. Cir. 1982); Guy P. Riordan, Securities Act Release No. 9085, 

2009 WL 4731397, at *14 (Dec. 11, 2009), pet. denied, 627 F.3d 1230 (D.C. Cir. 

2010), abrogated on other grounds by Kokesh v. SEC, 137 S. Ct. 1635 (2017).

Although the Division argues that the memoranda are entitled to sparing 

weight, see, e.g., Div. Supp’l Post-hr’g Br. at 22–23, I find that they are 

 

4 Although the Federal Rules of Evidence do not govern admissibility in this 

administrative proceeding, City of Anaheim, Exchange Act Release No. 42140, 

1999 WL 1034489, at *2 (Nov. 16, 1999), those rules can provide helpful 

guidance on issues not directly addressed by the Commission’s Rules of 

Practice. Cf. Yanopoulos v. Dep’t of Navy, 796 F.2d 468, 471 (Fed. Cir. 1986)

(“Although the Federal Rules of Evidence do not apply to Board hearings, they 

are a helpful guide to proper hearing practices.” (internal citation omitted)); 

Wheat, First Sec., Inc., Exchange Act Release No. 48378, 2003 WL 21990950, 

at *12 n.55 (Aug. 20, 2003) (“Even if the Federal Rules of Evidence applied, the 

law judge properly admitted the evidence as non-hearsay.”).
18

generally helpful for the parties’ agreed purposes. First, the interviews were 

taken more than two-and-a-half years before the hearing, when memories were 

presumably fresher. Second, the documents’ authors were Milbank attorneys, 

who are ostensibly skilled in conducting and memorializing interviews in the 

context of internal investigations. Here, I can do more than just presume 

counsel’s skill. Having reviewed the various memoranda, I find them to be 

creditably detailed accounts of information disclosed during the interviews. 

Although Milbank was hired by ALC, there is no indication that they were 

directed or encouraged to reach a particular result. Insofar as I cite statements

from the memoranda in this decision, those statements have been evaluated

against the hearing record for consistency and corroboration, considering

possible witness bias or motives.

Interestingly, while Bebo generally advocates reliance on the Milbank 

memoranda, when it comes to her Milbank interviews, she asks that I reject 

the Division’s use of the memo to impeach her, because it:

(i) was the first time Bebo was interviewed in-depth about 

these issues, (ii) occurred over three years after she 

contacted the Board and its members about employee 

leasing, (iii) was conducted prior to Bebo having the 

benefit of having her recollection refreshed with a 

multitude of materials, (iv) was focused on events (e.g., 

the Ventas lease and employee leasing) that were 

generally immaterial from her and ALC’s perspective and 

thus unlikely to be at the forefront of her recollection, and 

(v) focused on events and conversations that occurred in 

an extremely condensed time period.

Resp’t Supp’l Post-hr’g Reply Br. at 35. 

Yet, these objections pertain equally to every other individual interviewed 

by Milbank. Cf. id. Even if this was Bebo’s first in-depth interview, there is no 

indication that she was taken by surprise about the subject matter. In addition, 

Bebo, among other witnesses, appeared with her own chosen counsel when 

interviewed by Milbank. Although in no instance do I find that the Milbank 

memoranda are, by themselves, dispositive, they still serve to corroborate

certain points made by witnesses, as well as to help resolve certain 

inconsistencies. Although I do not rely on it in this decision, for the purpose of 

establishing the record evidence, this reasoning also applies to Joint 

Supplemental Exhibit No. 2, which contains the handwritten attorney notes 

underlying the memoranda. 
19

Bebo’s testimony often lacked credibility.

The Division disputes Bebo’s credibility, and it is best to address the issue 

as a preliminary matter. The Division claims that “Bebo was impeached 

approximately 35 times over the course of the hearing.” Div. Post-hr’g Br. at 

45 (Aug. 3, 2015) (citing transcript passages where claimed impeachment 

occurred). In addition to the instances of impeachment, the Division notes that 

while on the witness stand, Bebo repeatedly evaded questions by providing 

non-responsive information, and failed to “provide concise answers to simple 

questions.” Div. Post-hr’g Br. at 45 n.20. The Division also claims that Bebo’s 

account to Milbank, as detailed in Milbank’s interview memo, contained

thirteen statements that were inconsistent with her hearing testimony. See

Div. Supp’l Post-hr’g Br. at 24–26 (citations omitted). As detailed below in my 

factual findings, Bebo’s testimony was often contradicted by the recollections 

of other witnesses and her own prior testimony. When Bebo lacked credibility 

on relevant issues, I indicate the evidence supporting my credibility 

determinations.

I do disagree with the Division on one point. The Division argues that 

“Bebo’s best friend, Bucholtz, testified that she knew Bebo to ‘twist the truth’ 

and had ‘lied to get what she wanted.’” Div. Post-hr’g Br. at 45 (citing Tr. 3016–

17). This testimony, however, relates mainly to an instance of dishonesty that 

is unconnected to the Division’s allegations. This one instance does not mean 

that Bebo was lying under oath at the hearing to “get what she wanted.”

Findings of Fact

I base the following factual findings on the entire record per the parties’ 

agreement regarding alternative procedures, see Pending Admin. Proc., 2018 

WL 4003609, at *1; on their stipulations, see 17 C.F.R. § 201.324; and on facts 

officially noticed from filings in the Commission’s EDGAR database and 

publicly available court filings, see id. § 201.323; Global Network Commc’ns 

Inc. v. City of N.Y., 458 F.3d 150, 157 (2d Cir. 2006) (public court filings); 

Helpeo, Inc., Exchange Act Release No. 82551, 2018 WL 487320, at *4 n.37 

(Jan. 19, 2018) (EDGAR filings). I apply preponderance of the evidence as the 

standard of proof. See Rita J. McConville, Exchange Act Release No. 51950, 

2005 WL 1560276, at *14 (June 30, 2005), pet. denied, 465 F.3d 780 (7th Cir. 

2006). 

Relevant parties and witnesses

ALC and its CEO Bebo and CFO Buono

Assisted Living Concepts, Inc., was a publicly traded company that 

operated assisted living facilities. Ex. 2 at 6. It began trading on the New York 
20

Stock Exchange under the ticker name ALC in 2006. Id. It ceased trading in 

2013 when TPG Capital, L.P., took it private. See ALC, Current Report (Form 

8-K) (July 16, 2013). 

During the pertinent period, Laurie Bebo was ALC’s CEO and president, 

as well as a member of its board of directors. Tr. 1764, 1767. She worked as a 

senior executive at ALC’s predecessor company and served as ALC’s CEO until 

her termination in May 2012. Tr. 1764–65. John Buono was ALC’s chief 

financial officer (CFO) and treasurer from approximately 2007 until 2013, 

when ALC was taken private. Tr. 2311. 

ALC-Related Witnesses

David Hennigar was ALC’s chairman of the board, and through his family 

members’ ownership of a holding company, he held beneficial control of a 

majority of ALC’s voting shares. Tr. 547–48, 3821–23; see, e.g., Ex. 2073 at 14–

16 (original document pagination). Alan Bell, Derek Buntain, and Charles 

Roadman II were members of ALC’s board and its audit committee from 2006 

until it went private. Tr. 546, 1353, 2559–60. Melvin Rhinelander was vice 

chairman of ALC’s board and the former CEO of ALC’s previous parent 

company. Tr. 2796–97. 

Eric Fonstad was ALC’s general counsel and secretary from 2006 until 

late 2010. Tr. 1296. Mary Zak-Kowalczyck was ALC’s senior corporate counsel 

from 2006 until 2013. Tr. 4331. Sitalakshmi Natarajan worked as a payroll 

specialist and then payroll manager at ALC (and its successor) from 2011 until 

the hearing. Tr. 468–69. Robin Herbner was ALC’s field accounting manager 

from 2006 until 2009. Tr. 510–11. Sean Schelfout was a treasury manager at 

ALC for about four years starting in 2007. Tr. 965–66. Daniel Grochowski 

served as director of tax and then director of treasury for ALC between 2006 

and 2014. Tr. 1083–84. Anthony Ferreri was ALC’s assistant controller 

between 2005 and 2014. Tr. 1221–22. Jared Houck worked at ALC from 2007 

until 2014 with increasing responsibilities in the company’s operations. Tr. 

1463–65. Kathy Bucholtz held various positions within ALC and its 

predecessor from 1997 until 2013, finally serving as vice president of sales and 

marketing. Tr. 2934–35. David Hokeness was ALC’s director of internal audits 

from 2006 to 2013. Tr. 3036. Joy Zaffke was Bebo’s executive assistant from 

2006 until 2012, and Gale Bebo is Bebo’s mother and was an occasional standin receptionist at ALC. Tr. 3208, 3241–43. John Lucey was ALC’s director of 

financial reporting during the relevant time period. Tr. 3678. Jason Dengel 

worked at ALC as an accounts receivable specialist between 2011 and 2013. 

Tr. 3908.
21

Bruce Davidson was a corporate law partner at Quarles & Brady, who 

worked with ALC on corporate and securities matters. Tr. 2289–90. Melissa 

Koeppel and Jeffery Robinson were audit partners at Grant Thornton, ALC’s 

external auditor; Koeppel led the audits between 2006 and 2010 and Robinson 

led them starting in 2011. Tr. 3307, 3382.5 James Trouba was the concurring 

reviewer on the audits from 2010 until 2013. Tr. 3565–66. 

Ventas and Related Witnesses

Ventas, Inc., is a real estate investment trust with a “portfolio of seniors 

housing and healthcare-related properties.” Ventas, Annual Report at 1 (Form 

10-K) (Feb. 29, 2008); see Tr. 159. Eight of its numerous facilities were operated

by BBLRG, LLC (CaraVita), pursuant to a lease in Alabama, Florida, Georgia, 

and South Carolina. Tr. 165; Ex. 1. 

Timothy Doman was Ventas’s senior vice president and chief portfolio 

officer of asset management, and worked there from 2002 through the hearing 

date. Tr. 159–60. Joseph Solari was Ventas’s managing director of acquisitions 

from 2007 to 2009. Tr. 399–400. Joy Butora was an asset manager at Ventas. 

Tr. 891–92. 

ALC enters the Ventas lease and discloses it on Form 8-K.

In 2007, Bebo took part in negotiating an agreement between ALC and 

Ventas under which ALC would lease eight CaraVita facilities from Ventas 

and acquire their operations. Tr. 167–69, 1777; Ex. 1. ALC operated 8,535 

assisted living units as of December 31, 2007, and the Ventas facilities added 

541 residential units to ALC’s operations. See ALC, Annual Report at 3, 23 

(Form 10-K) (Mar. 12, 2008). ALC’s operation of the Ventas facilities was 

governed by a lease that subjected ALC to extensive, mandatory covenants. 

See Ex. 142 §§ 7.2.1, 8.1–.2.

The lease included “financial covenants” specifying occupancy and 

“coverage ratio” requirements. See id. § 8.2.5. The lease defined “coverage 

ratio” as each facility’s cash flow for an applicable period (generally, resident 

rental income) divided by ALC’s rent payments to Ventas for that facility. Id.

at B-5. For example, if occupant rental income was equal to ALC’s rent 

 

5 Although it does not inform my decision in this case, I note that Koeppel 

and Robinson were barred from practicing before the Commission as 

accountants, and Grant Thornton was sanctioned, in part because of their 

actions related to ALC’s audits. See Melissa K. Koeppel, CPA, Exchange Act 

Release No. 76537, 2015 WL 7755467 (Dec. 2, 2015); Grant Thornton, LLP, 

Exchange Act Release No. 76536, 2015 WL 7755463 (Dec. 2, 2015).
22

payments, the “coverage ratio” would be 1.0, which can also be described as a 

ratio of 1:1. As another example, if occupant rental income was only half of 

ALC’s rent payments, the “coverage ratio” would be 0.5, or a ratio of 1:2. 

Specifically, the lease required that ALC satisfy: (1) 65% quarterly 

occupancy at each individual Ventas facility; (2) 75% trailing twelve-month 

(TTM) occupancy at each individual facility; (3) 82% TTM occupancy for the 

eight facility portfolio; (4) a 0.8 TTM coverage ratio for each facility; and (5) a 

1.0 TTM coverage ratio for the entire portfolio. Id. § 8.2.5. Although occupancy

was not a defined term in the lease, Ventas deemed it important that facility 

operators calculate occupancy consistently over time in their reports. Tr. 323–

24, 332–33. ALC calculated occupancy based on the number of occupied units, 

which was determined using a system called TIPS. Tr. 512, 516, 2795. TIPS 

tracked paying residents and counted a unit as occupied if a lease agreement 

or payment rendered a resident financially responsible for it. Tr. 512–13, 

3028–29. ALC used TIPS to generate each facility’s financial statements and 

occupancy data, and the data in TIPS was verified through periodic field 

audits. Tr. 512, 516, 519. For each facility, the number of occupied units was 

divided by the total number of units, yielding that facility’s occupancy 

percentage. Tr. 516, 519. This was ALC’s standard occupancy calculation 

method, and it never included employees who stayed at non-Ventas properties 

in those properties’ occupancy calculations. Tr. 830, 3010, 4545–46. 

The lease required ALC to demonstrate its compliance with the financial 

covenants within 45 days of the end of each quarter by providing Ventas with 

schedules documenting compliance with the financial covenants, and financial 

statements for each facility and the portfolio, prepared in accordance with 

generally accepted accounting principles (GAAP). Ex. 142 §§ 25.3, 25.4. Ventas 

required GAAP-compliant financial statements so it could rely on the 

information prepared by ALC. Tr. 896; Ex. 142 §§ 25.1–.4. The lease also 

required that an ALC executive certify the completeness and accuracy of the 

information by signing an officer’s certificate and providing it to Ventas with 

each quarterly production. Ex. 142 § 25.4 and at Ex. D; Tr. 2323–24; Exs. 32–

45. 

In addition to the detailed reports following the close of each quarter, the 

lease also required ALC to promptly notify Ventas of any covenant’s breach. 

Ex. 142 § 8.2.3(a).

If ALC failed to meet any of the numerous requirements imposed by the 

lease, including the above-listed financial covenants, Ventas was entitled to: 

(1) terminate the entire lease; (2) evict ALC from all eight facilities; and (3) 

require ALC to pay damages equal to the net present value of the unpaid rent 
23

for the remaining term of the lease (through March 2015) for the entire 

portfolio. See id. §§ 17.1–.4.

In addition, section 33 of the lease provided that “[a]ll notices, demands, 

requests, consents, approvals and other communications ... shall be in writing 

and delivered” to Ventas’s “Lease Administration” and its “General Counsel,” 

unless Ventas designated another official. Id. § 33 (emphasis added). Although 

Ventas’s CEO encouraged Bebo to consider Solari a Ventas point of contact 

during a conversation that did not involve discussion of covenants, Tr. 1859, 

there is no indication that he was ever designated in lieu of Ventas’s lease 

administration and general counsel for lease communications contemplated by 

section 33. Solari’s own actions and testimony validate this, as he took no 

action involving an email following a January 2009 meeting that will be 

discussed below and instead turned it over to Doman and William Johnson, 

Ventas’s asset manager. Tr. 427–28; see Ex. 184 at 1; Ex. 1343 at 1. Even if 

Solari were the designee, that arrangement would have ended upon Solari’s 

termination from Ventas later in 2009. See Ex. 1116. Given section 33, Bebo 

knew that notices or requests were required to have been in writing to specific 

Ventas officials, and that various actions would have only become effective 

upon written disclosure to Ventas, and, in some cases, when approved in 

writing by Ventas. See Tr. 1781–82.

Bebo knew Ventas had been unwilling to give up these covenants and 

other key provisions in the lease negotiations, and that Ventas had 

communicated that ALC could either “take it or leave it.” Tr. 552, 1299, 1777; 

Ex. 1572. Before ALC decided to enter the lease, Buono warned Bebo that he 

was concerned about the covenants. Tr. 2313–14. In an email, he wrote that it 

had been difficult working with Ventas and Solari and he expected any 

potential relationship would be adversarial. Ex. 140. At that time, ALC did not 

try to negotiate more favorable financial covenants or consequences of 

noncompliance. Tr. 2317–20. 

Bebo was a forceful proponent of the Ventas lease, and presented it to 

ALC’s board for acceptance Tr. 548, 1354, 1778, 2803, 2936–37, 3885–86. 

Despite Bebo’s zeal, Fonstad and board members Bell and Buntain advocated 

against the lease because it contained provisions, including the financial 

covenants, that were unfavorable to ALC. Tr. 550–52, 1298–1300, 1355–57, 

1779–80, 2320, 2804, 3900–01. In response, Bebo assured the board that ALC 

would meet the covenants. Tr. 551, 1781, 2640–41, 2804–05. Based on Bebo’s 

assurances, the board—except for Bell and Buntain, who abstained—voted to 

enter into the lease. Tr. 552–53, 1356–57, 2805. After reviewing the lease in 

its entirety, Bebo signed the lease on behalf of ALC. Ex. 142; Tr. 168–69, 1781–

82.
24

In Commission filings, Ventas had touted the financial covenants in its 

leases as protection against nonpayment of rent. See, e.g., Ex. 2069 at 5; Tr. 

309; see also Ventas, Annual Report at 46, 74–75 (Form 10-K) (Feb. 29, 2008) 

(Ventas evaluates “collectibility” of “amounts receivable from third parties” 

based on “compliance with the financial covenants set forth in the ... lease 

agreement, ... the financial stability of the applicable ... tenant and any 

guarantor and ... the payment history of the borrower or tenant”). Bebo was 

aware of this because of her experience in the industry and periodic review of 

Ventas’s SEC filings. Tr. 4047–51. 

There is also evidence, however, that the consequences for breaching the 

covenants would be limited. Doman testified that it was Ventas’s practice to 

monitor operators more closely if they breached occupancy covenants, rather 

than seeking more drastic remedies. Tr. 265–67, 281–82, 379–80. Rhinelander 

stated that he never had any concern about the financial covenants, because if 

“you blow through” one, it was “no big deal.” Jt. Supp’l Ex. 1 at 108. 

Rhinelander stated that he would not have expected Ventas to try to accelerate 

rent or expel ALC for a covenant default because Ventas would not want to 

have to find a new tenant; it instead would want to keep a lessee that was 

paying rent. Id. At most, he believed that ALC would have to pay “a few 

dollars” when renegotiating lease terms and business would continue as usual. 

Id. Other witnesses testified that financial covenant violations under leases or 

loans usually get resolved with minimal adverse consequences to the tenant or 

debtor. Tr. 2298–99 (Davidson’s testimony that notices of default were treated 

on a case-by-case basis), 3568 (Trouba’s testimony about practices at audit 

clients when covenants violated), 3634–36 (David Smith’s expert testimony 

that in financial covenant breaches, “lenders rarely pursue a remedy as harsh 

as an acceleration”), 3660–63 (Smith’s testimony indicating “substantial 

evidence that in the wake of financial covenant violations, lenders do not 

pursue remedies like acceleration, forcing into bankruptcy, foreclosing”); Ex. 

2185 at 10–11 (expert report of John Durso, stating that the conditions of the 

2008 to 2012 economic crisis affected senior-care facilities industrywide and 

“demanded flexibility” between landlords and tenants of the facilities).

There is no indication on this record that Ventas ever sued a tenant for a 

financial covenant violation or that anyone at ALC, despite concerns, believed 

that Ventas would necessarily seek rent acceleration in response to a financial 

covenant violation. Moreover, in August 2011, ALC stated in public 

correspondence to the Division of Corporation Finance “that in the unlikely 

event of a breach, the consequences would be less severe than those disclosed.” 

Ex. 295 at 122837; see ALC, Correspondence (Aug. 4, 2011). Thus, although the 

explicit terms of the lease contemplated rent acceleration or other adverse 

consequences, the evidence shows that by no later than August 2011 it was 
25

more likely than not that the marketplace would have known that the adverse 

consequences referenced in the lease were unlikely. 

On January 7, 2008, ALC filed a Form 8-K announcing its entry into the

lease with Ventas, which it termed a material definitive agreement. Ex. 1. The 

Form 8-K, which attached the lease as an exhibit, specifically disclosed the 

financial covenants and the consequences if ALC failed to comply. Ex. 1 at 2 

(of 135 PDF pages). It also attached a press release stating that the residences 

“are currently 92% occupied with all private pay residents and are expected to 

generate post acquisition annual revenue ... of $18.0 million.” Id. at 133. The

lease remained important to ALC’s bottom line throughout 2008; ALC

disclosed in its annual report that its occupancy would have declined if not for 

the Ventas properties. ALC, Annual Report at 22–24, 57 (Form 10-K) (Mar. 6, 

2009).

Through year-end 2011, ALC’s public filings disclosed the amount of 

unpaid rent ALC could have to pay Ventas if it failed the covenants—

approximately $16 million to $26 million. See Ex. 2 at 30; Ex. 3 at 38; Ex. 4 at 

42; Ex. 5 at 45; Ex. 6 at 34; Ex. 7 at 36; Ex. 8 at 38; Ex. 9 at 45; Ex. 10 at 32; 

Ex. 11 at 36; Ex. 12 at 37; Ex. 13 at 43. Additionally, ALC recorded an 

“operating lease intangible asset” on its financial statements, which 

represented the present value of the future income streams associated with the 

Ventas facilities. At year-end 2009, ALC valued that intangible asset at $11.57 

million. Ex. 5 at F-15.

Bebo knew that Ventas viewed occupancy and coverage ratios as indicia 

of whether ALC could make its rent payments. Tr. 178, 401, 908–09; Ex. 190 

at 3; Ex. 198. Ventas also knew that in the future it would need to find a new 

tenant to operate the facilities, and future tenants would pay higher rents for 

facilities with better occupancies and cash flows. Tr. 175–76, 381–82, 961–62. 

For these reasons, Ventas reviewed and scrutinized the covenant calculations 

and financial information provided quarterly by ALC. Tr. 191–97, 404–05, 

894–95, 897–98; Exs. 46–60, 147. Ventas also communicated to ALC that it 

wanted to preserve the value of its properties while ALC ran them. Tr. 2326–

27; Ex. 198. In addition to scrutinizing the covenant calculations, Ventas held 

quarterly conference calls or meetings with Bebo and Buono and periodically 

visited the facilities to monitor performance. During these discussions, Ventas 

staff asked detailed questions about the financial performance of its facilities. 

Tr. 197–208, 899–908, 910–32, 2295–97; Exs. 144, 147, 207, 208, 215, 217, 240, 

241, 279, 300, 301. 
26

Bebo knew ALC would likely default on the financial covenants.

Occupancy declined quickly after ALC began operating the Ventas 

facilities in 2008. Tr. 750, 2327–28, 3958. Due to that year’s great recession, 

occupancy rates at assisted living facilities declined nationwide, and did not 

stabilize until late 2012. Ex. 2185 at 10 & Ex. A; see Tr. 3185–86. Bebo, Buono, 

and members of ALC’s accounting department regularly reviewed and 

monitored occupancy and coverage ratios at the Ventas facilities to prepare the 

required quarterly documentation. Tr. 838, 1839, 2321, 2327–28; Ex. 150. As a 

result, Bebo knew occupancy was trending downward throughout 2008 and, 

for the purpose of the covenants’ trailing twelve-month calculations, that ALC

“could be running into problems with the covenant calculations” and was losing 

its best chances to post impressive financial results. Tr. 1849, 1859–60, 3958–

59; Ex. 160; Ex. 3252 at 3. 

By August 2008, Bebo and Buono began discussing whether ALC should 

purchase the Ventas facilities to avoid the ramifications of missing the 

covenants. Tr. 1840–41; Ex. 3015. 

ALC’s board required Bebo and Buono to regularly report on ALC’s 

compliance with the covenants. Tr. 557, 576–78, 1357, 1785–86, 2321–22, 

2807–08; Ex. 98 at 5; Ex. 150. In addition to the initial concerns raised by Bell 

and Buntain, Bebo understood that ALC’s board and chairman Hennigar 

considered it important to know whether ALC was complying with the 

financial covenants. Tr. 1785–86, 1834. At each board meeting following ALC’s 

entry into the Ventas lease through February 2012, Bebo and Buono reported 

and presented PowerPoint slides showing that ALC was in compliance with

the covenants. Tr. 554–55, 1357, 1837, 2322, 2641–42, 2808.

At the August 2008 board meeting, the directors questioned Bebo and 

Buono about the Ventas facilities’ declining occupancy and the implications of 

breaching the covenants. Ex. 150. In response, Bebo approved a memo 

distributed to the board before its November 2008 meeting, advising that: 

“breach of any of the occupancy or financial coverage covenants would entitle 

Ventas to terminate the Lease ... and require payment of the present value of 

unpaid future rental amounts.” Id. at 1; Tr. 2811–12. That memo observed that 

“[t]he immediate concern revolves around occupancy. We have deployed a team 

of sales persons to the Southeast region who are immediately focused on 

improving census at Greenwood Gardens and Peachtree Estates.” Ex. 150 at

4; see also Ex. 567 (listing “SE Task Force Responsibilities”). At the November 

2008 meeting, to address the board’s concerns about declining occupancy, Bebo 

told the board she would attempt to improve occupancy by sending a 

“taskforce” of ALC employees to the Ventas facilities to improve sales and 

operations. Tr. 559–60, 2328–30, 2812–13, 2939, 3070–74, 4725–26; Ex. 97 at 
27

4; Ex. 150 at 4; Ex. 567. Bebo did not tell the board she would include the 

taskforce members in the covenant calculations. Tr. 560, 2645, 2813. The task 

force resulted in a small number of ALC employees, for a limited period, 

traveling to and rotating their stays at Ventas facilities to boost occupancy by 

improving facilities’ performance. See Jt. Supp’l Ex. 1 at 45. 

After the November 2008 board meeting, Bell asked Buono to attempt to 

negotiate with Ventas for relief from the financial covenants. Tr. 2330, 3045; 

see Ex. 156. Buono investigated the accounting implications of obtaining “a 

modification or waiver” of the covenants in exchange for ALC accelerating its 

lease payments to Ventas. Tr. 2330–31; Ex. 152. Buono expected Bebo to make 

a covenant relief proposal at a meeting Bebo requested in late November 2008 

with Ventas’s CEO, Debra Cafaro. Tr. 1850, 2331–33. On November 18, Buono 

emailed Bebo his recommendation to seek a suspension of the covenants, and 

Bebo planned to discuss this proposal at their meeting with Cafaro. Tr. 1851–

53, 1855–56; Ex. 156. However, when they met with Cafaro, Bebo dodged any 

discussion of the covenants, and afterwards Buono expressed his 

disappointment. Tr. 410–13, 1856, 1858–59, 2333–34. ALC did not discuss 

covenant relief with Ventas in 2008. Tr. 412–13, 1859. 

By the December 16, 2008, board meeting, Bebo and Buono believed that 

ALC would eventually default on the covenants. Tr. 2334–35. Herbner, ALC’s 

field accounting manager who prepared occupancy projections in advance of

the meeting, also believed ALC would violate the covenants unless occupancy 

markedly improved. Tr. 754. At the meeting, Bebo told the board that ALC 

would meet the covenants as of the end of the year. Tr. 560–61, 753–54, 1861–

62, 2335–36; Ex. 98 at 5. On December 19, 2008, Buono emailed Bebo and again 

recommended ALC attempt to negotiate covenant relief with Ventas and 

consider buying some Ventas properties as a negotiating strategy. Tr. 2336–

37; Ex. 164. On December 30, 2008, Buono learned that another assisted living 

company that leased facilities from Ventas would be purchasing those 

properties from Ventas for a very high price. Tr. 2337–39. Buono alerted Bebo 

that he believed the reason the company was paying such a high price was 

because it ran into “covenant issues” with Ventas. Tr. 1864, 2337–39; Exs. 165, 

166.

Bebo begins considering a scheme to include ALC employees and 

other nonresidents in covenant calculations.

In January 2009, Bebo began mulling the idea of including ALC employees 

in the covenant calculations because of the intensifying challenge of satisfying 

them with actual residents. Tr. 1865–66, 1900–01, 2339, 3046–47. The genesis 

of Bebo’s idea was her discovery that at least one CaraVita employee had 

previously signed a lease and was living at one of the Ventas facilities. 
28

Tr. 1882–83, 3993–94. Bebo did not know whether CaraVita had ever included 

an employee who was leasing a unit in a facility in the covenant calculations, 

and never bothered to find out, although she believed one was included. 

Tr. 1885–87, 3994; see Jt. Supp’l Ex. 1 at 16. But there is no other evidence 

that ALC’s predecessor ever counted one of its employees who leased a room 

toward the covenant calculations. Buono similarly learned, in early 2009, that

CaraVita had a few employees staying in units at its properties. Jt. Supp’l Ex. 

1 at 17, 58.

In addition to the handful of employees in the taskforce, ALC required 

certain employees who traveled to its properties, including the Ventas 

facilities, to spend the night there rather than at a hotel. Tr. 1551, 1874–77, 

1878–79, 2966–67. These included regional management staff, financial 

management staff, and marketing, information technology, and finance 

personnel. Tr. 1306, 1551. 

At that time, Fonstad was aware of an effort by ALC to send personnel to 

the Ventas properties to “improve operations ... in addition to the usual 

practice of sending people to ... visit the properties.” Tr. 1305–06. Fonstad 

recalled that information technology and financial personnel were among those 

who traveled to improve operations. Tr. 1306. He testified that the number was 

as many as 12 to 15 before decreasing. Tr. 1306. Fonstad understood the 

program’s focus to be standardizing operations and giving home office 

personnel field experience. Tr. 1307. 

At some point, Fonstad learned of “a discussion where the idea was 

brought up that ... if employees stayed at the [Ventas] facilities, they should 

be able to be included in the covenant calculations.” Tr. 1307. Fonstad believed 

Bebo’s proposal was restricted to the limited number of ALC employees who 

actually stayed at the Ventas facilities. Tr. 1305–09, 1314, 1316–17. 

ALC general counsel advises Bebo about her idea of including 

employees in the covenant calculations.

Bebo sought Fonstad’s advice on whether the lease permitted ALC to rent 

rooms to employees and include such employees in the covenant calculations. 

Tr. 1307–08, 1888–90, 2339–40, 3994–95. Fonstad testified that while 

discussing Bebo’s proposal, he learned Bebo would have a call with Ventas and 

discuss including employees in the covenant calculations. Tr. 1309–10. 

Because Fonstad had concerns that the lease did not permit this, he drafted a 

memorandum in a January 19, 2009, email with his legal advice and sent it to 

Bebo. Tr. 1310; Ex. 1152. 

Fonstad’s memorandum is framed as an inquiry about the provisions of 

the lease that could impact ALC’s ability to rent rooms to employees and 
29

relatives. It points out that the lease limits the uses of the Ventas facilities, 

but that Ventas may agree to employee renting after discussion and written 

agreement. Ex. 1152 at 1. Fonstad’s email then discussed particular lease 

provisions in varying degree of detail. Id. 

Fonstad noted that the lease’s section 7 required ALC to use the Ventas 

facilities only for their “Primary Intended Use” and to “operate each Facility in 

a manner consistent with its current operation as a quality health care 

facility.” Ex. 1152 at 1; see also Ex. 142 § 7.2.1. The memorandum explained 

that because the primary use of most locations was assisted living care and 

only one facility was designated for independent living, renting rooms for 

lodging could be inconsistent with the facilities’ intended uses; nevertheless,

Ventas might agree that limited rentals to employees would be consistent with 

designated operations. Ex. 1152 at 1; Tr. 1314, 1319–20; see Ex. 142 at 

Schedule 1.3, B-14 (defining the primary intended uses of the facilities). 

Fonstad used the term “limited” to describe “rental to employees” for two 

reasons: (1) he understood Bebo proposed “a limited number of employees” and 

(2) he anticipated that Ventas would not agree to “an unlimited number of 

people” and instead “would want to have some limit on it.” Tr. 1314. Fonstad 

believed that Ventas would want to limit the number of ALC employees housed 

at the facilities because the lease protected the Ventas facilities’ primary 

intended uses and Ventas would be concerned if they were used significantly 

for other purposes. Tr. 1314. When he drafted the memorandum, Fonstad did 

not understand that, at any one time, ALC would propose to include 75 to 100 

employees in its covenant calculations. Tr. 1317. 

Fonstad also discussed the lease’s prohibition on ALC entering into 

transactions with affiliates unless in the ordinary course of business, with 

terms disclosed to Ventas in advance, and “on terms no less favorable than 

would be obtained in a comparable arms-length transaction” with someone 

unrelated to ALC. Ex. 1152 at 1; Ex. 142 § 8.1.3. According to Fonstad, the 

lease’s broad definition of an “affiliate” would include ALC’s employees, agents, 

and anyone with a so-called “reason to go” to a facility on behalf of ALC. 

Ex. 1152 at 1; Ex. 142 at B-2. Fonstad strove to convey to Bebo that 

transactions with affiliates required advance disclosure to Ventas. Tr. 1313. 

Fonstad speculated that “Ventas may not object to renting units to employees 

and relatives of ALC employees, especially if rents are the same as we charge 

nonaffiliated persons.” Ex. 1152 at 1.6

 

6 It is worth noting, however, that the lease language requiring terms “no 

less favorable” is not necessarily limited to rent. Ex. 142 § 8.1.3. Tenants were 

also required to have approved residency agreements covering the terms of the 
30

Next, Fonstad wrote that “Section 24.1 of the lease prohibits subleasing 

all or any part of any Leased Property.” Ex. 1152 at 1; see Ex. 142 §§ 24.1, .2. 

As a result, renting rooms to employees without an approved residency 

agreement would have arguably been a sublease prohibited by sections 24.1 

and 24.2.

Fonstad also alerted Bebo to the fact that the lease “may only be modified 

by a writing signed by both” Ventas and ALC. Ex. 142 § 42.6 (emphasis added); 

Ex. 1152 at 1. 

Fonstad concluded his email by informing Bebo she should send Ventas a 

letter confirming an understanding that her program was acceptable to Ventas 

after getting verbal agreement. Ex. 1152 at 1; see Tr. 1315. Although Fonstad 

did not reference the lease’s covenant sections in the body of his email, that is 

unsurprising, given that the lease provisions he did discuss were preconditions 

to Ventas agreeing to count ALC employees or others for purposes of the 

occupancy covenants. Fonstad did, however, include language about the 

occupancy covenants in the draft template he attached to his email, which was 

essentially a draft letter that ALC could finalize and send to Ventas in the 

event Ventas agreed to ALC’s proposal. Ex. 1152 at 2. Fonstad’s template 

stated in part: 

This letter confirms the understanding we reached about 

the interpretation of certain terms of the [lease] ...

[ALC] proposes to rent a limited number of units to 

employees of [ALC] for the purpose of facilitating their 

ability to assist in operating the [Ventas facilities]. ... It 

is not expected that the number of units rented to ALC 

employees would exceed ___ at any one time. Rents paid 

would be the same as charged to unrelated parties.

In addition, from time to time, relatives of ALC employees 

may become residents of one or more of the Facilities. The 

rentals would be on terms no less favorable than would be 

obtained in comparable arms-length transactions with 

unrelated parties.

 

tenancy, including the payment of a security deposit. Id. § 8.1.11(f), B-2. If ALC 

was to rent to employees, it would have needed the same agreements with 

them to ensure that they were being treated no differently than unaffiliated 

third parties.
31

The units would only be considered occupied for purposes 

of the minimum average occupancy covenants[—but not 

the coverage-ratio covenants—] for the days that rent is 

actually paid.

Ex. 1152 at 2 (blank space in original). 

Fonstad’s draft letter referenced a “limited number” of rented rooms for 

the same reasons he described previously: he “thought that Ventas would 

require that there be a limit, and also that was what [he] understood was the 

proposal that ALC was going to make.” Tr. 1316–17. 

Similarly, when he drafted the template, Fonstad did not know ALC would 

propose to include employees in the covenant calculations outside of the time 

periods they spent at Ventas facilities. Tr. 1317. Fonstad understood that ALC 

employees could not be included in covenant calculations if they did not 

actually stay at the Ventas facilities; his understanding was that Bebo’s 

proposal hinged on including employees “in the calculation if they stayed at 

the facility.” Tr. 1308. Bebo did not ask Fonstad if the lease permitted including 

employees in the calculations when they did not visit the Ventas facilities 

during the reporting period, so Fonstad did not tell her whether it was legally 

permissible. Tr. 1308–09. Fonstad testified that Bebo never discussed with him 

the idea of including the same employees at multiple facilities or employees 

who had a reason to go to the Ventas facilities—but did not actually go—in the 

covenant calculations. Tr. 1308–09, 1509.

Fonstad referred to relatives in the template because the discussion he 

had with Bebo included the possibility of her mother staying at a facility and 

Bebo’s belief that she should be included in the calculations if that occurred. 

Tr. 1318. Other than Bebo’s mother, Fonstad does not recall Bebo mentioning 

any other ALC relatives she “proposed to be included in the covenant 

calculations.” Tr. 1318. 

Fonstad testified that he referenced the occupancy covenants because “it 

was important that it clearly state that the ... proposal was that these 

individuals ... would be included in the covenants, and that was the important 

element.” Tr. 1319. Bebo testified that Fonstad advised her that Ventas needed 

to agree so that ALC could include employees in the covenant calculations. Tr. 

1895. 

Fonstad’s template then asked Ventas to agree and confirm that ALC’s 

proposal was allowable under the lease, specifically referencing sections 7.2.1 

and 8.1.3. Ex. 1152 at 2. Fonstad, who believed the lease required a signature 

to document Ventas’s acceptance, concluded his draft letter with a blank 
32

signature block for Ventas to sign if it accepted the proposal. Tr. 1319–20; 

Ex. 1152 at 2. 

Bebo and Buono speak to Solari by phone on January 20, 2009.

On January 20, 2009, the day after Fonstad’s email, Bebo and Buono

participated in a telephone call with Solari. Tr. 413–14, 2342–43. Before the 

call, Buono emailed Bebo to warn her that ALC was either in violation of the 

covenants at some of its facilities for the fourth quarter of 2008, or in danger 

of missing their occupancy targets for the first quarter of 2009. Tr. 1899–1900; 

Ex. 174 at 1–2. There is no evidence that Bebo or Buono gave Solari any 

advance notice of the issues they planned to discuss at the meeting.

Solari and Buono testified consistently about the call. Solari said the two 

topics discussed were: (1) subleasing units at one of the Ventas facilities to a 

hospice provider; and (2) whether ALC corporate employees traveling to the 

facilities could overnight there instead of at hotels. Tr. 414. Buono agreed, 

recalling discussion of the potential hospice sublease and a proposal to have 

ALC employees stay at the Ventas facilities. Tr. 2344. Neither recalled any 

discussion of the occupancy or coverage ratio covenants. Tr. 416, 2344.7 Solari 

was emphatic that he would have remembered a request to include ALC 

employees in the covenant calculations because it is “outlandish” and would 

“circumvent the integrity of the financial covenants.” Tr. 417, 422–23. Solari 

further testified that he would have never agreed to the proposal, as he lacked 

the authority to do so without the approval of his boss or maybe Ventas’s CEO, 

and in fact, that he did not agree to any of Bebo’s proposals over the phone. 

Tr. 409–10, 415–18. Buono confirmed that Solari did not agree to anything 

during the call, and that Solari asked for proposals to be made in writing. 

Tr. 2344–45.

Bebo’s version of the call differed in significant respects from Solari’s and 

Buono’s. According to Bebo, Solari agreed that ALC, at Bebo’s discretion, could 

include an unlimited number of employees and others who had a “reason to go” 

to the facilities in the covenant calculations, even if: (1) those employees did 

not actually stay at the facilities; (2) ALC did not disclose to Ventas the number 

of employees included in the calculations; and (3) ALC, instead of the 

employees, “paid” rent for the units. Tr. 1904, 1907–09, 1912–13.

 

7 In his interview during the Milbank investigation, Buono was less sure 

about what Bebo had told Solari on the call, and suggested that long-term 

leases to ALC employees were discussed. Jt. Supp’l Ex. 1 at 64. Still, he did not 

recall Bebo telling Solari that employee leases would be used to meet 

occupancy covenants. Id.
33

However, Bebo concedes she spent more time discussing the hospice 

sublease proposal on the call than the issue of employees leasing rooms. 

Tr. 1914. She also concedes she never told Solari that: (1) ALC would fail 

covenants without including employees; (2) no cash would change hands for 

the employee-leased rooms; (3) ALC would treat a room as occupied for an 

entire month even if the employee stayed there for only one night or never 

stayed there at all; (4) most of the rooms ALC would include in the calculations 

would never be occupied; (5) Bebo’s friends and former ALC employees would 

be included in the calculations; and (6) the same employee could be included at 

multiple facilities during the same time period. Tr. 1903, 1920–23, 4007–08.

I do not credit Bebo’s version of what Solari agreed to during the call for 

several reasons. For one, as discussed below, none of it was reflected in the 

email she later prepared that summarized the call. If Bebo had really obtained 

a sweeping agreement from Solari allowing anyone who had a reason to go to 

the facilities to be included in the covenants, surely she would have 

memorialized it. Yet, despite Bebo’s claims to the contrary, Tr. 4010–11; Resp’t 

Supp’l Post-hr’g Reply Br. at 27, there is no evidence she took contemporaneous 

notes of the call with Solari that support her account. Bebo did not mention the 

existence of any such material to the Milbank investigators, and they 

determined that no documents were lost or erased. See Jt. Supp’l Ex. 1 at 20–

21; Tr. 627–28; Ex. 558 at 1. Even if Bebo took notes that were later lost, it is 

hard to fathom why she did not use them to at least ensure that the email sent 

to Solari two weeks later reflected her understanding of what he actually 

agreed to on the call. See Tr. 4011 (Bebo claimed that she last saw the notes in 

April 2012). Relatedly, if Solari had indeed agreed to major concessions during 

the call, it seems peculiar that Bebo and Buono would have waited an entire 

week just to begin drafting a follow-up message to Solari.

Second, according to Buono, Solari usually negotiated “with the premise 

that [Ventas] will not ‘give away’ anything.” Ex. 140 at 1. Giving up so much 

on the call would have been out of character for him. Solari credibly testified 

that he lacked the authority to agree to covenant changes anyway. Tr. 416.

Third, it appears she told the Milbank investigators a different story: that 

the call was only about whether ALC could rent units to its employees, and not 

about including employees in the covenant calculations. Jt. Supp’l Ex. 1 at 20–

21. Although Bebo told the investigators that Solari said he did not care how 

many employees rented units, agreeing to allow unlimited employee rentals on 

an arms-length basis is very different than agreeing to allow ALC to include 

employees in covenant calculations. Id. at 21.

Finally, the other two participants did not recall the call in the way Bebo 

did, and she fails in her attempt to undermine their testimony. To begin with, 
34

Bebo’s assertion that Buono’s testimony corroborates her account is 

unpersuasive. See Resp’t Supp’l Post-hr’g Br. at 9–10. Contrary to her claim 

that Buono testified that Solari “expressed no concern” about ALC paying for 

employee apartments, Buono actually testified that “Solari never said 

anything one way or the other” because “it wasn’t part of the discussion.” Id. 

at 9; Tr. 4657–58. At best, Buono’s testimony demonstrates the absence of any 

agreement by Solari. That Buono himself understood that ALC intended to pay 

for the employee apartments is beside the point. See Tr. 4657, 4659. Similarly, 

Buono simply testified that in 2009, he thought Ventas was aware that ALC 

was “going to put employees ... into the properties” and that “a reasonable 

person would only think we’d do that in order to meet covenants”; he never 

testified that Solari or Ventas had agreed to anything. Tr. 2489–90; cf. Resp’t 

Supp’l Post-hr’g Br. at 9. Further, although it may be true that by including 

employee rooms in the covenant calculations from 2009 to 2012, Buono “acted 

consistent with the belief that there was an agreement with Ventas,” see Resp’t 

Supp’l Post-hr’g Br. at 10, that does not mean he actually believed one existed; 

he may have acted as he did for any number of reasons, including out of fear 

that he would be fired if he did not follow Bebo’s directions. See Tr. 2348. 

Bebo has not made a compelling showing that Buono testified falsely about 

the call with Solari because the Division made him aware of evidence that Bebo 

“blamed things on” him; Buono could not recall what those “things” were at the 

hearing, which suggests they lacked significance. See id.; Tr. 2434–35, 2490–

91. In any event, even if Buono’s testimony were influenced by his settlement 

with the Commission or by matters the Division told him—although there is 

no evidence that the Division acted inappropriately—there are plenty of other 

reasons to be skeptical of Bebo’s account of the call with Solari.

Similarly, Bebo lacks support for her skepticism of Solari’s account. Bebo 

argues that the Milbank memorandum demonstrates that Solari agreed to 

employees renting rooms, see Resp’t Supp’l Post-hr’g. Br. at 18; Ex. 1879 at 4; 

Tr. 3480, but the Milbank investigators did not speak to Solari, and instead 

noted only that a lawyer for Ventas said that Solari could not deny Bebo’s 

account of the call. Ex. 1879 at 4; Tr. 3480. It is likely that Solari could not 

deny Bebo’s account because at the time of the investigation, he could not recall 

the telephone conversation having taken place. See Tr. 451–52. The call took 

place over three years before the Milbank investigation—by which time Solari 

had long ceased to be employed by Ventas—and there is no indication that 

Solari took notes of the call. See Tr. 3480. Unlike at the hearing, there is also 

no indication that during the Milbank investigation, Solari was provided with 

the follow-up email Bebo sent him, which may well have reminded him about 

the call. See Ex. 1879 at 4. However, by the hearing, with his recollection 

refreshed, Solari testified about the call as described above. See Ex. 175; 
35

Tr. 413–14, 450–51. Although Bebo contends that Solari’s “recollection of the 

call is inadmissible and should be given no weight” because of his “failed 

memory,” Resp’t Post-hr’g Br. at 82, memory almost always fades over time, 

and Solari was ultimately able to remember some basic details of the call after 

being refreshed. Contrary to Bebo’s suggestion, there is no evidence that the 

Division wrote Solari’s testimony for him. See Resp’t Post-hr’g Br. at 82. I find 

his recollection credible because it corresponds in substance with the email 

Bebo sent him two weeks after the call and with ALC’s practice of lodging select 

traveling employees at facilities in lieu of hotels.

Bebo contends that Fonstad also participated in the call with Solari, but I 

find it more likely than not that he did not participate. Tr. 1504–05 (Fonstad 

did not recall being on the call with Solari); Jt. Supp’l Ex. 1 at 81 (According to 

the Milbank investigation, Fonstad only “later heard that a conversation 

between Bebo and Buono and Ventas had gone well”). However, Fonstad may 

have been in the room while the call took place. Tr. 2781–82 (Buono 

acknowledged that he previously testified that Fonstad was in the room during 

the call); Ex. 2122 at 2 (notes memorializing Buono’s proffer where he stated 

that Fonstad was in the room); Tr. 3217–18 (Zaffke, Bebo’s executive assistant, 

testified that Fonstad was in Bebo’s office during the call). Still, because 

Fonstad’s general practice was to take notes of meetings he participated in, the 

lack of notes strongly suggests that even if he was present, he did not 

participate. Tr. 1304. 

Whether Fonstad was involved in the call or not, Bebo did not rely on his 

advice when ultimately including employees and others in the covenant 

calculations as discussed below. Fonstad testified that he never gave Bebo 

additional legal advice about using employees for covenant compliance beyond 

what was in his original memorandum. Tr. 1508. No other memo from Fonstad 

exists, and his general practice as ALC’s general counsel was to put legal 

advice to management in a written memo. Tr. 1304. At the hearing, Fonstad 

testified that “no one told” him “that ALC had started using employees to meet 

the Ventas lease covenants” and that he had not approved of the practice. 

Tr. 1507–08; see also Jt. Supp’l Ex. 1 at 81 (also unaware of the inclusion of 

“phantom” employees who never stayed at the properties). Although Fonstad 

understood that ALC and Ventas shared “a good working relationship” and 

that “Ventas was not holding ALC to the letter of the lease with respect to 

reporting requirements,” Fonstad had told Bebo and Buono that “it was 

important to get Ventas’s consent in writing” before “including employee leases 

in the covenant calculations.” Jt. Supp’l Ex. 1 at 81; Tr. 633–34 (Fonstad 

advised Bebo that ALC should not enter into the “employee arrangement” 

unless there was a “written confirmation agreement” with Ventas); Ex. 558 at 

4. Buono recalled that Fonstad’s advice made him believe that ALC’s rental of 
36

rooms to employees or individuals for use in covenant calculations was 

“kosher,” Tr. 4651–53, but the other evidence suggests that Fonstad probably 

only meant it was “kosher” if ALC management followed his advice and 

obtained Ventas’s written consent. See Jt. Supp’l Ex. 1 at 81. Even according 

to Bebo’s account of the call—which I discount—she only had an oral 

agreement with Solari.

Bebo follows up by email with Solari.

A week later, on January 27, 2009, Buono prepared an initial draft of an 

email to Solari to follow up on the call. Tr. 2467–70, 2756–58; Exs. 179, 1320A. 

Buono recalls that Fonstad was present when he drafted the email, but there 

is no testimony or documentary evidence about Fonstad’s role in composing the 

draft. Tr. 2354, 2468. Significantly, Buono did not copy Fonstad when he 

emailed Bebo his draft. See Ex. 1320 (cover email). The draft email does not 

mention the Ventas lease covenants and does not seek to memorialize any 

agreement made by Solari during the call; rather, it merely confirms a 

notification that ALC will be renting “rooms to employees and/or family 

members ... in the ordinary course of business and on terms no less favorable 

than would be obtained in a comparable arms-length transaction with an 

unrelated third party.” Ex. 1320A. At the hearing, Buono explained that he 

assumed Solari would “reasonably think” that ALC wanted to include the 

employees it rented to in the covenant calculations and that the proposal 

“makes no sense” otherwise. Tr. 2758. However, Buono admitted that there 

was never any direct indication from Solari confirming that Ventas understood 

it in the same way. Tr. 2489–90, 2496.

Further, Buono’s assumption that “there would be no other reason to put 

[ALC employees] in the [Ventas] houses other than to put them in the 

calculations” was not entirely reasonable. Tr. 2487. As noted, ALC generally 

required certain lower-level employees who traveled to its properties (Ventasowned or not) to spend the night there in lieu of staying at a hotel, presumably 

because ALC achieved cost or productivity benefits by doing so. Tr. 1551, 1874–

79. Indeed, the context of the call with Solari and the request for legal advice 

from Fonstad in part concerned whether ALC could temporarily house 

employees in the facilities where they were working. Tr. 1550–51. Thus, there 

may very well have been reasons unrelated to the occupancy covenants to 

house ALC employees at the facilities. 

Bebo collaborated with her friend and ALC’s vice president of sales and 

marketing, Bucholtz, to edit Buono’s draft summarizing the call, and she sent 

it to Solari on February 4, 2009. Tr. 1931–35, 2934, 2949–50, 2987–92; Exs. 

184, 1320, 1320A, 1343. She copied Buono on the email, but not Fonstad, 

further suggesting that Fonstad did not participate in the call. See Ex. 1343 at 
37

2. The email is similar to Buono’s draft and is overwhelmingly devoted to 

seeking advanced written approval of exceptions to specific lease provisions 

implicated by a hospice sublease at the Peachtree facility. See Ex. 1343 at 2. It 

devotes only a single paragraph (about one-tenth of the email) to ALC renting 

rooms to its employees:

In addition to the potential hospice lease, we are also 

confirming our notification of our rental of rooms to 

employees. We confirm that all rentals related to 

employees are in the ordinary course of business and on 

terms no less favorable than would be obtained in a 

comparable arms-length transaction with an unrelated 

third party.

Ex. 1343 at 2.

Like Buono’s draft, the email purports to “confirm[]” ALC’s “notification” 

about employee rentals, but makes no reference to any agreement by Solari, 

further suggesting that Solari did not agree to anything on the call. Id. There 

is no mention of rentals to any nonemployees, such as family members, friends, 

or other persons with a “reason to go.” See Tr. 1904. In fact, the only difference 

between Buono’s draft of this portion of the message and the final version is 

that Bebo took out the language about potential rentals to “family members” 

in addition to “employees.” Compare Ex. 1320A, with Ex. 1343 at 2. Because 

the email speaks of the proposed rental terms as comparable to “arms-length 

transaction[s],” there is no indication, for example, that ALC intended to rent 

rooms for employees who would not pay for them. Ex. 1343 at 2. Unlike the 

discussion of the hospice sublease, there is also no discussion of other lease 

requirements such as primary intended use, subleasing, or anything that 

would be relevant to the ways ALC actually ended up conducting the employee 

rentals. More important, there is no discussion of the financial covenants. 

Finally, unlike the hospice proposal, Bebo’s email does not ask for Ventas to 

take any action or follow up on the notice of ALC’s planned rentals to 

employees. See id. (Bebo concludes her email by asking Solari to “call at [his] 

earliest convenience to address any questions ... related to this potential 

hospice relationship”).

Solari responded to Bebo the same day and copied Buono and Johnson, 

advising that “Bill Johnson will be following up with you and/or John with any 

questions or requests for further information regarding this matter.” Id. at 1. 

As Buono reasonably testified, Solari’s response does not indicate that Ventas 

agreed to include ALC employees in covenant calculations. See Tr. 2346. At 

most, one can infer from Solari’s response that “Ventas would consider the 

employee leasing arrangement.” Jt. Supp’l Ex. 1 at 59. Similarly, when 
38

Johnson wrote to Bebo and Buono on February 13 (copying other Ventas 

employees) asking to schedule a call about the hospice opportunity ALC 

wanted to pursue, there is no indication that Ventas approved of Bebo’s 

notification about employee rentals, and there is no proof that Ventas knew 

about or agreed to ALC including employees in the covenant calculations. Ex. 

1343 at 1. I do not credit Bebo’s testimony that Ventas’s silence confirmed its 

agreement that ALC could include in the calculations (both occupancy and 

coverage ratio) an unlimited number of employees who did not actually stay at 

the facilities, as long as those employees had a “reason to go.” Tr. 1938, 1942.

Other evidence from February 2009 does not indicate that ALC had an 

agreement with Ventas about including employees and others in the covenant 

calculations. On February 8, 2009, Hokeness, ALC’s director of internal audit, 

drafted a memorandum intended for Bebo, Buono, Fonstad, and ALC’s audit 

files. Ex. 1129 at 1; Tr. 3036. It is unclear whether the memo was ever finalized

and circulated. See Tr. 3052–53, 3122–23 (Hokeness did not recall circulating 

the memo); but see Tr. 4046–47 (Bebo recalled receiving the memo in hard 

copy). In the memo, Hokeness discussed “alternative strategies to improve 

occupancy” and meet the lease covenants that management looked at, 

including “sub-leases to hospice companies ... and using the available units to 

house certain ALC employees on site specifically to assist the local team.” 

Ex. 1129 at 1–2. Hokeness explained that although the “lease arrangements 

with Ventas do not provide for employees to be considered as residents[,] [i]t is 

my understanding that Ventas is aware of and had approved our treatment of 

employees as residents as it pertains to the fourth quarter covenant 

calculations.” Id. at 2. Yet all Hokeness’ memo proves is that someone, such as 

Bebo or Buono, told him that Ventas had approved of counting employees for 

covenant compliance. It does not show that an agreement between Ventas and 

ALC actually existed.

Similarly, Buono’s comments at a February 13, 2009, ALC disclosure 

committee meeting, where he told the committee that “Ventas lease covenants 

continue to be monitored and correspondence between ALC and Ventas has 

occurred whereby the covenant calculations have been clarified as to census,” 

Ex. 124 at 3, do not indicate any agreement with Ventas about counting 

employees in the covenant calculations. First of all, it is not completely clear 

what Buono meant at the committee meeting. Even if he was talking about an 

agreement with Ventas to include employees in covenant calculations, Buono 

testified at the hearing that he may have been referring to the subtext he had 

read into Bebo’s conversation with Solari, namely, “that Ventas would realize

[employees] could be put in the covenant calculations.” Tr. 2496 (emphasis 

added). There is no indication, however, that there was any written agreement 

with Ventas to that effect.
39

Bebo orders ALC staff to include nonresidents in the covenant 

calculations but to not disclose that fact to Ventas.

Each quarter, pursuant to the lease, ALC sent Ventas a package of 

materials documenting its compliance with the covenants. Tr. 749; Exs. 32–45. 

Following the January 20, 2009, call with Solari, when ALC was working on 

its calculations for the fourth quarter of 2008, Bebo directed Buono to include 

ALC employees and their attendant revenue in those covenant calculations, 

even though Ventas had not agreed to their inclusion and ALC’s board had not 

approved the practice. Tr. 754, 1974–77, 2347–48, 2351; see Ex. 32. They 

discussed that the practice “had to be something real” and that ALC could only 

include “employees that were staying at the properties.” Tr. 2348. Bebo 

directed Buono not to inform Ventas of the practice or to provide Ventas with 

calculations that revealed the inclusion of employees and associated revenue. 

Tr. 2348–49, 4669–70. Buono followed Bebo’s directives because he felt he 

would be terminated if he disobeyed. Tr. 2348. 

Robin Herbner was responsible for preparing the covenant calculations 

and the quarterly materials that ALC sent to Ventas. Tr. 511, 519, 749–50. For 

the fourth quarter of 2008, Bebo and Herbner understood ALC would include 

only employees who actually stayed overnight at the Ventas facilities. Tr. 756–

57, 1989. To perform the calculations, after the quarter had ended, Herbner 

gathered information from Bebo showing which employees had stayed at the

Ventas facilities, and for what days. Tr. 756–57, 798–802; see also Tr. 2944–

46, 2993. Herbner performed her calculations on an Excel spreadsheet that she 

referred to as the occupancy reconciliation tab. Tr. 791–93; see, e.g., Ex. 17.

Herbner calculated the revenue associated with the employees and 

reported the information to assistant controller Ferreri, who posted journal 

entries to record the revenue on ALC’s general ledger. Tr. 757–58, 803–04, 

807–08, 1221–22. Bebo determined the daily rate used for calculating revenue 

associated with the added employees. Tr. 806, 824. After Ferreri posted the 

journal entries, Herbner included the revenue associated with the employees 

in the financial materials sent to Ventas. Tr. 808–09. 

Bebo gave Herbner a directive like the one she gave Buono: ALC’s

documentation to Ventas need not disclose ALC’s use of employees in the 

covenant calculations. Tr. 2088–89. Accordingly, Bebo understood Ventas 

could not figure out that ALC included its employees in the covenant 

calculations from the quarterly information. Tr. 2087–88. 

Ferreri, for his part, supervised the posting of journal entries to ALC’s 

general ledger, including the ones that resulted from the occupancy 

reconciliation process. Tr. 1223–25. But the journal entries that resulted from 
40

occupancy reconciliation were not like normal journal entries. Prepared and 

posted after the end of the month, these entries recorded revenue on the 

accounts of the eight Ventas facilities, and recorded a corresponding amount 

of “negative revenue” in a corporate-level revenue account known as the 997 

account. Tr. 1225, 1227–28, 1236; Exs. 378–425, 427–450 (journal entries 

showing supposed nonresident revenue and offsetting negative revenue in the 

997 account). The two transactions offset, so there was no impact on ALC’s 

consolidated financial statements. Tr. 1230–31, 1240–41, 1244–45. Bebo 

understood this process. See Tr. 2031, 2061–62, 2065–66, 2067–68, 2771–72, 

4129–30, 4133–34, 4137–38, 4585–87. As a result, the nonresident occupants 

and additional revenue that ALC reported to Ventas were not reported in 

ALC’s periodic reports, which Bebo also understood. Tr. 2074–75, 2771–72. 

When Ferreri was assigned to post the employee revenue journal entries, 

he became anxious because of the unusual nature of the transactions, which 

Ferreri considered “definitely not consistent with GAAP.” Tr. 1227–28, 1243–

44. In his decades-long career, Ferreri had never seen an arrangement that 

involved offsetting positive and negative revenue, as opposed to the typical 

situation involving revenue and an offsetting expense. Tr. 1220–22, 1228, 

1253–54, 1261. Also, ALC accountants were otherwise not involved in posting 

revenue-related journal entries, which occurred automatically at the point a 

resident purchased a good or service. Tr. 1228–30. Ferreri’s concerns 

intensified when he eventually learned the journal entries related to the 

covenants in the Ventas lease. Tr. 1254. Because of his discomfort with the 

process, Ferreri requested either Buono or Bebo sign off on the nonresident

revenue journal entries. Tr. 1246–47. Before then, Ferreri never requested 

that a CEO or CFO approve a journal entry, and neither Bebo nor Buono had 

signed any other journal entries. Tr. 1246–48. Over the next three years, Bebo 

would ultimately sign many journal entries reflecting nonresident revenue and 

offsetting negative revenue in the 997 account. Tr. 2055–56, 2059–62, 2068–

69; see, e.g., Ex. 427 at 1 (of 5 PDF pages); Ex. 433 at 4 (of 8 PDF pages); Ex. 447

at 177174; Ex. 449 at 1 (of 5 PDF pages). 

ALC considers purchase of New Mexico properties from Ventas in 

exchange for covenant relief.

On February 17, 2009, Bebo and Buono discussed a new proposal with 

Solari for ALC to purchase two Ventas properties in New Mexico in exchange 

for Ventas waiving the occupancy and coverage ratio covenants. Tr. 429–31, 

1951–52; Ex. 188 at 2 (of 3 PDF pages). Solari told them “that eliminating the 

covenants entirely was not likely to occur, irrespective of their offer for [the 

New Mexico properties],” but encouraged them to submit a proposal. Ex. 188

at 2 (of 3 PDF pages). 
41

On February 19, Bebo emailed Solari an offer to purchase the two 

properties in exchange for revising the lease so that the facility coverage ratio 

would be temporarily waived and the portfolio-wide coverage ratio covenant 

would be reduced. Ex. 190 at 2–3 (of 3 PDF pages). She reassured Solari that 

ALC had “tried to address your concerns that the properties be managed to 

adequately support lease payments.” Id. at 3.

On February 21, Buono drafted a proposal for the board’s consideration 

that largely mirrored the terms proposed in Bebo’s February 19 email. 

Tr. 1950–51; Ex. 193 at 2–3 (of 3 PDF pages). Based on conversations with 

Solari, Buono mistakenly believed that ALC had reached a deal with Ventas. 

Tr. 2360–61; see Ex. 192. 

On February 23, ALC’s board met. Ex. 100. The minutes reflect that Bebo 

reported that ALC was in compliance with the Ventas covenants and that ALC

may seek covenant relief from Ventas in connection with the purchase of two 

New Mexico properties. Tr. 562–63, 1980–81, 2815–16; Ex. 100 at 2–3. Bebo 

acknowledges that she did not disclose that the reason ALC was able to meet 

the covenants was because it was already including employees. Tr. 1974. 

Despite the lack of corroboration in the board minutes or other evidence, 

Bebo testified that the board approved the practice of including in the covenant 

calculations rooms ALC rented for “people with a reason to go.” Tr. 1970–71; 

see generally Exs. 99–100. Five directors—Bell, Buntain, Hennigar, 

Rhinelander, and Roadman—testified that no one discussed including ALC 

employees in the covenant calculations at the February 23 meeting, and that 

the board did not approve the practice. Tr. 563–64, 566–67, 1363, 2646–48, 

2816, 2824; Ex. 492A at 55–56. Fonstad, who took the minutes, similarly 

testified that the inclusion of employees in the covenant calculations was never 

discussed. Tr. 1521–24. Buono also testified the board did not approve the 

inclusion of employees in the covenant calculations at that meeting. Tr. 2761.8

 

8 Buono testified that on February 23, 2009, before the board meeting, 

Rhinelander said that ALC “would do the employee leasing program.” Tr. 

2395–96; see also Jt. Supp’l Ex. 1 at 62 (according to Milbank, Buono recalled 

in early 2009 “participating in a meeting with Rhinelander and Bebo in Bebo’s 

office” where “Rhinelander said that ‘we’ll just add employees now’”). Bebo also 

testified at one point that she apprised Rhinelander of her plan in the presence 

of Herbner. Ex. 496 at 128–29. However, neither Rhinelander nor Herbner 

could recall the conversations described by Buono and Bebo. Tr. 841–42, 2822–

24. Rhinelander instead recalled a reference to ALC including employees in the 

Ventas covenant calculations in the fall of 2011, but did not understand what 
42

On February 25, Ventas countered with an offer that ALC purchase the 

two New Mexico properties plus another poorly performing property in 

exchange for temporarily waiving facility coverage ratios without reducing the 

portfolio-wide coverage ratio or waiving occupancy covenants. Tr. 224–26, 435–

36; Ex. 194; Ex. 196 at 81834–35. During a call later that day between Bebo, 

Buono, Fonstad, and Ventas representatives, Ventas executive Doman told 

ALC that Ventas “take[s] covenant violations very seriously.” Tr. 1514–16; 

Ex. 197 at 1 (of 3 PDF pages). 

ALC viewed the counter-proposal as unacceptable, so it never obtained 

even the temporary covenant relief offered by Ventas. Tr. 436–38, 2360–61; 

Ex. 198. ALC’s effort to obtain covenant relief reinforces the notion that Bebo’s 

recollection of her January 20 discussion with Solari is inaccurate. After Solari 

was dismissed in April 2009 as part of a reduction in force, Bebo admits that 

she never spoke with anyone else at Ventas about the use of nonresidents in 

the covenant calculations. Tr. 399–400, 460–61, 4074.

Under Bebo’s direction, ALC begins to include individuals who did not 

stay at the Ventas properties and who were not ALC employees in the 

covenant calculations.

After the New Mexico negotiations fell through, the occupancy 

reconciliation scheme continued and was expanded to compensate for declining

occupancy at the Ventas facilities. See Ex. 377 at 24–25 (ALC included over 

100 nonresidents by the end of 2009). Without including nonresidents, ALC 

would have repeatedly failed to satisfy the occupancy and coverage covenants 

for the facilities. Id. at 24–27. The process that Bebo oversaw to make up for 

these shortfalls, however, was no longer limited to actual ALC employees who 

actually stayed at Ventas properties. See generally Ex. 552A (summary exhibit 

showing nonresidents who should not have been included in the covenant 

calculations). 

As she did for the fourth quarter of 2008, Herbner performed the covenant 

calculations after the first two quarters of 2009 and provided the resulting 

 

the reference meant until March 2012. Tr. 2816–18. If Rhinelander did approve 

of employees leasing rooms, it logically would have been to house task force 

employees in available rooms to improve facility performance. See Tr. 2759–

61. Even if Rhinelander said what Bebo claims he did, it does not reflect 

knowledge of Bebo’s scheme to satisfy the covenant requirements. Bebo admits 

that in February 2009, before the board meeting, she had not yet determined 

to include large numbers of employees and others in the covenant calculations. 

Tr. 1989–90.
43

revenue amounts to Ferreri for ALC’s books. Tr. 811, 815–16, 824–25, 827–28. 

Unlike the fourth quarter of 2008, however, Herbner determined the number 

of employees by calculating the shortfall in occupied units and revenue needed 

to meet the occupancy and coverage ratio covenants. Tr. 816–17. Bebo 

understood this process. Tr. 1996–99, 2354–55. She even would sometimes

direct ALC accounting staff to get the coverage ratio above certain levels. 

Tr. 2374–75; Ex. 304 (“[Bebo] told us we need to get it over the .80X.”).

Once Herbner had calculated the number of nonresidents that needed to 

be included, Bebo provided Herbner with the names of nonresidents for her 

occupancy reconciliation spreadsheet. Tr. 816–17, 2350–53; see also Tr. 1994, 

1999–2000, 4076–77 (Bebo conceding she typically provided the names). 

However, Bebo no longer provided documentation showing the days, if any, 

that employees or other nonresidents actually stayed at the Ventas facilities. 

Tr. 816–17. Instead, Bebo directed that each nonresident be considered an 

occupant for at least a month, and normally the entire quarter. Tr. 989–90, 

2352. Thus, Bebo knew that ALC included nonresidents who did not visit or

stay at Ventas facilities. Tr. 1989–90, 2249–64. 

The names that Bebo selected for inclusion in the covenant calculations 

included:

(1) Bebo’s parents, both under her mother’s maiden name, 

Paremsky, instead of their surname “Bebo.” Tr. 2007–08; 

Ex. 167 at 12 (of 34 PDF pages). 

(2) Bebo’s husband, Nick Welter, and his friend, Kevin 

Schweer, who were never ALC employees, as occupants of 

multiple facilities at the same time. Tr. 2006–07, 2010–

12; Ex. 167 at 11–14 (of 34 PDF pages).

(3) Bebo’s friend and ALC executive, Bucholtz, who Bebo 

listed as an occupant of up to four facilities at once. 

Tr. 2014; Ex. 167 at 11–13 (of 34 PDF pages). 

(4) Bucholtz’s parents, brother, sister-in-law, and sevenyear old nephew. Tr. 2046–50; Ex. 237 at 5, 7 (of 45 PDF 

pages).

(5) Houck, an ALC executive and friend of Bebo’s who 

never stayed at the Ventas facilities. Tr. 1465, 1468–71; 

Ex. 21A, “2009 Q4 OU Recon” tab; Ex. 22A, “2009 Q4 OU 

Recon” tab. Bebo reviewed Houck’s expense reports 

showing that he stayed at hotels and not the facilities, yet 
44

simultaneously listed Houck as an occupant of five 

facilities at once. Tr. 1470–71, 1500.

(6) At least ten other ALC employees who did not stay at

and, in many cases, even visit the Ventas facilities. See 

Exs. 451–454, 462, 466, 468, 470–471, 473.

(7) Tim Cromer, who was never an ALC employee. 

Tr. 2053–55; Ex. 256 at 6–7 (of 51 PDF pages). Cromer 

was the husband of another ALC employee who herself 

was separately listed as an occupant of multiple facilities. 

Tr. 2054–55; Ex. 256 at 7–8 (of 51 PDF pages).

(8) Former ALC employees, future hires who had not yet 

started working for ALC, and full-time employees of the 

Ventas facilities, who lived nearby and had no reason to 

have rooms leased for them. See generally Ex. 552A.

Herbner became uncomfortable with this new process when Bebo directed 

her to include Bebo’s parents (using Bebo’s mother’s maiden name) and 

Schweer. Tr. 817–18, 852–53. It caused Herbner “great concern” because she

believed that Ventas would not have agreed and it was unclear whether they 

actually stayed at the Ventas facilities. Tr. 818–19, 843. 

Herbner was also concerned that ALC included the same employees at 

multiple properties during the same time period, as this conflicted with her 

preexisting understanding that Ventas had agreed employees could be 

included only if they stayed at the facilities. Tr. 819–20. She was never asked, 

by Bebo or others, to verify that the nonresidents included in the calculations 

were appropriately listed or had actually stayed at the facilities. Tr. 820–21, 

828–29. 

Herbner’s concerns were heightened when Bebo continued to have her 

conceal the occupancy reconciliation from Ventas. On July 28, 2009, a Ventas 

employee emailed Herbner seeking an explanation for the “significant 

increases in occupancy” at five of the Ventas facilities, which had resulted from 

occupancy reconciliation. Ex. 211 at 1 (of 2 PDF pages). When Herbner asked 

Bebo for assistance in answering the questions, Bebo admitted that she 

dictated reasons to give Ventas for the occupancy increases—none of which 

involved the true reason for the increases, the inclusion of employees. Tr. 833–

40, 2090–92; see Ex. 212.

Buono echoed Herbner’s concerns to Bebo each quarter as the number of 

nonresidents used to satisfy the covenants increased. He repeatedly warned 
45

Bebo that “this has to be real” and “I could go to jail if this is wrong, and I don’t 

look good in stripes.” Tr. 2365. 

In addition, Bebo herself concealed the occupancy reconciliation scheme 

from Ventas. When she participated in quarterly meetings with Ventas, Bebo

gave various reasons for the changes in occupancy and coverage ratios, but 

never disclosed the real reason. Tr. 227–37, 2101–02, 2366–71; see generally 

Exs. 207, 208, 280. When she did not participate, Bebo directed Buono how to 

answer Ventas’s covenant questions without disclosing that ALC included 

nonresidents. Tr. 2367–68.

Bebo also sought to ensure that Ventas was not aware of actual occupancy 

during its periodic inspections of the facilities. During site visits, Bebo and 

Buono accompanied the Ventas personnel and refused to allow ALC onsite 

employees to speak with the Ventas representatives. Tr. 2368–69. Bebo also 

told Buono that Ventas could not conduct the site visits during meal times, 

because Ventas may then learn the number of residents in the dining room was 

inconsistent with ALC’s reported occupancy figures. Tr. 2369. Likewise, Bebo 

admitted instructing Houck, who oversaw the operations of the Ventas 

facilities, to remove the name placards from outside of the residents’ rooms at 

one facility to prevent Ventas from counting the number of occupied rooms. See 

Tr. 1475, 4154–55. Before another site visit, Bebo told Bucholtz: “We really 

need the occupancy numbers to ‘pop.’” Ex. 569. Bebo later prevented Ventas 

from visiting the facilities altogether when, on December 11, 2010, Bebo 

emailed Houck that Ventas could not visit the facilities for the rest of the year

because she was “getting overly concerned” with occupancy at one of the 

facilities, which had fallen to 61%. Ex. 262; see Tr. 2099–100. 

Bebo made similar efforts to limit Grant Thornton from conducting its own 

periodic visits of the Ventas facilities. Specifically, in October 2009, when Bebo 

learned Grant Thornton wanted to visit certain Ventas facilities in the course 

of its audit, Bebo directed her staff that the auditor could not visit the Ventas 

facilities for the remainder of 2009. See Tr. 2093–98; Exs. 220, 223. In fact, as 

the Milbank investigators found, Bebo blocked Grant Thornton from 

communicating with Ventas. Ex. 558 at 8 (“GT wanted to talk to Ventas—Bebo 

said, no, GT can’t talk to Ventas.”).

Bebo’s expanded occupancy reconciliation scheme continues through 

the tenures of multiple finance department staff. 

Starting with the third quarter of 2009, Sean Schelfout, ALC’s treasury 

manager, took over for Herbner when she went on maternity leave. Tr. 845–

46, 965–66. Herbner trained Schelfout on how she performed occupancy 

reconciliation to “backfill” the number of employees needed to meet the Ventas 
46

covenants. Tr. 970–71, 973–75, 982–84; Exs. 141 at 2 (of 268 PDF pages), 383

at 1 (of 53 PDF pages). She taught Schelfout to obtain the names of the 

nonresidents from Bebo. Tr. 976–77. By this time, Bebo listed dozens of

employees at the Ventas properties each quarter. See Ex. 552A at 1 (of 27 PDF 

pages). Herbner also expressed her concerns about the inclusion of employees, 

which Schelfout shared. Tr. 846–47, 984.

Once trained, Schelfout continued the quarterly occupancy reconciliation 

process for ALC. He described the practice as “adding the employees that need 

to be added to achieve the occupancy ratio.” Tr. 980, 992, 1011. After 

determining the number of needed employees, Schelfout sent Bebo or Buono 

the occupancy reconciliation spreadsheet with placeholders, such as E3 and 

E4, for the employee names. Tr. 988–90, 998–99; see Ex. 230 at 1, 5–8 (of 53 

PDF pages); Ex. 236 at 1, 5–8 (of 45 PDF pages); Ex. 387 at 1, 5–8 (of 56 PDF 

pages). Bebo then determined the names of the employees. Tr. 999–1001, 

1009–10; see Ex. 167 at 11–14 (of 34 PDF pages); Ex. 237 at 1, 5–8 (of 45 PDF 

pages). 

Schelfout originally thought he would be responsible for the calculations 

only while Herbner was on leave, but she gave notice she was taking another 

job a week after returning from leave because she “didn’t want to advance at a 

company that was constantly pushing the edges of regulators” with practices 

like occupancy reconciliation. Tr. 844–45, 882, 971. Schelfout ultimately 

performed the calculations from the third quarter of 2009 through the fourth 

quarter of 2010. Tr. 978–79, 1017. 

When Schelfout assumed responsibility for the calculations, he became 

concerned the practice was not legitimate. Tr. 979–80, 985. Once Herbner 

resigned, Schelfout began looking for a new job due to his discomfort. Tr. 979, 

1063. His concerns intensified when he realized ALC was including: (1) 

employees who were not staying at the facilities; (2) the same employees at 

multiple properties; and (3) people who were not ALC employees, including 

Bebo’s husband. Tr. 980–982, 997–98. Schelfout performed the calculations 

despite his concerns because he feared being fired if he confronted Bebo and 

Buono or disclosed the use of employees to Ventas. Tr. 984–85, 986–87, 1027–

28. Given the scarcity of finance jobs in Milwaukee and the poor state of the 

economy, Schelfout did not get a job offer for more than a year. Tr. 1030–31. 

He accepted the first offer he received, and resigned from ALC. Tr. 985, 1030.

After tendering his resignation, Schelfout trained Grochowski, ALC’s 

director of tax and treasury, on how to “back in” the occupancy numbers as

Herbner had taught him. Tr. 1029–30, 1084, 1091–95. Schelfout also told 

Grochowski not to inform Ventas that ALC employees (or other nonresidents)

were being included in the calculations. Tr. 1095–96, 1207.
47

When Schelfout left ALC in January 2011, Grochowski assumed 

responsibility for performing the covenant calculations for the next three 

quarters. Tr. 1090–91, 1105. Grochowski was uncomfortable with the entire 

process, which he characterized as “fudg[ing] numbers,” “inflating revenue,”

“lying to Ventas,” and “creating false financial statements.” Tr. 1097–1101. 

Like Schelfout, he had concerns because ALC was including: (1) employees who 

did not travel to the properties; (2) the same employees at multiple properties; 

and (3) people who were not ALC employees. Tr. 1097–98. Like Buono, 

Grochowski worried that Ventas could sue him personally, because he emailed 

them ALC’s quarterly certifications. Tr. 1104–05. He therefore refused to 

follow Herbner’s and Schelfout’s practice of backing into the necessary number 

of employees, as he considered it to be “manipulation.” Tr. 1096–97. Instead, 

Grochowski determined how much actual occupancy had increased or declined 

over the prior month and told Buono, who then calculated the number of 

employees to add or subtract from the calculations. Tr. 1109–10. Bebo, 

however, still determined the names of the employees to be included on the 

occupancy reconciliation spreadsheet. Tr. 1113–14, 1126, 1128–31; see Ex. 302. 

On occasion, Grochowski crossed out the names of employees who no longer 

worked at ALC, knowing that this made Bebo’s job more difficult because she 

would have to come up with substitute employees. Tr. 1124–25. 

In November 2011, Grochowski and Ferreri confronted ALC management 

about their concerns because they were afraid they would lose their CPA 

licenses. Tr. 1151–52. They told Buono that they: (1) did not want to be 

involved in the covenant calculations anymore; (2) did not think ALC’s 

practices were appropriate; and (3) were concerned about their careers. 

Tr. 1152, 2375–76. 

Summoned by Bebo a few days later, Grochowski told her that he was not 

comfortable performing the calculations and he did not want to be involved. 

Tr. 1152–53, 2376–77, 4191. Grochowski told Bebo he was concerned the 

inclusion of nonresident employees and even nonemployees in the covenant 

calculations violated GAAP. Tr. 1153–55. Bebo tried to allay Grochowski’s 

concerns by showing him her February 4, 2009, email to Solari. Tr. 1157, 1159. 

Yet, Grochowski felt that the email only validated his concerns. Tr. 1159–61. 

When Grochowski refused to back down, Bebo said he no longer needed to 

perform the calculations. Tr. 1161–62. This was the first time Bebo allowed an 

employee to be relieved from participating in the occupancy reconciliation 

process. Tr. 2377. Following the meeting, Bebo awarded Grochowski a $35,000 

“stay-on” bonus. Tr. 4193. Only two other ALC employees received “stay-on” 

bonuses, and each received only $8,000. Tr. 4194, 4729–30. Thereafter, Buono 

performed the occupancy reconciliation process himself. Tr. 1162–63, 2376–78. 
48

After Grochowski confronted Bebo and was relieved of his duties related 

to the Ventas lease, Ferreri acquiesced to Bebo’s request that he continue

recording the pertinent journal entries, so long as Buono personally prepared 

the supporting schedules. Tr. 1256. Ferreri continued to record the entries 

because Bebo assured him the process was “proper and correct” and Ferreri 

feared being terminated if he refused to obey Bebo. Tr. 1260–61. 

Bebo fails to ensure that ALC properly disclosed its compliance with 

the Ventas covenants in its periodic reports.

As ALC’s CEO, Bebo had responsibility to ensure that ALC’s Commission 

filings were accurate. Tr. 1767–68, 3845. Bebo signed ALC’s Forms 10-K and, 

in each of the company’s Forms 10-K and 10-Q, certified that: (1) ALC’s filings 

did not contain any material misstatements or omissions; (2) ALC’s filings 

fairly presented in all material respects ALC’s financial condition, results of 

operation, and cash flows; (3) she designed or caused to be designed internal 

controls necessary to provide reasonable assurance regarding the reliability of 

financial reporting and the preparation of financial statements in accordance 

with GAAP; and (4) she had disclosed to the audit committee and auditors all 

significant internal control deficiencies and any fraud involving management. 

Tr. 1767–68; Ex. 2, Ex. 31.1; Ex. 3, Ex. 31.1; Ex. 4, Ex. 31.1; Ex. 5 at S-1 &

Ex. 31.1; Ex. 6, Ex. 31.1; Ex. 7, Ex. 31.1; Ex. 8, Ex. 31.1; Ex. 9 at S-1 &

Ex. 31.1; Ex. 10, Ex. 31.1; Ex. 11, Ex. 31.1; Ex. 12, Ex. 31.1; Ex. 13 at S-1 &

Ex. 31.1. Each Form 10-K also stated that its financial statements were 

prepared in accordance with GAAP. Ex. 5 at 46; Ex. 9 at 46; Ex. 13 at 44. And 

each time that Bebo was nominated to ALC’s board, the periodic report 

represented that she had the highest ethical standards. E.g., Ex. 2073 at 4, 11–

12; see, e.g., Ex. 13 at 52 (incorporating information about directors from proxy 

statement into annual report).

ALC’s Forms 10-K and 10-Q for 2009, 2010, and 2011 each represented 

that the company was “in compliance with all such covenants” in the Ventas 

lease and that a covenant default could have a “material adverse impact” on 

ALC’s operations, but warned that “declining economic conditions” could affect 

future compliance. Tr. 1770; Ex. 2 at 30; Ex. 3 at 38; Ex. 4 at 42; Ex. 5 at 45; 

Ex. 6 at 34; Ex. 7 at 36; Ex. 8 at 38; Ex. 9 at 45; Ex. 10 at 32; Ex. 11 at 36; 

Ex. 12 at 36–37; Ex. 13 at 43. In each Form 10-K, ALC also represented that it 

was in compliance with lease covenants requiring compliance with federal laws 

and regulations. Ex. 5 at F-15; Ex. 9 at F-16; Ex. 13 at F-24; see Ex. 142 §§ 8.2, 

8.2.1, 10.15. Bebo knew that ALC’s filings contained these representations 

when she signed or certified the filings, even though the filings were largely 

prepared by members of ALC’s disclosure committee. See Tr. 1568–69, 1767–

71. 
49

In July 2011, the Commission’s Division of Corporation Finance issued a 

comment letter asking about ALC’s disclosure regarding covenant compliance. 

Ex. 295. In response, ALC’s 2011 Form 10-K and its Forms 10-Q for the second 

and third quarter of that year contained an additional representation that the 

company “does not believe that there is a reasonably likely degree of risk of 

breach of the [Ventas] covenants.” Ex. 11 at 36; Ex. 12 at 36–37; Ex. 13 at 43; 

see Tr. 1772; see also Tr. 571–74, 2599–602, 2832–34; Ex. 295. The reports 

cautioned that use of believe indicated that what followed was a prediction 

subject to uncertainties. E.g., Ex. 13 at 50. An alternative response drafted by 

management, which was not even shared with most of the board, reached the 

opposite conclusion. Tr. 571–574, 1448–49, 2651–52, 2833–34. Compare 

Ex. 294, with Ex. 295. 

ALC conceals the occupancy reconciliation scheme from Ventas while 

Ventas explores the purchase of ALC.

In summer 2011, ALC was exploring a sale of the company and prepared 

due diligence materials for review by potential buyers, one of which was 

Ventas, in a secure, online data room. Tr. 2114–16, 2371–72, 2828–30. Among 

the data room materials were ALC’s internal occupancy figures for all of its 

properties, including the Ventas facilities. See generally Ex. 287. Bebo feared 

that Ventas would learn through the data room that actual occupancy was 

lower than that reported by ALC in the quarterly certifications. Tr. 2120–23, 

2126; Ex. 292 at 1 (of 8 PDF pages). For this reason, Bebo instructed ALC’s 

investment bank to prohibit Ventas from accessing the occupancy materials 

made available to the other diligence participants. Tr. 2116–17, 2829–32; 

Ex. 287 at 1 (of 14 PDF pages); Ex. 292 at 1 (of 8 PDF pages). 

During the due diligence process, Buono cautioned Bebo that the potential 

buyers performing due diligence would discover the negative revenue in the 

997 account, ask ALC where it came from, and then contact Ventas. Tr. 2372–

73. Bebo herself admitted that a potential investor in ALC would want to know 

whether a valid agreement existed to include employees in the covenant 

calculations. Tr. 2134–36. Bebo believed that neither ALC’s buyer nor Ventas 

would credit her purported agreement with Solari. Tr. 2128–34. Bebo and 

Buono determined that the only way to avoid scrutiny on this was for ALC to 

purchase the Ventas properties. Tr. 2373–74, 2835–36. 

Throughout the three years during which Bebo oversaw the 

occupancy reconciliation scheme, ALC’s board, disclosure committee, 

legal counsel, and independent auditors were largely unaware of it.

Bebo testified that by late 2009, she had informed the board of all the 

minutiae of her scheme. Specifically, Bebo claimed she told the board at its 
50

meeting for the third quarter of 2009 that: (1) ALC was including in the 

covenant calculations people who did not actually visit the Ventas properties; 

(2) Ventas had agreed that ALC could include an unlimited number of 

employees, so long as they had a “reason to go” to the facilities; (3) ALC was 

including large numbers of employees; (4) ALC was including nonemployees; 

(5) ALC was including employees who actually worked at, as opposed to visited, 

the Ventas properties; (6) ALC was including employees at multiple properties 

at the same time; and (7) ALC performed its accounting for the practice

through a process that included the cancelation of revenue through the 997 

account. Tr. 2023–32. Bebo agreed, however, that she: (1) “never told the board 

that ALC would violate the Ventas covenants without including employees”;

(2) “never told the board that [she was] including family and friends in the 

Ventas covenant calculations”; and (3) “never told the board the amount of 

people included in the covenant calculations who didn’t actually visit the 

Ventas properties.” Tr. 2035.

Bebo’s position stands in sharp contrast to the documentary evidence, the 

testimony of every other percipient witness, and, in some cases, her own 

testimony. Directors Bell, Buntain, Hennigar, Rhinelander, and Roadman 

each testified they were not aware of the actual nature and extent of Bebo’s 

scheme until the March 2012 meeting. Tr. 564–71, 1360–61, 1455, 2592–93, 

2645–46, 2648–51, 2816–22; Ex. 492A at 53–56. Other witnesses who regularly 

attended board meetings—Fonstad, internal auditor Hokeness, and ALC 

attorney Zak-Kowalczyck—also testified that the inclusion of nonresidents in 

the covenant calculations was not brought to the board’s attention before

March 2012. Tr. 1523, 3134–35, 4339–40, 4344–45. Consistent with this

testimony, the minutes of ALC’s board and audit committee meetings (which 

were reviewed and approved by Bebo, Tr. 2034–35), and the materials 

distributed in advance of board meetings, do not reflect that nonresidents were 

used to meet the covenant calculations. See generally Exs. 74–78, 80–90, 92–

120. When I weigh this evidence against Bebo’s testimony—including her own 

admissions that she never disclosed the inclusion of friends and family or the 

sheer scale and impact of her scheme—I cannot credit her testimony. See 

Tr. 2035.

Bebo also testified that at the August 2011 audit committee meeting, she 

again provided the board (and Grant Thornton) with similar details about

ALC’s covenant calculation practices. Tr. 2167–70, 4702–03. However, I find 

that Bebo was impeached with her investigative testimony in which she 

claimed that, following the November 2009 board meeting, she did not discuss 

the inclusion of employees with the board until March 2012. Tr. 2040–42, 2389.

At least some of the board members were aware that ALC was including 

a small number of employees who actually stayed at the Ventas facilities in its 
51

covenant calculations. At the board’s August 2011 meeting, there was a 

passing reference to the inclusion of employees. According to Buono, he

referenced employees being included in the covenant calculations at that board 

meeting, but no details or specifics about the practice were given. Tr. 2382–88, 

4631–32. Buntain was aware, “[p]rior to March 2012, ... that a small number 

of ALC employees stayed at facilities covered by the Ventas Lease” and “that 

these employee visits were counted for purposes of determining compliance 

with the Covenants.” Ex. 455 at 1 (of 3 PDF pages); see Tr. 4633–34. He 

remembered hearing at the August 2011 meeting about an “agreement” that 

management said ALC had with Ventas to include employees in the covenant 

calculations. Tr. 1453–54. 

It is likely that most of the individual directors knew as early as 2009 

about the inclusion of a few actual employee occupants in the covenant 

calculations. Buono’s testimony and proffer statement relays that 

Rhinelander, Malen Ng, Buntain, and, possibly, Hennigar and Bell knew that 

ALC included its employees in covenant calculations. Tr. 4633–34; Ex. 2117 at 

1–2 (offering during a proffer session that Rhinelander “knew exactly what was 

going on” with the inclusion of employee occupants and that Ng had discussed 

the topic with him and Grant Thornton). For example, no later than November 

5, 2009, Buono informed Ng by email that ALC was using its “employee rooms” 

at a Ventas facility for the covenant calculations. Ex. 1115; see Tr. 2523–24; Jt. 

Supp’l Ex. 1 at 67. Both Koeppel and Robinson, the Grant Thornton auditors, 

testified that they had told ALC’s audit committee, including Ng, who chaired 

the committee, that ALC “management had entered into an arrangement with 

Ventas to include in the covenant calculations employees who had stayed at 

the [Ventas] properties for a business purpose.” Tr. 3328–30; see Tr. 2417–18;

Ex. 2122 at 7; Jt. Supp’l Ex. 1 at 61.

Additionally, ALC’s disclosure committee members did not know the 

specifics of Bebo’s occupancy reconciliation actions. Committee members 

Fonstad, Buono, and Zak-Kowalczyck testified that they had no recollection of 

the committee discussing including employees in the covenant calculations at 

committee meetings. Tr. 1619 (Fonstad), 2389 (Buono), 4380 (ZakKowalczyck). Another committee member, Hokeness, testified that the 

committee did not know the number of employees included in the covenants or 

how names were chosen. Tr. 3133–34.

Similarly, ALC’s legal counsel were largely kept in the dark after Bebo 

first solicited Fonstad’s advice in early 2009. Fonstad and Zak-Kowalczyck 

testified that they were not made aware of the inclusion of employees in the 

covenant calculations before March 2012. Tr. 1507–12, 4339–40, 4344–45. And 

the opinion that Quarles provided in April 2012 indicating that Bebo acted 

reasonably by including employees in ALC’s covenant calculations shows that 
52

Quarles did not understand Ventas had not provided its agreement to the 

practice and that Quarles was unaware of the extent of the practice. See

Ex. 1037. In fact, Bebo admitted in her investigative testimony that she never 

discussed the issue with Zak-Kowalczyck or any Quarles lawyer. Tr. 2184–85, 

2187–89, 2192–93. Bebo also acknowledged she never disclosed to any attorney 

that ALC would fail the covenants without using employees or that ALC was 

including nonemployees in the covenant calculations, but she testified at the 

hearing that Fonstad knew Bebo’s parents and Bucholtz’s family members 

were included in the reconciliations. Tr. 2193–96.

As to ALC’s auditors, Bebo testified that Koeppel and Robinson were the 

only Grant Thornton personnel that she spoke to about including ALC 

employees in the covenant calculations. Tr. 2137–38. Bebo told Koeppel and 

Robinson that Ventas agreed in writing to include employees in the covenant 

calculations. Tr. 3366, 3495–96. She signed twelve representation letters that 

represented that ALC “complied with all aspects of contractual agreements 

that would have a material effect on the financial statements in the event of a 

noncompliance” and that she had “no knowledge of any allegations of fraud or 

suspected fraud affecting” ALC from its employees. Exs. 61–72. Bebo 

understood the list of names she caused to be created was provided to Grant 

Thornton along with ALC’s other covenant calculation materials. Tr. 2699–

700, 4070–73, 4124. Bebo admitted she never told Koeppel, the partner in 

charge of the 2009 and 2010 audits, that ALC was including in the covenant 

calculations: employees who did not actually visit the Ventas properties, 

nonemployees, or Bebo’s and Bucholtz’s family members. Tr. 2150–54. Bebo 

testified that before March 2012, her only discussions with Robinson—who did 

not join the ALC engagement until 2011—about the inclusion of employees in 

the covenant calculations, took place at two audit committee meetings in 2011. 

Tr. 2159–61, 2163, 3382. In her investigative testimony, she recalled having 

had only one such discussion with Robinson. Tr. 2161. Regardless, Robinson 

testified Bebo never told him that ALC was including employees who did not 

actually stay at the Ventas facilities, their family members, or friends. Tr. 

3401–02, 3495–96, 3498–99. Bebo also did not tell Robinson that, instead of 

actually reserving rooms in advance for employee use, ALC simply figured out 

the covenant shortfall after the quarter had ended and included the needed 

employees in the covenant calculations. Tr. 3497–98. 

Although some evidence shows that Grant Thornton auditors discussed 

ALC’s use of employees in the covenant calculations with the board at audit 

committee meetings, Ex. 1744, I find that such references were limited. They 

do not appear in Grant Thornton’s agendas and reports in the board materials, 

nor were they recalled in the testimony of any ALC witness who attended those 

meetings. Exs. 74–90, 92–120. In addition, Grant Thornton witnesses 
53

Robinson and Trouba denied that Grant Thornton was told that ALC included 

employees who did not actually stay at the Ventas facilities in the covenant 

calculations. Tr. 3401–02, 3495–99, 3591.

Bebo’s scheme is revealed to the ALC board in March 2012.

Although the board was largely in the dark for three years, Bebo’s scheme 

eventually came to light. Before the ALC board’s compensation, nominating, 

and governance committee meeting in March 2012, a potential buyer of ALC 

discovered the existence of the 997 account containing millions of dollars of 

negative revenue adjustments and questioned Buono about it. Tr. 579–80, 

2359–60. Buono disclosed the inquiry to Hennigar, who told Buono to address 

this with the committee members. Tr. 579–80, 2388. At the March 6, 2012, 

committee meeting, Buono explained that the massive adjustments were due 

to ALC’s inclusion of employees to meet the Ventas covenants. Tr. 579, 1373, 

2385–87, 2836–38; Ex. 492A at 53–56.

The board members were “surprised,” “shock[ed],” “dumbfounded,” 

“confused,” and “furious” at what Buono told them. Tr. 1373–74, 2389, 2613, 

2652–53, 2837–38. In delivering the news, Buono appeared frightened and 

looked like he thought he would be fired immediately. Tr. 582–583, 1373. 

The committee then sent for Bebo to confront her with what Buono had 

revealed. Tr. 583. Bebo testified the committee asked her questions in a 

manner in which they sounded unaware that ALC included employees in the 

covenant calculations. Tr. 4436–37. While Bebo admitted to the committee that 

ALC was using employees in the calculations, she still failed to reveal key 

aspects of the practice, such as ALC’s inclusion of: (1) employees who were not 

staying at the properties; (2) her family members; and (3) employees at 

multiple properties during the same time period. Tr. 583–87, 1376–77. Indeed,

Bebo would never disclose to the board any of these aspects of her scheme. 

Tr. 586–87, 1376–77, 2389, 2653, 2839–40. 

When the full board met the next day, March 7, Bebo did not confront the 

board with her claim that the board had previously approved including 

employees in the covenant calculations. Tr. 2202–03. If she had confronted the 

board, she would not have been able to do so with any direct evidence reflecting 

that the board ever approved the practice. As noted, while some board 

members had limited knowledge of select aspects of her scheme, at best they 

understood it to be a practice involving a handful of employees, and not 

something that was ever put up for board approval. No approval by the board 

was ever reflected in writing.

Following this disclosure, the board tasked Bell with investigating ALC’s 

practice of including employees in the covenant calculations. Tr. 589, 2598–99, 
54

2841. Bell advised the board that ALC should inform its potential purchasers 

of the $2 million of negative revenue recorded in the 997 account. Tr. 589–94; 

Ex. 322. Separately, Bebo advocated against ALC making that disclosure. 

Tr. 595–97, 2207, 2209; Exs. 325, 326. When Bell learned of Bebo’s position, he 

wrote Rhinelander that he thought it was “very risky with no upside.” Ex. 326. 

Rhinelander overruled Bebo, and ALC made Bell’s recommended disclosure. 

Tr. 597–98.

On March 19, Bell sent Bebo and Buono an email asking for the covenant 

calculations without the inclusion of employees. Ex. 328. Bell did so because 

he wanted to know the Ventas facilities’ actual occupancy figures. Tr. 598–99. 

Bebo responded by asking, “Why do we want to relook at the calculations and 

do them a different way?” Ex. 328. Bell then forwarded her email to Hennigar, 

writing, “More of the same—unbelievable!” Tr. 598–601; Ex. 328. 

On April 4, Bell sent the other directors an email informing them that 

ALC had recently received license revocation notices for three of the Ventas 

facilities. Ex. 333. Bell attached a memo to his email in which he wrote that it

was “[h]ighly unlikely” that an email Bebo wrote in 2009 constituted “a legal 

basis for inclusion of employees to meet their residence occupancy/income 

covenants in the leases.” Id. at 31714. He noted that Buono’s compliance 

certificate regarding patient revenue is “clearly wrong.” Id.; Tr. 602–05. When 

Bebo received Bell’s memo, she asked him to withdraw these two conclusions, 

but Bell refused. Tr. 2216–18. 

After informing ALC that the license revocation notices constituted events 

of default, Ventas insisted on conducting a site visit on short notice, such that

Bebo and Buono would be unable to attend. Tr. 2213–15; Ex. 330 at 45011. 

Buono forwarded Ventas’s email demanding the short-notice visit to Bebo, 

writing: “This is a problem.” Ex. 330 at 145011.

On April 11, Bell prepared a draft settlement letter to send to Ventas. 

Ex. 568. Bell’s draft letter contained, among many other items, the following 

statement: “As you know, ALC has ... placed employees in the [Ventas] 

facilities to meet the occupancy thresholds.” Id. at 4. After receiving Bell’s draft 

letter, Bebo forwarded it to Buono, and advocated removing the reference to 

“placed employees” because Bebo believed raising the issue would “create other 

disagreements” with Ventas. Ex. 570; Tr. 4721–23. Bebo’s advocacy would not 

have made sense if Ventas had previously agreed to the practice that Bell was 

simply noting. The language was omitted, and Ventas remained unaware that 

ALC was including employees in the covenant calculations. Tr. 215–16, 237. 

On April 12, Bebo wrote to Rhinelander, intimating that the reason the 

problems had arisen with the notices of revocation for three facilities was that 
55

she and others were working too hard on other issues such as the prospective 

sale of ALC. Ex. 1595 at 1. 

Ventas sues ALC over license revocations.

On April 26, 2012, Ventas sued ALC for breach of the lease’s regulatory 

covenants resulting from the license revocation notices. Complaint, Ventas 

Realty, L.P. v. ALC CVMA, LLC, No. 1:12-cv-3107 (N.D. Ill.), ECF No. 1. The 

complaint characterized the deficiencies as “jeopardizing the health, safety, 

and welfare of the residents.” Id. at 2. The complaint alleged violations of five 

lease covenants, but it did not implicate the financial covenants. Id. at 6 (citing 

§§ 8.1.11(b), 8.2.1, 8.2.3(c), 8.3, 8.2.4).

Over Bebo’s objection, the ALC board of directors insisted that any 

settlement with Ventas contain a specific release relating to the inclusion of 

employees in the covenant calculations. Tr. 611–13, 2846–48; Ex. 351. As a 

result, on April 27, the day after Ventas filed the complaint, Bebo emailed 

Ventas a proposed settlement containing a specific release relating to ALC 

“renting rooms ... to certain of its employees and including those employees in 

certificates and covenant calculations.” Ex. 350 at 151598. Bebo’s transmittal 

email stated that she “purposefully left the dollar amount blank” but informed 

Ventas “that the other items are important to our agreement in principle.” Id. 

at 151596. When Ventas received the settlement proposal, it learned for the 

first time in writing that ALC had been including employees in the covenant 

calculations. Tr. 246–47. Doman testified that ALC sought a release on this 

basis because its practice was not allowed under the lease. Tr. 247. 

The board retains Milbank to conduct an internal investigation.

On May 2, 2012, ALC’s directors, other than Bebo, received a letter from 

an ALC employee detailing Bebo’s suspicious conduct on the Ventas covenant 

calculations. Tr. 613–14, 1163–64, 1167–68; Exs. 352, 353. The letter disclosed 

that, as part of Bebo’s occupancy reconciliation scheme, ALC included: (a) the 

same employees at multiple properties at the same time; (b) employees who 

did not travel to the Ventas facilities; and (c) nonemployees such as Bebo’s 

relatives and friends. Ex. 353 at 1. This was the first time this information had 

been brought to the directors’ attention. Tr. 605–06, 614–16, 1384, 2653–54, 

2848–49. On May 3, ALC’s board retained Milbank to conduct an internal 

investigation. Tr. 616–17, 1384–85, 2613, 2849.

ALC delays its earnings call for the first quarter of 2012.

Minutes before market close on May 3, 2012, ALC issued a single sentence 

press release that it would delay its first quarter 2012 earnings announcement 

and conference call with analysts. Ex. 2081 at 2; Ex. 2186 at 16. Bebo 
56

counseled the ALC board against the press release because it would be 

misinterpreted by the market as a sign ALC agreed to sell the company. 

Tr. 4486–87. ALC’s stock price increased 8.31% in the last seven minutes of 

trading because the market did interpret the press release as evidence of a 

prospective sale. Ex. 2186 at 16 n.59; Tr. 4495. On May 3, ALC had started 

trading at $17.96, and remained quite close to that amount throughout the 

day, but, after the delay was announced, it traded significantly higher, closing 

at $19.17. Ex. 2186 at 39. 

ALC discloses the Ventas suit and possible lease irregularities.

On May 4, 2012, prior to market open, ALC filed a Form 8-K disclosing 

the above-described Ventas lawsuit, as well as a board decision to investigate 

“possible irregularities” related to the Ventas lease. Ex. 14; see Ex. 2186 at 40. 

That day, ALC’s stock price opened at $18.25 (down from $19.17 at market 

close on May 3), and closed at $16.80. Ex. 2186 at 40; Tr. 3637–38.

Over the course of May 3 and 4, Bebo handwrote a 21-page letter 

expressing concerns that the board and Quarles would not speak with her. 

Tr. 2227–28, 4519–22; Ex. 354. At the time, Bebo was unaware the board had 

received the letter and was attempting to retain a law firm, and that Quarles 

faced a potential conflict because Buono’s wife was a partner there. Tr. 1427–

28, 4519–22. Bebo’s letter noted that ALC is “off side on the covenants and we 

are facing a material financial impact,” Ex. 354 at 513, but given the context 

of the Ventas lawsuit which alleged violations of numerous covenants but not 

the financial ones, it is unlikely this comment relates to the occupancy and 

coverage ratio covenants.

On May 9, Ventas sent ALC a letter providing notice of defaults under the 

lease in seven areas. One default alleged that ALC “submitted fraudulent 

information” to Ventas on compliance with section 8.2.5 of the lease, its fraud 

included “treating units leased to employees as bona fide rentals by third 

parties” in reports to Ventas, and ALC “may have failed to comply with Section 

8.2.5 of the Lease by failing to maintain required occupancy and coverage 

ratios.” Ex. 356 at 1. The other allegations concerned (1) the attempt to 

relinquish the license for a CaraVita facility, (2) regulatory notices of intent to 

revoke permission to operate three facilities, (3) failure to comply with 

reporting obligations, (4) failure to provide notice of fire damage at a facility, 

(5) failure to provide notice of work on a facility and to perform work in 

accordance with applicable legal requirements, and (6) failure to provide 

information requested by Ventas. Id. at 1–2.
57

After receiving the May 9 letter, ALC’ s directors believed the situation 

was “going from bad to worse,” which “put more pressure” on ALC to “solve the 

Ventas problem.” Tr. 617–18. 

On May 10, Ventas filed a motion for leave to file an amended complaint. 

The amended complaint included several of the new allegations in the abovedescribed Ventas letter of May 9, but did not include allegations related to the 

occupancy and coverage ratio covenants being satisfied fraudulently by ALC. 

Ex. 1194 at 1–2; see also Div. Prehr’g Br. at 18 n.5 (Apr. 6, 2015) (admitting 

the same, contrary to allegations in the OIP). On May 14, the judge granted 

Ventas’s motion and docketed the amended complaint. Ventas Realty, ECF 

Nos. 28, 29.

ALC publicly discloses Ventas’s covenant allegation.

On May 14, 2012, ALC filed a Form 8-K disclosing ALC’s receipt of the 

May 9 Ventas letter and Ventas’s proposed amended complaint of May 10. This 

is the first time the public learned about financial covenant allegations and the 

other new allegations raised by Ventas. As for the occupancy covenants, the 

Form 8-K reported that the Ventas letter asserted that ALC had “submitted 

fraudulent information by treating units leased to employees as bona fide 

rentals by third parties and, therefore, may not have been in compliance with 

the minimum occupancy covenant and coverage ratio covenants.” Ex. 2076 at 

2. The Form 8-K also discussed the potential losses to ALC in the event Ventas 

was successful in pursuing its lawsuit. Id. This included a reduction in ALC’s 

future net income of roughly $10 million, a possible $7 million in non-cash 

charges to future income, and a possible $3.5 million reduction to future income 

from a different lease in which Ventas recently became the counterparty. Id.

On May 15, ALC filed its first quarterly report for 2012 and disclosed 

quarterly earnings. On the same day, Ventas filed a motion for expedited 

discovery. Mem. in Supp. of Mot. for Expedited Discovery, Ventas Realty, (May 

15, 2012), ECF No. 31. Ventas summarized the basis for its motion and made 

clear that as of that date, Ventas did not understand the previously disclosed 

lease “irregularities” or “internal investigation” to relate to the financial 

covenants, but instead held the belief that they were related to the well-being 

of its facilities’ residents. In the motion, Ventas described ALC’s Forms 8-K as

“opaque disclosures” that did not explain what the “irregularities” were. Id. at 

1. Ventas noted its “great concern that these ‘irregularities’ relate to serious 

deficiencies in the operation of the assisted living facilities” that “may present 

a significant risk to the value of the properties and the health and safety of the 

residents.” Id. at 1–2. Further, alleging an ongoing effort to destroy records by 

ALC, Ventas requested limited expedited discovery “to learn more about the 
58

facts and circumstances that are the subject(s) of ALC’s ongoing internal 

investigations.” Id. at 2.

While Ventas was concerned about spoliation, the first basis for the motion 

arose from its “serious concern” that ALC’s disclosure of its internal 

investigation into lease irregularities is a health-and-safety issue—which was 

reasonable given the three facilities facing the risk of shutdown by state 

regulators.9 The motion does not, as the Division suggests, demonstrate that 

Ventas intended to seek expedited discovery on alleged fraud relating to the 

occupancy and coverage ratio covenants. Those allegations, though known to 

Ventas, were not included in their amended complaint. Ventas’s 

understanding indicates that no one outside ALC was aware that the May 4 

disclosure of the internal investigation into irregularities had anything to do 

with the financial covenants. 

ALC settles by purchasing the facilities from Ventas at a premium and 

terminates Bebo.

As part of ALC’s settlement efforts, its board quickly authorized the 

purchase of the Ventas properties for up to $100 million, with the offer 

predicated on a “full and unconditional” release from Ventas “of all its possible 

claims against [ALC].” Tr. 618–19; Ex. 123 at 2. ALC ultimately paid $100 

million to settle the litigation and purchase the facilities and four other 

residences, although select appraisals valued the purchased facilities at $62.8 

million. Ex. 544 at 27, 29. Thus, in its financial statements for the second 

quarter of 2012, ALC included a $37.2 million expense for “lease termination 

and settlement” and also wrote off an $8.7 million lease intangible asset 

associated with the Ventas facilities. Id. at 11. The financial impact associated 

with the settlement resulted in ALC taking a $25 million loss in what 

otherwise would have been a profitable quarter. Tr. 4683–84. 

Various witnesses testified that ALC purchased the properties for 

significantly more than fair value. Based on Bell’s calculations, ALC overpaid 

by at least $24 million. Tr. 620–21. Buntain believed ALC purchased the 

 

9 But see Tr. 386 (Doman testimony that Ventas sought expedited discovery 

into “irregularities” that “[h]ad to do with the occupancy calculations”). 

Doman’s testimony is inconsistent with the plain language of Ventas’s motion 

for expedited discovery, see Mem. in Supp. of Mot. for Expedited Discovery at 

1–2, Ventas Realty, and the timeline of ALC’s disclosures regarding the 

occupancy covenants: based on ALC’s disclosure in April 2012 (Ex. 350 at 

151598), Ventas raised the occupancy issue in its May 9 letter, Tr. 391–92, but 

did not connect it with the lease irregularities. I do not credit Doman’s 

understanding of the motion for expedited discovery. 
59

properties for $20 million more than they were worth. Tr. 1385–86. Roadman 

testified the settlement contained a “penalty” component. Tr. 2636–37, 2657. 

ALC was willing to pay more than market value to resolve all of the disputes 

with Ventas and be released from all claims, which would otherwise jeopardize 

the process of selling ALC. Tr. 621, 1386, 1390. 

However, in the context of settling the Ventas lawsuit, which never 

involved financial covenant allegations, the Division has identified only one 

document that links the elevated settlement premium to the financial 

covenants: a note drafted by Grant Thornton’s Amy Henselin, who did not 

testify, on ALC’s accounting for the purchase of the properties. The Division 

makes much of this note, which asserts that ALC paid more than market value 

to acquire the Ventas facilities, and did so in part because it breached the 

occupancy covenants. See Div. Post-hr’g Br. at 43, 58; Div. Post-hr’g Reply Br. 

at 58 (Aug. 28, 2015). The note states that ALC was “forced to acquire the 

properties above market” and had to pay “not only the lease termination fee, 

but also for damages as a result of occupancy rates falling significantly below 

required covenant occupancy rates.” Ex. 3369 at 7–8 (emphasis added).

However, other than the italicized assertion, there is nothing else in the 

exhibit, or testimony about it, that indicates that “damages” were paid “as a 

result of occupancy rates falling significantly below required covenant 

occupancy rates.” Indeed, other than this note, there is little support that 

damages were paid as a result of falling occupancy rates. 

The substantive portion of Exhibit 3369, upon which Henselin’s comment 

is based, is an internal memo by John Lucey of ALC dated July 18, 2012. Id. 

at 3. It notes that Ventas’s “amended complaint also seeks to expand the 

requested relief to include termination of the lease and monetary damages 

including accelerated payment of all rental obligations thereunder, and 

monetary damages for the breach of the Guaranty.” Id. at 6. According to 

Lucey, the estimated damages are $16 million. Id. at 5. Although Lucey’s memo 

mentions the occupancy covenant, he only connected it with Ventas’s May 9 

letter that said ALC “may” have breached the covenant—an allegation that 

was never incorporated into the amended complaint. Id. at 6. When Lucey was 

asked at the hearing why he mentioned the occupancy covenant at all, he 

admitted that he mistakenly believed that it was an issue in Ventas’s lawsuit. 

Tr. 3742. Thus, it seems likely that the Grant Thornton note which stated that 

the above-market payment was due to violations of the occupancy covenant 

was a mistake and is without basis. The damages sought by Ventas in the suit 

for breach of guaranty were based on a broad swath of violations—just not 

those related to occupancy. Even if ALC considered the settlement premium as 

justified, in part, to settle occupancy covenant issues, the Division has not 
60

persuasively shown what amount of the settlement can be properly attributed 

to them. 

Buono’s financial analysis of ALC’s purchase of the properties estimated 

an increase of shareholder value of $1.23 per share and a significant increase 

in annual cash flow, with the possibility of further increases if other units were 

also obtained. Exs. 1108, 1108A; Tr. 4605–08. Buono’s analysis was borne out 

by Smith’s event study which found that ALC’s stock price increased 

significantly when the deal to purchase the 12 properties was announced and 

again when ALC disclosed the accounting for the transaction. Ex. 2186 at 22.

On May 29, 2012, ALC terminated Bebo’s employment and then filed a 

public disclosure to that effect. Tr. 621; ALC, Current Report (Form 8-K) (May 

30, 2012) (disclosing that Bebo is no longer CEO, president, or an employee of 

ALC). On June 21, ALC filed a Form 8-K disclosing the purchase of the Ventas 

properties, similar to the disclosure Ventas made on June 18. Ex. 2077. 

Shareholders sue ALC for securities violations.

On August 29, 2012, ALC shareholders sued ALC and Bebo for violating 

the securities laws and alleged ALC violated the Ventas lease occupancy 

covenants; that complaint was amended on February 15, 2013. Ex. 364 at 49, 

53–54; Ex. 366 at 2. The district court denied the defendants’ motion to dismiss 

the complaint. See Pension Trust Fund for Operating Eng’rs v. Assisted Living 

Concepts, Inc., No. 12-cv-884, 2013 WL 3154116 (E.D. Wis. June 21, 2013). 

Among other conclusions, the court held that the plaintiffs had alleged 

sufficient facts to state a securities-fraud claim based on misrepresentations 

that ALC was in compliance with the Ventas lease, implying that the 

misrepresentations were material. Id. at *9.

In September 2013, the parties settled the litigation for $12 million. 

Exs. 366, 367. Bebo and ALC did not admit liability. Ex. 366 at 23.

Bebo’s concealment of the scheme impacted the value of her 

compensation.

Bebo’s salary was established by ALC’s board based on a recommendation 

by its compensation, nomination, and governance committee. Tr. 653–54. ALC 

paid Bebo a salary of $424,000 for 2009, $500,000 for 2010, and $520,000 for 

2011. Stipulations ¶¶ 13–15 (Apr. 15, 2015). 

The compensation committee also made recommendations to the board 

establishing the discretionary bonus for each of ALC’s senior executives, 

including Bebo. Tr. 653–54, 2850. The board decided whether to approve, 

reject, or send back recommendations. Tr. 654, 2850. ALC paid Bebo 
61

discretionary bonuses of $340,185 for 2009, $374,063 for 2010, and $399,750 

for 2011. Stipulations ¶¶ 13–15. At the hearing, three board members testified 

that they would not have voted to award Bebo a discretionary bonus if they 

had known about her misconduct at the time. Tr. 654–55 (Bell), 2659 

(Roadman), 2850–51 (Rhinelander). The compensation committee had 

discretion to reduce Bebo’s bonus. See Ex. 2072 at 12 (original document

pagination) (“The Committee can exercise its discretion in modifying any 

recommended compensation or awards to executive officers.”); id. at 13 (“The 

Committee has discretion to reduce but not to increase any awards under the 

performance-based cash incentive compensation program whenever the 

Committee determines that particular circumstances so warrant.”).

In 2006, Bebo filed with the Commission a statement regarding her ALC 

stock ownership. See Bebo, Statement of Changes in Beneficial Ownership

(Form 4) (Nov. 13, 2006) (indicating acquisition of 85,865 class A common 

shares). Bebo later amended her Form 4, reporting that on November 14, 2007, 

she purchased 7,700 shares of ALC Class A Common Stock, bringing the 

number of securities she owned to 86,038. Bebo, Amended Statement of 

Changes in Beneficial Ownership (Form 4/A) (Apr. 25, 2008).

Bebo’s CEO compensation package included stock appreciation rights 

(SARs), which were options awarded based on performance. Tr. 4168–69.

However, Bebo’s stock option agreement provided that if the compensation 

committee determined Bebo “committed an act of ... fraud, dishonesty ... or 

deliberate disregard of ALC rules resulting in loss, damage or injury to ALC,”

Bebo would not “be entitled to exercise any Stock Option/SAR whatsoever.” Ex. 

1246 at 4.

Between 2009 and 2012, Bebo received options/SARs on numerous 

occasions, increasing her equity position at ALC. See Ex. 2072 at 14, 16–18 

(awarding Bebo 16,000 options/SARs with exercise price of $15.35); Ex. 2073

at 26–28 (awarding Bebo 4,000 options/SARs at exercise price of $31.71); 

Ex. 2074 at 24–26 (original document pagination) (awarding Bebo 35,200 

options/SARs at exercise price of $18.69); Bebo, Statement of Changes in 

Beneficial Ownership (Form 4) (Nov. 13, 2006) (stating Bebo received 8,800 

options/SARs at an exercise price of $17.01). Bebo exercised some of those 

options in May 2011. See Bebo, Statement of Changes in Beneficial Ownership 

(Form 4) (May 18, 2011) (stating Bebo exercised options to buy 7,500 shares at 

$15.35).

According to ALC, the grant date fair value of Bebo’s options awards 

during the pertinent period totaled $981,920—$171,000 in 2009, $384,560 in 

2010, and $426,360 in 2011. See Ex. 2072 at 16; Ex. 2073 at 26; Ex. 2074 at 23. 
62

There is no indication that Bebo received any additional options/SARs 

after March 2012, which would be expected given her termination in May 2012.

Beyond salary, bonuses, and options/SARs, Bebo’s other compensation from 

ALC totaled approximately $100,000 per year. See Ex. 2072 at 16; Ex. 2073 at 

26; Ex. 2074 at 23.

I do not credit Bebo’s testimony that her practice of satisfying the Ventas 

financial covenants with nonresidents did not impact her financially because 

it is contradicted by the other evidence. See Tr. 4167. She stated that ALC’s 

cash bonus program for senior executives, including herself, was “based only 

on the private occupancy that would be from outside sources” as opposed to

intercompany revenue, suggesting that the internal revenue adjustments did 

not impact her compensation. Tr. 4167–68. According to Bebo, the same was 

true of her SARs awards. Tr. 4167, 4169. Both points may have been true, but 

neither responds to director testimony that they would not have awarded her 

bonuses or other awards because of her misconduct. In addition, Bebo admitted

that—at least during the period when ALC was for sale—she had an incentive 

to conceal negative news to keep the value of her stocks and options as high as 

possible. Tr. 4171–74.

Expert testimony

Bebo’s expert, David Smith, conducted an event study to show that ALC’s 

stock did not decline after the company disclosed Ventas’s allegations of 

fraudulent conduct. 

Bebo’s expert, David Smith, is a professor of commerce at the University

of Virginia. Ex. 2186 at 3. Previously, he served as an economist at the Federal 

Reserve Board in Washington, DC, and was an assistant professor of finance 

at the Norwegian School of Management in Oslo, Norway. Id.

Smith testified that his research demonstrated that financial covenant 

violations almost always resolved without lessors initiating actions for default 

or assertions of the full scope of remedies. See Tr. 3634–35, 3660–63. The basis 

for this understanding is, in part, his analysis of thousands of debt covenant 

violations. Ex. 2186 at 2. Smith has “published research analyz[ing] debt 

agreements and loan disclosures of publicly traded companies” and “collected 

and analyzed data from over 3,700 credit agreements of public corporations, 

and tracked the impact of more than 3,500 disclosed debt covenant violations 

on corporate borrower behavior.” Id. The financial covenants at issue, 

particularly as to coverage ratio, are properly characterized as “debt 

compliance” or debt service covenants, like the ones Smith has studied. 

Tr. 3568; see Tr. 970, 972, 1011–12, 1075–76; see also Tr. 309; Ventas, Annual 

Report at 37, 60 (Form 10-K) (Feb. 22, 2007) (Ventas evaluates “collectability” 
63

of “amounts receivable from third parties” based on “compliance with the 

financial covenants set forth in the ... lease agreement, ... the financial stability 

of the applicable ... tenant ... and ... the payment history of the ... tenant”).

Smith conducted an event study to determine whether public disclosures 

of the alleged fraudulent conduct had a statistically significant effect on ALC’s 

stock price. According to Smith, an event study is a well-established method 

employed by financial economists to determine whether public release of new, 

firm-specific information is important to investors. Ex. 2186 at 12–13. The 

methodology is based on the economic theory that stock prices rapidly adjust 

to reflect new and unexpected information relevant to stock value. Id. at 13. If 

investors view new information as significantly positive, stock price will 

increase in a statistically significant manner. Id. at 13–14. By contrast, if 

investors view new information as significantly negative, stock price will 

decline in a statistically significant manner. Id.

Based on his event study, Smith concluded that ALC’s May 14, 2012, Form 

8-K disclosure of Ventas’s allegation that ALC had given it false information 

about its compliance with the occupancy ratios for the lease covenants did not 

cause a statistically significant change in ALC’s stock price after accounting 

for market and industry factors. Id. at 16–17; see also Ex. 2076 at 2; Tr. 1666 

(John Barron testimony). Smith found that following the disclosure, “ALC’s 

stock price declined $0.37 or 2.26%” and “[m]easured relative to the benchmark 

based on the returns of the NYSE and Peer Group, the abnormal return on 

ALC stock on this day was -0.40% and was not statistically significant.” 

Ex. 2186 at 16. He therefore concluded that there was no evidence that the 

May 14, 2012, disclosure of alleged noncompliance with the covenants 

impacted ALC’s stock price. Id. at 17. And he concluded that it would not have 

caused statistically significant movement if the information had been disclosed

on May 4, in the earlier Form 8-K. Tr. 3643–44.

Smith acknowledged that the price drop following the issuance of the 

Form 8-K on May 4, 2012, was a “statistically significant abnormal decline.” 

Ex. 2186 at 15 & Ex. 7 at May 4, 2012, trading date & note 5; see Ex. 2075 at 

1–2. He also acknowledged that a “factor likely driving the significant negative 

abnormal decline on May 4, 2012, was the contents of the 8-K itself,” Ex. 2186

at 16, but explained that the Form 8-K disclosure was not the only factor and 

one must consider the full context. Minutes before market close on May 3, ALC 

issued a single sentence press release that it would delay its first quarter 2012 

earnings announcement and conference call with analysts. Ex. 2081 at 2; 

Ex. 2186 at 16, 18. ALC’s stock price increased 8.31% in the last seven minutes 

of trading, probably because the market interpreted the press release as 

evidence of a prospective sale. Ex. 2186 at 18 & n.59; Tr. 4495; see also

Ex. 2130 at 1 (an email from an assisted living company CEO in January 2012 
64

stating that “news around town is ALC is going to dispose of all their assisted 

living communities across the country”); Tr. 4486–87 (Bebo warning board of 

possible misinterpretation). When it turned out on the morning of May 4 that 

the company was not going to be sold after all, but that there was a lawsuit 

and “possible irregularities” in the lease with Ventas, “the stock price dropped 

back down.” Tr. 3640; Ex. 2075 at 1–2. Further, Smith testified that ALC’s 

share price declined even further than its price pre-press release because “now 

that this lawsuit has come out, there’s even less of a chance of there being a 

merger, and my experience with the literature on how ... stock prices move 

around merger rumors is that once the likelihood of a merger declines, the 

stock price will decline further.” Tr. 3641. 

Smith also concluded that although Ventas’s complaint was publicly filed 

and available on April 26, 2012, it still seems likely that disclosure of the suit 

in ALC’s May 4 Form 8-K was “new” information to the market. See Tr. 3650–

51.10 And based on his review of “copious information” in the public view 

discussing the May 4 disclosure, Smith found that “nobody makes the 

connection” of the investigation to the financial covenant allegations. Tr. 3647.

Indeed, as discussed above, even Ventas did not make that connection. As 

Smith explained: “There’s no public disclosure that connects the statement of 

possible irregularities with the company’s lease to the financial covenant 

allegations” in the filing itself, in analyst reports, or in other press reports. 

Tr. 3645. “[I]f anything,” he found that reports “make the natural connection” 

that “the lease irregularities have to do with ... the alleged breaches under the 

Ventas lawsuit.” Tr. 3645–46.

The Division’s expert, John Barron, opined on multiple issues relating to 

ALC’s financial statements. 

The Division’s expert, John Barron, is a certified public accountant who 

serves as a senior advisory consultant at Marks Paneth and has supervised 

multiple audit engagements. Ex. 377 at 2. Previously, he worked at Deloitte & 

 

10 I do not credit the Division’s assertion that “[w]hile Bebo claims the stock 

drop resulted from the disclosure of Ventas’ lawsuit against ALC, that lawsuit 

was publicly filed on April 26, 2012, and the market had more than a week to 

factor its impact into ALC’s stock price.” Div. Supp’l Post-Hr’g Reply Br. at 6 

n.2 (Nov. 1, 2019) (citing Tr. 3650–51, Ex. 14). Although the complaint was not 

sealed, the Division has not identified any evidence, other than the filing, that 

investors had any actual knowledge the complaint was filed, such as press 

reports, analyst reports, or corporate disclosures. The several stock market 

analysts that covered ALC and published about the company did not report on 

the Ventas lawsuit until after the May 4, 2012, disclosure. See Ex. 2186 at 18–

23; Tr. 3645–47 (Smith testimony).
65

Touche and was an engagement auditor on numerous audits and reviews of 

entities registered with the Commission or conducting securities offerings. Id.

He also was an adjunct professor of accounting and auditing at the Zicklin 

School of Business of Baruch College, City University of New York. Id.

Barron provided numerous opinions, including that: (1) an event of default 

under the Ventas lease covenants would be material to ALC’s financial 

statements; (2) ALC would have failed covenants during each quarter from 

2009 through 2011 if employees were not included in the calculations; (3) the 

income statements ALC provided to Ventas contained revenue figures that did 

not meet GAAP’s revenue recognition requirements; and (4) ALC did not 

maintain an internal control system that would provide reasonable assurance 

its financial statements were presented fairly in accordance with GAAP. See

id. at 32. 

I credit Barron’s opinions regarding the numerical impact of a potential 

default and the materiality planning threshold Grant Thornton used in its 

audits, id. at 18–20, and I also credit his opinion that ALC would have failed 

covenants without including employees in the calculations, including the 

accompanying charts. See id. at 24–27. 

Barron’s opinion that the income statements ALC provided to Ventas did 

not comport with GAAP, as required under the lease, is well founded. Barron 

opined that the statements violated the revenue recognition criteria in 

Financial Accounting Standards Board Concepts Statement 5, a component of 

GAAP, because the reported revenue did not involve cash changing hands, the 

Ventas facilities never had a claim to cash, and there was no evidence of an 

agreement between ALC and the Ventas facilities that explained the goods and 

services provided in exchange for the employee revenues recorded on the 

facilities’ financial statements. Id. at 28. 

I also credit Barron’s opinion that ALC failed to maintain effective 

internal controls. Barron opined that, assuming Ventas had agreed to allow 

employees to be included in the covenants, there were no controls to determine 

the criteria for how employees were selected or to ensure that they actually 

stayed at the facilities. Ex. 377 at 31. ALC used its TIPS system—a program 

that tracked occupants who signed leases and made payments, Tr. 512–13—as 

an internal control for actual residents of the Ventas facilities, but there was 

nothing similar for the nonresidents in Bebo’s scheme. Ex. 377 at 31. On the 

other hand, if Ventas had not agreed to allow employees to count, he opined 

that there were no internal controls to prevent or detect employees from being 

included in the covenants. Id. at 31–32. 
66

Bebo’s expert, John Durso, testified about the economic state of the assisted 

living market during the relevant period and the purchase price ALC paid 

for the Ventas properties.

John Durso is a senior attorney with decades of experience in the area of 

health care and senior care organizations. Ex. 2185 at 1–4. His experience 

includes representing numerous senior care organizations in negotiating 

workouts, forbearance agreements, and pre- or post-bankruptcy sales following 

the 2008 recession and stock market crash. Id. at 3. He has also represented

clients in more than 500 transactions involving organizations serving seniors, 

such as mergers, acquisitions, affiliations, and joint ventures. Id. at 2. He 

writes a monthly column for an important senior care industry journal. Id. at 

3–4 & Ex. B. 

Section V of Durso’s report discusses the impact of poor economic 

conditions from 2008 to 2012 on occupancy in senior care facilities. Id. at 10; 

see Tr. 3185–86. Durso explained that “the economic conditions during the 

period from 2008 through 2012 posed a significant hardship on the senior 

demographic in the United States, which indirectly resulted in the financial, 

value, and occupancy declines of assisted living facilities nationwide.” Ex. 2185

at 10; see id., Ex. A. Durso’s assessment is consistent, in large part, with other 

witnesses’ testimony. See Tr. 295 (Doman testimony), 2828–29 (Rhinelander 

testimony), 4049–52 (Bebo testimony). Durso opined that these economic 

conditions “demanded flexibility between the landlords and tenants” of senior 

care facilities. Ex. 2185 at 11.

Section VI.C of Durso’s report opines that the purchase price ALC paid for 

the Ventas facilities was within industry standards. Id. at 16–17; see also

Tr. 3147–3201.

Conclusions of Law

Bebo violated the Exchange Act’s books-and-records provisions. 

Bebo is charged with falsifying books and records in violation of Exchange 

Act Section 13(b)(5) and Rule 13b2-1 and, in doing so, causing ALC to fail to 

maintain accurate books and records in violation of Section 13(b)(2)(A). OIP at 

11. 

Starting with the issuer’s underlying books-and-records obligation, 

Section 13(b)(2)(A) requires issuers to “make and keep books, records, and 

accounts, which, in reasonable detail, accurately and fairly reflect the 

transactions and dispositions of the assets of the issuer.” 15 U.S.C. 

§ 78m(b)(2)(A). The term “‘reasonable detail’ mean[s] such level of detail ... as 

would satisfy prudent officials in the conduct of their own affairs.” Id.
67

§ 78m(b)(7). Scienter is not required to establish a violation. SEC v. WorldWide Coin Invs., Ltd., 567 F. Supp. 724, 749 (N.D. Ga. 1983); Pegasus Satellite 

Commc’ns, Inc., Securities Act Release No. 8653, 2006 WL 58717, at *4 (Jan. 

11, 2006). For a violation, it can be enough to show that transactions were not 

recorded in accordance with GAAP. See SEC v. BankAtlantic Bancorp., No. 12-

cv-60082, 2012 WL 1936112, at *23 (S.D. Fla. May 29, 2012) (sustaining

Section 13(b)(2)(A) claim alleging that issuer’s records were not GAAPcompliant). Inaccuracies that result from deliberate action, such as 

falsification and concealment, also violate the provision. See World-Wide Coin, 

567 F. Supp. at 748 (identifying, as the first basic objective of Section 

13(b)(2)(A), that “books and records should reflect transactions in conformity 

with accepted methods of reporting economic events”). As discussed below, 

liability under Section 13(b)(2)(A) does not depend on whether the failure to 

maintain adequate books and records impacted a company’s financial 

statements. A violation can be evident if there are misstatements related to 

underlying transactions or assets in an issuer’s annual and quarterly reports

filed with the Commission. See, e.g., Ponce v. SEC, 345 F.3d 722, 736–37 (9th 

Cir. 2003).

The Commission may bring a cease-and-desist action, such as this one, 

against an individual who caused an issuer to violate the books-and-records 

requirement. See 15 U.S.C. § 78u-3(a). Once a violation of Section 13(b)(2)(A)

has been established, causing liability requires “an act or omission by [the 

respondent] that was a cause of the violation,” and a finding that the individual 

knew “or should have known, that h[er] conduct would contribute to the 

violation.” Robert M. Fuller, Securities Act Release No. 8273, 2003 WL 

22016309, at *4 (Aug. 25, 2003), pet. denied, 95 F. App’x 361 (D.C. Cir. 2004).

In addition, Rule 13b2-1 and Section 13(b)(5) impose direct liability on 

those that falsify books and records. Rule 13b2-1 provides that “[n]o person 

shall directly or indirectly, falsify or cause to be falsified, any book, record or 

account subject to section 13(b)(2)(A).” 17 C.F.R. § 240.13b2-1. Like Section 

13(b)(2)(A), scienter is not required to establish a Rule 13b2-1 violation. Rita 

J. McConville, Exchange Act Release No. 51950, 2005 WL 1560276, at 11 & n. 

42 (June 30, 2005) (citing SEC v. McNulty, 137 F.3d 732, 740–41 (2d Cir. 

1998)), pet. denied, 465 F.3d 780 (7th Cir. 2006). And Section 13(b)(5) provides 

that: “No person shall ... knowingly falsify any book, record, or account.” 15 

U.S.C. § 78m(b)(5). Unlike the language of the other books-and-records 

provisions, “knowingly” means that the respondent “was aware of that 

falsification and did not falsify through ignorance, mistake, or accident.” 

United States v. Reyes, 577 F.3d 1069, 1081 (9th Cir. 2009) (quoting United 

States v. Jensen, 532 F. Supp. 2d 1187, 1195 (N.D. Cal. 2008)). 
68

The Division contends that,

[g]iven her understanding of corporate accounting issues 

in general and ALC’s specific accounting for the covenant 

calculations, her directives that ALC treat empty rooms 

as occupied and record revenue associated with the fake 

occupants, and the fact she signed journal entries 

authorizing those transactions, Bebo violated and caused 

ALC’s violations of the Exchange Act’s books and records 

... provisions.

Div. Post-hr’g Br. at 53. 

The Division has met its burden of proof. For twelve quarters from 2009 

through 2011, Bebo directed and contributed to the production of ALC’s 

occupancy reconciliation spreadsheets, fictional records that used faux

occupants to make up for the shortfalls at the Ventas properties. And those 

fictional records infected other ALC records, including the journal entries 

booking revenue to faux-occupant stays and corresponding negative revenue to 

the 997 account, ALC’s certified compliance statements to Ventas, the notes to 

ALC’s financial statements, and ALC’s board minutes. Her actions caused ALC 

to violate Section 13(b)(2)(A) and violated Section 13(b)(5) and Rule 13b2-1. 

None of Bebo’s arguments to the contrary are availing. 

The inclusion of fabricated occupancy reconciliation spreadsheets as part 

of ALC’s quarterly accounting records violated Section 13(b)(2)(A). 

Bebo caused ALC to include faux occupants in its records for the Ventas 

facilities by creating and using occupancy reconciliation spreadsheets. Each 

quarter, Bebo selected the names of “employees” to include in the occupancy 

calculations to make up for the shortfall in actual occupancy at the Ventas 

facilities. Tr. 816–17, 826. Neither Bebo, nor her subordinates, documented 

what days, if any, the people she selected actually stayed at Ventas facilities.

Tr. 817. Instead, Bebo dictated that each “employee” she selected be considered

an occupant of one or more facilities for at least one month and, frequently, the 

entire quarter. Tr. 989–990, 2352. The calculations were memorialized on an 

Excel spreadsheet for ALC in an occupancy reconciliation tab. Tr. 791–93; see, 

e.g., Ex. 31A, “2011 Q4 OU Recon” tab. The twelve occupancy reconciliation 

spreadsheet tabs, for the twelve quarters of 2009 to 2011, all contain fabricated

information about “employee” stays. 

As a result of the erroneous information in the occupancy reconciliation

tabs, most of the other tabs in ALC’s quarterly accounting spreadsheets are 

inaccurate because they incorporate the inaccurate data from occupancy 

reconciliation. Each quarter’s master spreadsheet contains other resultantly 
69

inaccurate tabs for, among other things, occupancy calculations, revenue, and 

compliance with quarterly and trailing-twelve-month coverage covenants. 

Bebo’s use of her friend Bucholtz to pad the Ventas occupancy numbers during 

the fourth quarter of 2011 provides an example of how false occupancy 

numbers affected other records. According to the occupancy reconciliation

spreadsheet for the fourth quarter of 2011, Bucholtz simultaneously occupied 

rooms at four different facilities—Greenwood, CaraVita Village, Winterville, 

and Tara Plantation—for every single day of October, November, and 

December. Ex. 31A, “2011 Q4 OU Recon” tab. These imaginary stays by one

person enabled ALC to inflate the revenue for those facilities by $31,832; the 

calculations at the bottom of the occupancy reconciliation tab show revenue 

inflated by $6,900 for Greenwood, $7,452 from CaraVita Village, $9,200 from 

Winterville, and $8,280 from Tara Plantation. Id. The inflated occupancy 

numbers were then included in the occupancy calculations tabs of the quarterly 

spreadsheet. See Ex. 31A, “Occ Calculations” & “Monthly OCC” tabs. And the 

inflated revenue was consequently included in the tabs that measured ALC’s 

compliance with the Ventas covenants. See Ex. 31A, “Covenant -Q4 2011” & 

“Covenant -TTM (12-31-2011)” tabs.

Bebo contends that she cannot be held liable for the occupancy 

reconciliation spreadsheets because “the lists do not constitute records that 

‘reflect the transactions and dispositions of assets’ of ALC.” Resp’t Post-hr’g Br. 

at 209 n.58. Instead, “[t]hey merely reflected days that employees and other 

non-residents affiliated with ALC stayed or had reason to stay at any of the 

[Ventas] Facilities for purposes of calculating covenants under the Lease.” Id.

But I find that the occupancy reconciliation spreadsheets were records of 

purported transactions in which the Ventas facilities received revenue in 

exchange for the purported use of those facilities by the faux occupants. As a 

preliminary matter, the occupancy reconciliation spreadsheets are “records” 

under the Exchange Act because they are “documents ... of any type.” 15 U.S.C. 

§ 78c(a)(37). Specifically, the spreadsheets are records of which faux occupants 

stayed at each Ventas facility and how much purported revenue to those 

facilities resulted from those stays. See World-Wide Coin, 567 F. Supp. at 748–

49 (“Congress’s use of the term ‘records’ suggests that virtually any tangible 

embodiment of information made or kept by an issuer is within the scope of 

section 13(b)(2)(A) ....”). Though the phrase Bebo uses, “employee leasing,” is 

inapt because ALC did not actually lease rooms from the Ventas facilities on 

behalf of its employees (or the nonemployee faux occupants), it nonetheless

admits the transactional nature of the lists. E.g., Tr. 2067. Leases are one of 

the archetypical legal transactions. See, e.g., Lease, Black’s Law Dictionary 

(11th ed. 2019) (“The concept of the lease is an ancient one ....” (quoting Alan 

N. Polasky, The Condemnation of Leasehold Interests, 48 Va. L. Rev. 477, 488 
70

(1962))). In short, Bebo’s argument that the numbers in the occupancy 

reconciliation spreadsheets do not represent transactions is true only in the 

sense that most, if not all, of the listed individuals never stayed or intended to 

stay at Ventas facilities. And that shows that they are falsified, not why they 

are not covered records.

In addition, for ALC to keep its books and records to, “in reasonable detail, 

accurately and fairly reflect [its] transactions,” I find that ALC’s records 

needed to accurately account for or reflect, on some level, the occupants at the 

Ventas properties. 15 U.S.C. § 78m(b)(2)(A). As shown by Bucholtz’s supposed 

use of Ventas properties during 2011, by adding names to the occupancy 

reconciliation lists, Bebo was creating inaccuracies that immediately spilled 

over into other tabs of the same quarterly spreadsheet that recorded, for 

example, the gross revenue of the Ventas facilities. See Ex. 31A, “Covenant -

Q4 2011” & “Covenant -TTM (12-31-2011)” tab. And those inaccuracies tainted 

further records of ALC.

Use of the occupancy reconciliation spreadsheets resulted in errors in other 

books and records in violation of Section 13(b)(2)(A).

The fictitious entries in the occupancy reconciliation spreadsheets caused 

errors in ALC’s journal entries, quarterly compliance statements to Ventas, 

the notes to ALC’s financial statements, and board meeting slides. These were 

all “accounts, correspondence, ... books, and other documents or transcribed 

information of any type” that failed to “accurately and fairly reflect” ALC’s 

operation of the Ventas facilities. 15 U.S.C. §§ 78c(a)(37), 78m(b)(2)(A).

First, the fictional transactions created by Bebo using the occupancy 

reconciliation spreadsheet resulted in fictional revenue in the journal entries 

for the Ventas facilities and ALC, and corresponding entries in the general 

ledger. The revenue amounts needed to make up for the shortfall in occupied 

units to meet the coverage covenants were provided to Ferreri, ALC’s assistant 

controller, who processed the journal entities by booking the made-up revenue 

to the Ventas facilities’ financial statements. Tr. 824–26; see Tr. 1221–25.

These entries recorded revenue on the accounts of the eight Ventas facilities, 

and recorded a corresponding amount of “negative revenue” in a revenue 

account known as the 997 account. Tr. 1225; see Exs. 378–425, 427–450

(journal entries reflecting the recording of faux-occupant-related revenue to 

the Ventas facilities and the corresponding negative revenue in the 997 

account). Ferreri recognized that the employee revenue journal entries were 

“definitely not consistent with GAAP.” Tr. 1227–28, 1243–44; see also Ex. 377

at 27–29. As a result, he insisted that Bebo or Buono sign off on the entries.

Tr. 1246–48. So, on numerous occasions, Bebo signed the journal entries that

recorded the revenue associated with the faux occupants that she included in 
71

the covenant calculations. See, e.g., Tr. 2055–56, 2059–62, 2068–69; Ex. 427 at 

31709; Ex. 433 at 31896; Ex. 447 at 177174; Ex. 449 at 177179. And then those 

journal entries were posted to ALC’s general ledger by Ferreri. See Tr. 1223–

25, 1230–31. I find that the non-GAAP-compliant journal entries and 

corresponding general-ledger entries for the fictional revenue attributed to 

faux-occupant stays violated Section 13(b)(2)(A).

Second, falsified covenant calculations resulted in inaccurate 

communications to Ventas each quarter. To document compliance with lease 

covenants, the lease required ALC to furnish Ventas with GAAP-compliant 

financial statements for each Ventas facility and the portfolio as a whole along 

with a signed certification by an ALC executive officer each quarter. Tr. 2323–

24; Exs. 32–45; Ex. 142 §§ 25.3–.4 & Ex. D.

ALC’s quarterly compliance statements to Ventas were not GAAPcompliant. They included the made-up occupancy and revenue numbers 

without telling Ventas about or including the occupancy reconciliation 

spreadsheets. Tr. 2348–49, 4669–70. Compare, e.g., Ex. 45 with Ex. 31A. The 

Division’s expert, Barron, testified that recording revenue on the financial 

statements of the Ventas facilities, which the lease required to be prepared in 

accordance with GAAP, violated GAAP’s revenue recognition criteria in FASB 

Concepts Statement 5. Ex. 377 at 27–29. Specifically, the recording of revenue 

was improper because no cash changed hands, the Ventas facilities never had 

a claim to cash, and there was no evidence of an agreement between ALC and 

the Ventas facilities setting forth the terms of an arrangement that allowed 

revenue to be recorded on the facilities’ financial statements. See id. at 28. Bebo 

argues that quarterly statements were GAAP compliant because ALC’s 

financial systems were not set up to recognize intercompany revenue, the 997 

adjustment process was simply a “short-cut” that did not impact the final 

reports, there was an intercompany arrangement for revenue because ALC 

allowed any employee with a reason to go to count as renting a room, and 

financial statement notes were not required to be provided to Ventas under the 

lease. Resp’t Post-hr’g Br. at 167–170. Bebo did not present the testimony of 

an accounting expert to support the preceding argument, or to rebut Barron’s 

report. I credit Barron’s opinion that there was not persuasive evidence of an 

intercompany revenue recognition agreement satisfying GAAP because Bebo 

simply backfilled vacancies with names she selected.

In addition, the compliance statements incorrectly asserted compliance 

with the occupancy and coverage covenants. ALC was in compliance with the 

covenants only because of the occupancy reconciliation process that Bebo 

oversaw. See Ex. 377 at 23–27. Because the quarterly submissions to Ventas 

violated GAAP and inaccurately asserted compliance with the covenants at 

issue, they violated Section 13(b)(2)(A). 
72

Third, for the twelve quarters of 2009 to 2011, the notes of all ALC’s Forms 

10-K and 10-Q misrepresented that ALC was in compliance with the Ventas 

lease covenants. Ex. 2 at 30; Ex. 3 at 38; Ex. 4 at 42; Ex. 5 at 45; Ex. 6 at 34; 

Ex. 7 at 36; Ex. 8 at 38; Ex. 9 at 45; Ex. 10 at 32; Ex. 11 at 36; Ex. 12 at 36–37; 

Ex. 13 at 43. As those representations did not accurately reflect ALC’s 

transactions, each of these records is incompatible with Section 13(b)(2)(A).

And fourth, from the time the Ventas lease went into effect, for each board 

meeting through early 2012, Bebo and Buono provided the board with

PowerPoint slides that incorrectly stated that ALC was in compliance with the 

Ventas lease covenants. Tr. 554–55, 1357, 1837, 2322, 2641–42, 2808; see, e.g.,

Ex. 81 at 2351–52; Ex. 82 at 3313, 3356; Ex. 86 at 4540, 4559. These records 

likewise violated Section 13(b)(2)(A).

Bebo caused ALC to violate Section 13(b)(2)(A).

Bebo caused ALC’s violations. Bebo took multiple actions that she must 

have known would cause ALC’s books-and-records violations. See 15 U.S.C. 

§ 78u-3(a); Fuller, 2003 WL 22016309, at *4. She started the process that 

resulted in ALC’s inaccurate records by creating the occupancy reconciliation 

information. See Tr. 816–17, 826, 2350, 4076–77. She continued it by signing 

the journal entries booking fictitious revenue and by directing ALC staff to 

memorialize the inaccurate information and provide it to Ventas. Tr. 1246–48, 

2348. She must have known that the generation of falsified records would 

result because that was the point of the occupancy reconciliation process and 

she directed that the false records not be shared with Ventas. See, e.g., Tr. 990, 

2072, 2348–49, 4669–70. Bebo knew that her actions and commands, as CEO, 

would contribute to ALC making and keeping books and records that did not 

accurately or fairly reflect the transactions under the lease with Ventas. 

After taking or ordering all of these actions, Bebo cannot now claim that 

she did not cause violations of Section 13(b)(2)(A) because Buono and the 

accounting staff may have also taken actions that contributed to the violations. 

See Resp’t Post-hr’g Br. at 210–11. Bebo is not required to be the sole cause of 

the violations; she need only “contribute.” Fuller, 2003 WL 22016309, at *4.

Even if others bore partial responsibility for the underlying scheme, Bebo’s role 

in originating and directing the continuation of the occupancy reconciliation 

process is not absolved.

Bebo violated Section 13(b)(5) and Rule 13b2-1.

In addition to liability for causing ALC’s violations, Bebo is directly liable 

for falsifying ALC’s books and records under Rule 13b2-1 and Section 13(b)(5). 

For the purposes of Section 13(b)(5), she did so knowingly. Bebo knowingly 

falsified the twelve occupancy reconciliation spreadsheets by including 
73

individuals, such as Bucholtz, who did not stay at Ventas facilities. See 

Tr. 1989–90. She signed journal entries of the fictional revenue from fauxoccupant stays she knew to be false, and even to the extent she did not sign 

each one, she insisted that revenue be recorded to report to Ventas to claim 

that the covenants were met. See, e.g., Tr. 2055–56; Ex. 427 at 31709. 

Similarly, she caused ALC to issue false quarterly compliance statements to 

Ventas reflecting occupancy and revenue that she knew did not exist. Tr. 2348–

49, 4669–70. And she signed off on the inclusion of false notes in the financial 

statements and similarly false assertions to be included in the written 

presentations to ALC’s board. See Tr. 1837–38; see, e.g., Ex. 2 at 30. 

The fictitious entries in the occupancy reconciliation spreadsheets did not 

need to affect ALC’s reported financial statements or make ALC’s records 

materially false to be violations.

None of Bebo’s arguments undo my conclusion that she violated the 

Exchange Act’s books-and-records provisions. 

Bebo first argues that the books-and-records charges fail because the 

challenged leasing practice “had no effect whatsoever on the integrity of the 

financial statements that ALC reported to the Commission.” Resp’t Post-hr’g 

Br. at 209 (asserting that “the Division has never challenged the accuracy [of] 

any financial information or the occupancy data in the Company’s financial 

statements”). But this ignores the plain language of Section 13(b)(2)(A), which 

has no requirement that the Division prove the books and records had any 

effect on the financial statements. See 15 U.S.C. § 78m(b)(2)(A). Because the 

statute’s plain language provides for nothing like the rule Bebo intimates 

exists, I reject her implication. See Jensen, 532 F. Supp. 2d at 1199 (contrasting 

Section 13(b)(2)(A) with a different subparagraph, which expressly links one 

category of internal controls to preparing financial statements), aff’d in 

relevant part sub nom. Reyes, 577 F.3d 1069. Congress adopted the books-andrecords requirements “not merely to ensure accurate SEC public filings, but to 

reassure investors that, at the least, all books and records reflecting the 

economic events and activities of the corporation were accurate and honest.” 

Id. at 1198.

Bebo next claims the books-and-records charges fail because “[n]either the 

journal entries for the 997 Account nor the quarterly compliance certification 

documents were false in any material way.” Resp’t Post-hr’g Br. at 209; see

Resp’t Post-hr’g Reply Br. at 94 (Aug. 28, 2015). However, Bebo’s argument is 

premised on her view that Ventas was fully informed of and agreed to ALC’s 

occupancy reconciliation practices. See Resp’t Post-hr’g at Br. at 210. I have 

concluded that was not the case. Although it is possible that Bebo’s call with 

Solari and subsequent correspondence provided ALC with a plausible basis to 
74

count the actual nights that ALC employees stayed at the Ventas facilities (as 

opposed to hotels) toward the coverage and occupancy covenants, ALC quickly 

abandoned that practice and began using only fictitious, duplicative entries.

And even if I agreed with Bebo’s version of the facts, materiality is not an 

element of a Section 13(b)(2)(A) violation. The plain text of the statute includes 

no such requirement. United States v. Nicholas, No. 08-cr-139, 2008 WL 

5233199, at *3 (C.D. Cal. Dec. 15, 2008); see World-Wide Coin, 567 F. Supp. at 

749 (noting that Congress rejected inclusion of a materiality requirement in 

Section 13(b)(2)(A)). As the Commission has noted, “[i]t bears emphasis ... that 

[Section 13(b)(2)(A)] is qualified by the phrase ‘in reasonable detail’ rather than 

by the concept of ‘materiality.’” Promotion of the Reliability of Fin. Info. & 

Prevention of the Concealment of Questionable or Illegal Corp. Payments & 

Practices, 44 Fed. Reg. 10,964, 10,967 (Feb. 23, 1979); accord Staff Accounting 

Bulletin No. 99, 64 Fed. Reg. 45,150, 45,153–54 (Aug. 19, 1999) (concluding 

that “failure to record accurately immaterial items, in some instances, may 

result in violations of the securities laws”). Although its commentary is not 

binding, I agree with the Commission’s staff that “[i]t is unlikely that it is ever 

‘reasonable’ for registrants to record misstatements or not to correct known 

misstatements—even immaterial ones—as part of an ongoing effort directed 

by or known to senior management for the purposes of ‘managing’ earnings.” 

SAB No. 99, 64 Fed. Reg. at 45,154 (discussing factors that may inform what 

counts as reasonable). 

Bebo violated the Exchange Act’s internal-controls provisions.

Bebo is charged with knowingly circumventing or knowingly failing to 

implement a system of internal controls in violation of Exchange Act Section 

13(b)(5) and, in doing so, causing ALC to fail to devise and maintain a sufficient 

system of internal controls in violation of Section 13(b)(2)(B). OIP at 11.

Under Section 13(b)(2)(B), ALC is required to “devise and maintain a 

system of internal accounting controls sufficient to provide reasonable 

assurances” that: 

(i) transactions are executed in accordance with 

management’s general or specific authorization; 

(ii) transactions are recorded as necessary (I) to permit 

preparation of financial statements in conformity with 

generally accepted accounting principles or any other 

criteria applicable to such statements, and (II) to 

maintain accountability for assets; 
75

(iii) access to assets is permitted only in accordance with 

management’s general or specific authorization; and 

(iv) the recorded accountability for assets is compared 

with the existing assets at reasonable intervals and 

appropriate action is taken with respect to any 

differences.

15 U.S.C. § 78m(b)(2)(B)(i)–(iv). Congress copied these four categories from the 

American Institute of Certified Public Accountants’ (AICPA) Statement on 

Auditing Standards of 1973. S. Rep. No. 95-114, at 8 (1977), reprinted in 1977 

U.S.C.C.A.N. 4098, 4105. The AICPA guidance that accompanied the

standards represents persuasive authority on their application. See 1 AICPA,

Statement on Auditing Standards (1973) (AICPA Statement), available at 

https://egrove.olemiss.edu/aicpa_sas/4. “Scienter need not be shown to 

establish liability under Section 13(b)(2).” McConville, 2005 WL 1560276, at 

11 & n.44 (citing McNulty, 137 F.3d at 740–41).

As with violations of Section 13(b)(2)(A), the Commission may bring an 

action against an individual who caused an issuer to violate Section 

13(b)(2)(B). See 15 U.S.C. § 78u-3(a). And the elements—a violation, an act or 

omission that caused the violation, and knowledge—are the same. Fuller, 2003 

WL 22016309, at *4.

And Section 13(b)(5) imposes direct liability on those that “knowingly 

circumvent or knowingly fail to implement a system of internal accounting 

controls.” 15 U.S.C. § 78m(b)(5). As noted above, Section 13(b)(5) prohibits only 

knowing violations—unlike Section 13(b)(2)(B). See Reyes, 577 F.3d at 1080. 

The Division argues that the evidence that Bebo directed and participated 

in the occupancy reconciliation scheme establishes that Bebo “failed to 

establish sufficient internal controls, which allowed the falsified transactions 

to be recorded in ALC’s general ledger.” Div. Post-hr’g Br. at 53.

The Division’s claim is amply supported. Starting in 2009 and continuing 

through 2012, Bebo oversaw ALC’s occupancy reconciliation process despite 

knowing that there were insufficient internal controls to ensure that 

transactions were properly recorded for the purpose of producing GAAPcompliant financial statements. The internal controls also failed to account for

assets and to ensure that recorded accountability for assets could be checked

for reliability and corrected when necessary. Because she made the choices 

that resulted in this absence of relevant controls, Bebo caused ALC to violate 

Section 13(b)(2)(B) and violated Section 13(b)(5). She cannot escape liability by 

shifting the blame to others. 
76

ALC failed to devise and maintain adequate internal controls in violation 

of Section 13(b)(2)(B).

ALC failed to devise and maintain internal controls that could have 

prevented the occupancy reconciliation scheme in two out of the four statutory 

categories. The absence of controls that could provide reasonable assurances 

that transactions were properly recorded and that assets were tracked allowed 

Bebo to carry out her scheme. I find that the Division proved that ALC failed

to establish internal controls in the second and fourth categories, 15 U.S.C. 

§ 78m(b)(2)(B)(ii), (iv).11

The Division established that ALC failed to establish the second category 

of internal controls. That category requires internal controls sufficient to 

provide reasonable assurances that “transactions are recorded as necessary” 

to permit GAAP-compliant financial statements and to maintain 

accountability for assets. 15 U.S.C. § 78m(b)(2)(B)(ii); accord AICPA Statement 

§ 320.39 (“[A]ssurance that transactions have been properly recorded 

depend[s] largely on the availability of some independent source of information 

that will provide an indication that the transactions have been executed.”).

12

The booking of transactions for nonresidents of the Ventas facilities was 

recorded in contravention of both of these purposes. Even if Ventas agreed to 

allow ALC employees who stayed at the Ventas facilities to be included in 

covenant calculations, there were no internal controls to ensure that any 

occupancy requirements imposed in the Ventas leases were satisfied for each 

of the occupants. See Ex. 142 § 7.2.1 & schedule 1.3 (requiring each leased 

property to be used “solely for its Primary Intended Use”). Nor were there any 

 

11 The first and third subsections relate to transactions executed and assets 

accessed “in accordance with management’s general or specific authorization.” 

15 U.S.C. § 78m(b)(2)(B)(i), (iii). It is unclear whether a CEO’s authorization is

enough to satisfy these subsections or whether they require internal controls 

to confirm that the person making the authorization—regardless of position—

is not acting ultra vires. See AICPA Statement § 320.37 (“Obtaining reasonable 

assurance that transactions are executed as authorized requires independent 

evidence that authorizations are issued by persons acting within the scope of 

their authority...”).

12 At least some courts have read Section 13(b)(2)(B)(ii) to apply to the 

financial statements in only periodic reports filed with the Commission. See

Jensen, 532 F. Supp. 2d at 1199. Because I find that ALC’s failure to establish 

internal controls did ultimately affect the company’s reported financial 

statements through the booking of non-GAAP-compliant revenue and the 

inclusion of material misstatements in the notes, I need not decide whether 

context requires this limitation on the term “financial statements.” 
77

controls to ensure that the faux occupants actually used the facilities. See 

Tr. 2071–72. There was nothing like the TIPS system that ALC used for actual 

residents of the Ventas facilities. See Ex. 377 at 31; Tr. 3028. Instead, the 

occupancy reconciliation spreadsheet was created on an ad hoc basis at the end 

of each quarter for the purpose of boosting numbers to satisfy the Ventas 

covenants. Tr. 2072. Even Bebo admits that controls were lacking. See Resp’t 

Post-hr’g Br. at 106 (conceding that, in hindsight, ALC’s covenant-related 

controls “were not as robust as they should have been”). The absence of any 

relevant controls meant that there were gaps in accountability for the units at 

Ventas facilities—that is, ALC’s assets—and who were using them. See 

Tr. 2071–72 (Bebo testified that the residence directors at the Ventas facilities 

did not know anything about the faux occupants). And the lack of assurance 

that those being included in the occupancy reconciliation spreadsheet had 

stayed at the facilities and were permitted to be counted in covenant 

calculations resulted in the production of financial statements to Ventas that 

failed to comply with GAAP because they included revenue that was neither 

realized nor earned. See Ex. 377 at 28–29; see Exs. 33–45. And, because the 

notes to the financial statements in ALC’s periodic reports contained 

misstatements that prevented the statements from accurately reflecting ALC’s 

financial status,13 the public financial statements also failed to comply with

GAAP. See United States v. Ebbers, 458 F.3d 110, 126 (2d Cir. 2006) 

(concluding that GAAP requires that financial statements “as a whole 

accurately reflect the financial status of the company”). 

Bebo’s invocation of the 997 account in ALC’s general ledger as the only 

necessary control to ensure that transactions were accurately recorded does 

not withstand scrutiny. See Resp’t Post-hr’g Br. at 95. As a preliminary matter, 

the 997 account did nothing to maintain accountability for the units at Ventas 

properties or to assure that the financial statements provided to Ventas were 

GAAP-compliant. See Ex. 377 at 29. And, although the 997 adjustments appear 

to be an internal control intended to provide assurances that the numbers in 

the publicly reported financial statements were GAAP-compliant, they do not 

even serve that function. As Barron opined, this process does not excuse the 

booking of non-GAAP-compliant revenue nor the booking of negative revenue 

in the same general ledger, as opposed to recording revenue in the ledgers of 

each Ventas facility and a corresponding expense in ALC’s ledger. See Ex. 377 

at 14–15. In addition, the fact that the numbers in ALC’s reported financial 

statements were accurate does not mean that there were adequate internal 

controls. Tr. 1756–57. At a minimum, the occupancy reconciliation scheme 

resulted in the notes to the financial statements—an “integral part” of those 

 

13 As I conclude below, the misstatements in the notes were material. 
78

statements—misrepresenting that ALC was meeting its occupancy and 

coverage covenants with Ventas. E.g., Ex. 13 at F-3–F-7; cf. Johnson Bank v. 

George Korbakes & Co., LLP, 472 F.3d 439, 443 (7th Cir. 2006) (chastising 

litigant for “look[ing] no farther than the bottom-line numbers in the audit 

report” and “ignor[ing] the footnotes in the report”). And those 

misrepresentations violated GAAP’s “overall requirement that the statements 

as a whole accurately reflect the financial status of the company.” Ebbers, 458 

F.3d at 126 (concluding that proof that “financial statements were misleading 

... prove[d] violations of GAAP”). 

Second, the Division proved that ALC failed to establish the fourth 

category of internal controls. Like the second category, the fourth category—

which requires internal controls sufficient to provide reasonable assurances 

that “the recorded accountability for assets is compared with the existing 

assets at reasonable intervals and appropriate action is taken with respect to 

any differences”—would have prevented ALC from using faux occupants to 

boost occupancy numbers at the Ventas properties. 15 U.S.C. 

§ 78m(b)(2)(B)(iv). As noted above, there is no evidence that ALC used TIPS or 

a similar system to track the use of rooms at Ventas facilities by nonresidents. 

See Ex. 377 at 31. Instead, Bebo and her subordinates added names of faux 

occupants after the fact to “backfill” occupancy numbers to satisfy the Ventas 

covenants. See Tr. 990, 2072. As a result there was no way to, for example, 

complete a “review of records to check for completeness, accuracy and 

authenticity” or “a method to record transactions completely and accurately.”

McConville, 465 F.3d at 790. In fact, Bebo “specifically chose” a system that 

made it “impossible to reconstruct [nonresident] travel and stays.” Resp’t Posthr’g Br. at 106; see Tr. 4008–10. Sporadic instances in which an ALC employee 

or other person incidentally caught an error are not an adequate internal 

control. And without a system to regularly check nonresident use of the Ventas 

facilities, there was also no policy addressing appropriate remedial action 

through, for example, removing individuals who did not actually stay at Ventas 

facilities from revenue and coverage calculations. Accord AICPA Statement 

§ 320.48 (“Appropriate action may include adjustment of accounting records 

....”).

Bebo caused ALC to violate Section 13(b)(2)(B).

Bebo caused at least some of ALC’s Section 13(b)(2)(B) violations through 

her knowing actions. By directing Buono and his department to complete the 

occupancy reconciliation calculations after the fact, Bebo set up a system that 

did not use TIPS or any other method of ensuring that only individuals who 

were authorized under the Ventas contracts stayed at the facilities and that 

those individuals actually stayed at the facilities. As she admits, she

“specifically chose” a system that made it “impossible to reconstruct.” Resp’t 
79

Post-hr’g Br. at 106; see Tr. 4008–10. That deliberate choice knowingly caused 

ALC to fail to devise and maintain category two and four internal controls that 

would have ensured that transactions and assets were accurately recorded and 

tracked. See 15 U.S.C. § 78m(b)(2)(B)(ii), (iv). 

Bebo violated Section 13(b)(5).

Bebo is also liable for knowingly failing to implement those controls. See 

15 U.S.C. § 78m(b)(5). Her liability for knowingly failing to implement controls 

rests on the same factual foundation as her liability causing ALC to fail to 

implement certain internal controls. Bebo, as CEO, oversaw the performance 

of the occupancy reconciliation process as an after-the-fact method of falsifying 

occupancy records at the Ventas facilities without sufficient controls. See 

Tr. 816–17, 826. The evidence shows that she acted intentionally to avoid the 

types of controls that might have prevented the fabrication of occupancy 

records. See Tr. 4008–09. 

In addition, Bebo is liable for knowingly circumventing those controls that 

did exist, which provides an alternative basis for liability. See 15 U.S.C. 

§ 78m(b)(5). For example, Bebo’s failure to use a TIPS-like internal control for 

the occupancy reconciliation process could be viewed as a failure to institute 

sufficient controls. Or it could show that Bebo circumvented TIPS to do 

occupancy reconciliation outside of that existing control system. From either 

perspective, Bebo is liable under Section 13(b)(5). 

Audits and oversight by others does not eliminate Bebo’s liability.

As with her books-and-records violations, Bebo argues that she should not 

be responsible for her actions because others, whether knowingly or 

unknowingly, enabled or participated in her scheme. But neither of her 

arguments relieves her of responsibility.

First, determinations by others that there were no internal-control 

deficiencies are not decisive. Bebo argues that in 2012, when at least part of 

the pertinent facts were known, ALC’s board, Grant Thornton, and Milbank 

all determined that ALC’s internal controls were either not deficient, or at least 

free from material weaknesses. See Resp’t Post-hr’g Br. at 134–38, 161, 171–

72; Resp’t Post-hr’g Reply Br. at 17. However, each of these actors lacked the 

full facts at that time and thus were deprived of a meaningful opportunity to 

reach fully informed conclusions. Some members of the board may have been 

aware that ALC employees who actually stayed at the Ventas facilities were 

being included in covenant calculations, but the board was not informed of the 

full scope of Bebo’s occupancy reconciliation scheme. See Tr. 2382–88; see also, 

e.g., Tr. 564–65. And Grant Thornton and Millbank were similarly kept in the 

dark about some of ALC’s practices or did not interview key witnesses. See 
80

Tr. 2150–54, 2654–55, 3366–67, 3495–98. Finally, even setting aside those 

deficiencies, that Bebo evaded blame before this proceeding is not a defense in 

this forum to her being held accountable for unlawful conduct. 

Second, Bebo cannot shift all blame for ALC’s deficient internal controls 

to the company’s audit committee. See, e.g., Resp’t Post-hr’g Br. at 40 (citing 

Ex. 2072 at 4). As the audit committee reports note, the “primary 

responsibility” for ALC’s internal controls “rest[ed] with management”—that 

is, Bebo. E.g., Ex. 113 at 86. Bebo is also responsible as a matter of law. 

Although the audit committee, among others, had oversight responsibilities 

with respect to internal controls, Bebo is liable because she took knowing 

actions that contributed to the internal controls violations in two areas. See 

Fuller, 2003 WL 22016309, at *4. 

Bebo violated the Exchange Act’s antifraud provisions.

Bebo is charged with violating Exchange Act Section 10(b) and Rule 10b5, as well as causing ALC’s violations of those provisions. OIP at 10–11. 

Section 10(b) and Rule 10b-514 make it “unlawful” to, “in connection with 

the purchase or sale of any security,” (a) “employ any device, scheme, or artifice 

to defraud,” (b) make any material misstatements or “omit to state a material 

fact necessary in order to make the statements made, in the light of the 

circumstances under which they were made, not misleading,” or (c) “engage in 

any act, practice, or course of business which operates or would operate as a 

fraud or deceit upon any person.” 17 C.F.R. § 240.10b-5; see 15 U.S.C. § 78j(b) 

(authorizing the Commission to adopt rules prohibiting manipulative and 

deceptive conduct).

15 Liability requires a showing of scienter, “a mental state 

embracing [an] intent to deceive, manipulate, or defraud.” Aaron v. SEC, 446 

 

14 Because the scope of Rule 10b-5 is coextensive with the coverage of Section 

10(b), SEC v. Zandford, 535 U.S. 813, 816 n.1 (2002), I sometimes simply refer 

to either the statute or the rule but the reference covers both.

15 The rule also requires “the use of any means or instrumentality of 

interstate commerce or the mails,” but Bebo does not contest this element. 17 

C.F.R. § 240.10b-5. ALC’s stock was listed on a national exchange, and ALC 

and Ventas were headquartered in different states during the pertinent period, 

such that all their communications and transactions were by means of 

interstate commerce. Answer at 2–3. Further, the interstate commerce 

requirement is satisfied when the misstatements are made in filings made with 

the Commission via EDGAR, a system maintained by the Commission for the 

electronic filing of documents. See SEC v. Straub, No. 11-cv-9645, 2016 WL 

5793398, at *11 (S.D.N.Y. Sep. 30, 2016); McConville, 2005 WL 1560276, at 

*10.
81

U.S. 680, 686 n.5, 691, 695 (1980) (quoting Ernst & Ernst v. Hochfelder, 425 

U.S. 185, 194 n.12 (1976)).

The Division argues that Bebo “orchestrat[ed] the scheme to hide ALC’s 

breach of the covenants from Ventas and investors by using employees and 

other non-residents in the covenant calculations” in violation of Rule 10b-5(a) 

and (c). Div. Post-hr’g Br. at 50. It also contends that she violated Rule 10b5(b) “when she signed and/or certified ALC’s periodic reports which she knew, 

or was reckless in not knowing, contained [material] misstatements and 

omissions regarding ALC’s compliance with the Ventas covenants.” Id. at 47.

The Division has proved that Bebo violated the antifraud provisions’ 

prohibitions against deceptive schemes and material misrepresentations and 

omissions. Bebo acted intentionally to defraud Ventas and to deceive not only 

Ventas but also—except for a handful of subordinates—everyone else, 

internally and externally, about the existence, nature, and extent of her 

unlawful scheme. In the course of concealing the scheme, she caused ALC to 

make material misrepresentations and omissions in its periodic reports for 

each quarter in 2009, 2010, and 2011. As a maker of these statements, she is 

also a primary violator. I conclude that Bebo violated Section 10(b) and Rule 

10b-5 and caused ALC to do the same. 

Bebo acted with scienter.

Bebo’s actions in directing and participating in the occupancy 

reconciliation scheme establish that she acted with scienter. See Aaron, 446 

U.S. at 686 n.5, 691, 695. She knew all of the important details of the scheme, 

she ignored multiple warning signs that the scheme was illegal, and she 

concealed the scheme from Ventas and the public.

Although only extreme recklessness is required to prove scienter, see 

Dolphin & Bradbury, Inc. v. SEC, 512 F.3d 634, 639 (D.C. Cir. 2008), there is 

ample evidence that Bebo knew the details of the scheme and acted 

intentionally. Despite being advised by Fonstad that any waiver by Ventas of 

the occupancy and coverage-ratio covenants had to be in writing, Bebo treated 

Solari’s failure to dispute her email saying that ALC employees could stay at 

the Ventas properties as a waiver. See Ex. 1152 at 1; Ex. 1343 at 2. As one 

employee testified, Bebo “knew occupancy like the back of her hand,” so she 

was aware that ALC was not meeting the Ventas covenants without adding 

faux occupants. Tr. 838; see Tr. 2321, 2327–28. Indeed, she supplied the names 

and daily rates necessary to meet the covenants, even though she knew that 

some were not ALC employees and that many did not visit the properties. Tr. 

756–57, 798–802, 816–17, 989–90, 999–1001, 1009–10, 1113–14, 1126, 1128–

31, 1989–90, 2249–64, 2350–53, 2944–46, 2993; see, e.g., Ex. 167 at 11–14 (of 
82

34 PDF pages). Bebo also understood the basics of how Buono and his 

department used the 997 account. Tr. 2771–72. Despite knowing all of this 

information, she repeatedly certified in ALC’s periodic reports that the 

company was in compliance with the Ventas covenants. Tr. 1767–68, 1771; e.g., 

Ex. 13 at 43 & Ex. 31.1.

Bebo’s scienter is supported by all of the warnings about the scheme that 

she ignored. Ignoring “warning signs and red flags” is evidence of scienter. 

Anthony Fields, CPA, Securities Act Release No. 9727, 2015 WL 728005, at *12 

& n.68 (Feb. 20, 2015). Fonstad’s advice in February 2009 was the first red 

flag, see Ex. 1152 at 1, but there were many others over the following three 

years. Buono discussed with her that the use of employees “has to be real” and 

pointed out that potential bidders on ALC would be interested in the 997 

account. Tr. 2365, 2372–73; see Tr. 2128–36. At Ferreri’s request, Bebo signed 

journal entries for the 997 account—and only the 997 account—and Bebo 

herself would write down the names to include as fictitious occupants of the 

Ventas facilities. Tr. 1246–47, 1256, 2055–56, 2059–62, 2068–69; see, e.g., 

Ex. 427 at 31709. And Grochowski confronted Bebo about the scheme, warning 

her that it violated GAAP and refusing to continue to participate. Tr. 1153–55, 

1161–62.

Bebo’s concealment of the occupancy reconciliation scheme reinforces the 

other evidence of scienter. “[A]ttempts to conceal misconduct indicate scienter.” 

See Phillip J. Milligan, Exchange Act No. 61790, 2010 WL 1143088, at *5 

(Mar. 26, 2020). Bebo directed Buono and others, including ALC’s investment 

banker, not to provide Ventas with the occupancy reconciliation numbers and 

knew that they followed her direction. Tr. 2071–72, 2074–75, 2087–89, 2116–

17, 2348–49, 2829–32, 4669–70; Ex. 287 at 121071; Ex. 292 at 121196. She 

crafted responses to inquiries that avoided mentioning the scheme. Tr. 227–

37, 833–40, 2090–92, 2101–02, 2366–71; see Ex. 212, 280; see also Ex. 570 

(advocating removal of language regarding “placed employees” in draft 

settlement letter from ALC to Ventas because bringing it up would “create 

other disagreements”). And she limited access to the Ventas facilities and 

personnel, so that others could not discover the scheme. Tr. 1475, 2093–100, 

2368–69, 4154–55; Exs. 220, 223, 262. 

Bebo’s alleged reliance on professionals and others does not show she 

lacked scienter.

Bebo contends that scienter cannot be established because she relied on 

counsel and auditors regarding ALC’s compliance with the Ventas lease 

covenants. See, e.g., Resp’t Post-hr’g Br. at 195–96, 202–03. Good faith reliance 

on the advice of counsel or auditors can demonstrate that a respondent lacked 

scienter. See Howard v. SEC, 376 F.3d 1136, 1147 (D.C. Cir. 2004) (citing with 
83

approval former Commissioner Bevis Longstreth’s views as articulated in

Reliance on Advice of Counsel as a Defense to Securities Law Violations, 37 Bus. 

Law. 1185, 1187 (1982)); SEC v. McNamee, 481 F.3d 451, 455–56 (7th Cir. 

2007); United States v. Peterson, 101 F.3d 375, 381 (5th Cir. 1996).

Demonstrating reliance on counsel requires four showings: (1) complete 

disclosure to counsel; (2) request for counsel’s advice as to the legality of a 

contemplated action; (3) receipt of advice that the contemplated action was 

legal; and (4) good faith reliance on that advice. Timothy S. Dembski, Advisers 

Act Release No. 4671, 2017 WL 1103685, at *11 (Mar. 24, 2017) (citing SEC v. 

Savoy Indus., Inc., 665 F.2d 1310, 1314 n.28 (D.C. Cir. 1981)), pet. denied, 726 

F. App’x 841 (2d Cir. 2018). Reliance on auditors requires similar showings, 

including complete disclosure. See, e.g., SEC v. Yuen, No. 03-cv-4376, 2006 WL 

1390828, at *40 (C.D. Cal. Mar. 16, 2006), aff’d, 272 F. App’x 615 (9th Cir. 

2008); The Rockies Fund, Inc., Exchange Act Release No. 56344, 2007 WL 

2471612, at *3 & n.14 (Aug. 31, 2007).

Here, Bebo did not fully disclose her actions to counsel, so her reliance 

claim fails. See, e.g., SEC v. Schooler, 905 F.3d 1107, 1115–16 (9th Cir. 2018) 

(affirming fraud finding despite assertion of reliance on counsel because there 

was no evidence defendant made a complete disclosure to counsel). Although 

Bebo sought legal advice from Fonstad about including employees who stayed 

at the Ventas facilities in the covenant calculations, Fonstad’s advice was to 

obtain Ventas’s written agreement, which Bebo did not do. See Ex. 1152 at 1–

2; Ex. 184 at 2 (Bebo’s follow-up email to Solari after their call simply notified 

him that ALC planned on renting rooms to employees, but did not ask for any 

agreement). In fact, there is no evidence that Bebo ever sent anyone at Ventas 

the template about employee leases that Fonstad prepared for signature. See 

Ex. 1343 (containing all the communications between Bebo and Ventas on the 

employee leasing matter). Also, no evidence suggests that Bebo informed 

Fonstad of the extent of her scheme. For example, she did not tell him that she 

would use employees who did not stay at the facilities or count employees as 

having stayed at multiple locations during the same time period in calculating 

covenant compliance. See Tr. 1317, 1509. Because Bebo did not provide 

Fonstad with complete information about the scheme she employed, and also 

did not follow the advice she did receive, her reliance-on-counsel claim fails. 

After Fonstad departed ALC, Bebo did not seek the advice of his successor, 

Zak-Kowalczyck, concerning the scheme. See Tr. 2190–93. 

Regarding Bebo’s claimed reliance on outside counsel Quarles & Brady’s 

April 2012 reasonableness opinion concerning ALC’s covenant practices, Ex. 

1037, this opinion was issued after Bebo’s occupancy reconciliation scheme 

concluded, so she could not have relied on their advice as a basis for her actions 

or beliefs. Moreover, from reading Quarles & Brady’s opinion, it is clear that 
84

Bebo did not disclose to them that she had not actually obtained Ventas’s

agreement, nor did she disclose the full extent of her scheme, such as including 

the fictitious occupants in the calculations. See id. at 2. In addition, I do not 

credit Bebo’s testimony that she provided a complete disclosure to Quarles & 

Brady in 2011. See Tr. 2178, 2180−81. This testimony is incongruous with the 

advice Quarles & Brady provided in April 2012, in which there is no mention 

of a prior disclosure concerning the contours of Bebo’s scheme. Further, Bebo’s 

hearing testimony was inconsistent with her investigative testimony that 

Fonstad was the only attorney she consulted before March 2012. Ex. 496 at 

110−11; Ex. 497 at 303; see also Jt. Supp’l Ex. 1 at 27–28 (noting that “Bebo 

stated that Quarles & Brady was first contacted with respect to providing an 

opinion some time in April” of 2012, “a couple of weeks before” the firm 

“provided [its] advice”).

Bebo also has not shown a complete disclosure to auditors. Grant 

Thornton’s partners responsible for auditing ALC’s financial statements 

testified that they believed: (1) ALC had a written agreement with Ventas to 

include employees in covenant calculations if the employees had reasons to 

stay at the facilities; (2) that having ALC employee family members and future 

or former ALC employees included in the calculations was not appropriate; and 

(3) that the employees included in the covenant calculations had actually 

stayed in the facilities on the dates ALC reported. Tr. 3366–67, 3373 (Koeppel 

testimony), 3497–99 (Robinson testimony). Accordingly, Grant Thornton’s lack 

of objection to the covenant calculations was based on the incorrect information 

Bebo provided. In fact, there was no written agreement with Ventas, various 

family members and other nonemployees who did not stay at the facilities were 

counted in the calculations without Grant Thornton’s knowledge, and the 

names were selected after each quarter ended to back-fill vacancies in an 

attempt to falsely demonstrate compliance. Bebo did not inform the auditors 

of these central aspects of her scheme, so she cannot rely on their so-called 

agreement with the covenant calculations as a defense.16 In any event, if Bebo 

knew the disclosures were false, it does not matter that the auditors signed off 

on them, as she could not have relied on any purported advice in good faith. 

See SEC v. Goldfield Deep Mines Co., 758 F.2d 459, 467 (9th Cir. 1985) (“If a 

company officer knows that the financial statements are false or misleading 

and yet proceeds to file them, the willingness of an accountant to give an 

 

16 Bebo’s failure to disclose crucial information to ALC’s auditors 

distinguishes the situation from that in SEC v. BankAtlantic Bancorp., Inc., 

661 F. App’x 629 (11th Cir. 2016), a case she relies on. See Resp’t Supp’l Posthr’g Br. at 35−37; BankAtlantic, 661 F. App’x at 637−38 (finding that the 

defendant presented a triable question of fact about whether he disclosed 

sufficient information to auditors to rely on an advice of professionals defense).
85

unqualified opinion with respect to them does not negate the existence of the 

requisite intent or establish good faith reliance.” (quoting United States v. 

Erickson, 601 F.2d 296, 305 (7th Cir. 1979)); Dembski, 2017 WL 1103685, at 

*11 (“Dembski was aware of the facts that rendered Stephan’s biography 

incorrect. Thus, even if Dembski had sought and received legal advice ... he 

could not have relied on it in good faith.”).

Bebo claims that she relied on other groups and individuals, including 

ALC’s board and disclosure committee, who all failed to object to her 

reconciliation scheme. See, e.g., Resp’t Post-hr’g Br. at 118−20, 197–204; Resp’t 

Post-hr’g Reply Br. at 3−7; Resp’t Supp’l Post-hr’g Br. at 13−14. Yet none of 

the people she claims to have relied on had a complete understanding of her 

scheme. Multiple witnesses who attended disclosure committee meetings

testified that they did not recall discussing including employees in the 

covenant calculations. See Tr. 1619 (Fonstad testimony), 2389 (Buono 

testimony), 4380 (Zak-Kowalczyck testimony). Hokeness, another member of 

the committee, testified that the committee was not informed of the occupancy 

reconciliation specifics, such as the number of employees included in the 

covenants or the process by which names were chosen. Tr. 3133−34. Without 

such information, the disclosure committee was not properly informed, and 

Bebo could not have reasonably relied on its failure to object.

Likewise, the record does not reflect that the board knew the contours of 

Bebo’s occupancy reconciliation plan, so reliance on the board’s lack of objection 

and approval of ALC’s disclosures does not demonstrate Bebo lacked scienter. 

See Tr. 2035 (Bebo testimony). Although board members were likely aware 

that some employees were included in the calculations, see, e.g., Tr. 4633–34, 

board members were shocked and furious when they learned the scope of 

Bebo’s scheme. Tr. 1373–74, 2389, 2613, 2652–53, 2837–38. 

Further, Bebo cannot assert that she relied on the professionals in ALC’s 

finance department who carried out her scheme without objection. For one, 

they were her subordinates, and also, many of them did not have full 

information. Those with a greater degree of knowledge, such as the employees 

tasked by her with carrying out the reconciliation process, had significant 

reservations about the practice. See, e.g., Tr. 979–80 (Schelfout testimony), 

1227−28 (Ferreri testimony). Buono suggested that he never said anything 

because he feared termination. Tr. 2348. One such employee, Grochowski, 

eventually confronted Bebo with his concerns, refused to take further part in 

the scheme, and ultimately filed a complaint. See Tr. 1152−53; Ex. 1132. Bebo 

could not have reasonably relied on any of these people in good faith.

Finally, regardless of what any of these people knew about the extent of 

her scheme, Bebo certainly knew what she was doing; she carried out and 
86

directed the entire plan to falsify the covenant calculations. She cannot deflect 

blame to others for her own intentional fraud. This distinguishes the matter 

from cases cited by Bebo. See Durgin v. Mon, 659 F. Supp. 2d 1240 (S.D. Fla. 

2009); SEC v. Coffman, No. 06-cv-00088, 2007 WL 2412808 (D. Colo. Aug. 21, 

2007). Durgin involved a motion to dismiss where there was no evidence that 

the defendants were aware of the conduct that constituted the fraud allegation 

at issue, 659 F. Supp. 2d at 1256, and Coffman involved a defendant’s lack of 

knowledge regarding statements in public filings, 2007 WL 2412808 at *14.17

Bebo violated Rule 10b-5(a) and (c). 

Bebo implemented the occupancy reconciliation scheme to defraud Ventas 

when it was considering acquiring ALC through a stock purchase and to 

deceive the public at large. Her actions fit within the broad definition of scheme 

contemplated by Rule 10b-5. The scheme was connected with potential sales of 

ALC stock. In implementing the scheme, Bebo sought to deceive the persons—

Ventas and the public—who were the potential buyers in those sales. She did 

all of this with scienter. 

Rule 10b-5(a) and (c) prohibit the use of a fraudulent “device, scheme, or 

artifice” or a fraudulent “act, practice, or course of business.” 17 C.F.R. 

240.10b-5(a), (c). Notably, the conduct prohibited by subsections (a) and (c) may 

include material misrepresentations and omissions, but does not require them. 

Unlike subsection (b), conduct intended to deceive is sufficient for scheme 

liability. Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 150–53 

(1972); see, e.g., United States v. Ellison, 704 F. App’x 616, 622 (9th Cir. 2017) 

(holding that withholding important information from sales staff, directing 

money transfers to improper accounts, attempting to dissuade greater 

transparency, and concealing from lenders certain sales activities constituted 

a fraudulent scheme). Thus, regardless of whether misleading statements or 

omissions are part of the facts that establish scheme liability in this particular 

case, their materiality, or lack thereof, is not a controlling issue in determining 

liability under Rule 10b-5(a) and (c). See Thomas C. Gonnella, Securities Act 

Release No. 10119, 2016 WL 4233837, at *9–10 (Aug. 10, 2016) (rejecting 

argument that there could be no scheme liability because resulting loss was 

“immaterial”), pet. denied, 954 F.3d 536 (2d Cir. 2020).

 

17 In her briefing, Bebo advances these reliance arguments as a defense to 

the antifraud violations. See, e.g., Resp’t Post-hr’g Br. at 195–204. If the 

arguments are meant to provide a defense to other charges, see Answer at 11 

(alleging, in affirmative defenses 4–6, that “Bebo did not intentionally, 

recklessly or negligently violate securities law” based on her reliance on the 

advice of others), I reject her arguments for the same reasons. 
87

Bebo’s actions fit comfortably within the “broad” range of conduct 

prohibited by the rule. Lorenzo v. SEC, 139 S. Ct. 1094, 1101 (2019); accord 

SEC v. W.J. Howey Co., 328 U.S. 293, 299 (1946) (the securities laws were 

designed “to meet the countless and variable schemes devised by those who 

seek the use of the money of others on the promise of profits”). Her actions 

included misrepresentations and omissions in public filings and direct 

communications with Ventas, see, e.g., Tr. 227–37, 2101–02, 2366–71; Ex. 2 at 

30 & Ex. 31.1, but it was not limited to misrepresentations and omissions. Over 

a roughly three-year period, she directed her subordinates to use faux 

occupants to bolster occupancy and revenue at the Ventas facilities, and then 

she worked to conceal the falsification of those records from Ventas and 

everyone else. See, e.g., Tr. 754, 989–90, 1974–77, 1996–99, 2087–89, 2347–48, 

2351–54, 2369. 

The rule also requires that the scheme be in connection with the purchase 

or sale of securities. 17 C.F.R. § 240.10b-5; see 15 U.S.C. § 78j(b). This 

requirement should similarly be “read broadly.” S.W. Hatfield, CPA, Exchange 

Act Release No. 73763, 2014 WL 6850921, at *8 (Dec. 5, 2014). The deception 

must merely “coincide” with a securities transaction, Zandford, 535 U.S. at 

825, so long as the scheme “involve[s] victims who took, who tried to take, who 

divested themselves of, who tried to divest themselves of, or who maintained 

an ownership interest in [securities].” Chadbourne & Parke LLP v. Troice, 571 

U.S. 377, 388 (2014) (emphasis omitted). The requirement is satisfied by 

statements (or omissions) in an issuer’s periodic reports, such as those in ALC’s 

notes to its financial statements and Bebo’s certifications. See Hatfield, 2014

WL 6850921, at *8 & n.41 (collecting case law). It is also satisfied by the steps 

that Bebo took to conceal the occupancy reconciliation scheme from Ventas 

when Ventas was considering purchasing ALC’s stock. See Answer at 8; 

Tr. 2135–36. 

The scheme or practice must “defraud” or “operate as a fraud” on a person. 

17 C.F.R. § 240.10b-5. To be liable for participation in a scheme to defraud, a 

respondent typically “must have engaged in conduct that had the principal 

purpose and effect of creating a false appearance of fact in furtherance of the 

scheme.” Simpson v. AOL Time Warner, Inc., 452 F.3d 1040, 1048 (9th Cir. 

2006), vacated on other grounds, Simpson v. Homestore.com, Inc., 519 F.3d 

1041 (9th Cir. 2008).

The Supreme Court has interpreted similar language in the criminal fraud 

statutes to incorporate some of the requirements of common law fraud. See 

Neder v. United States, 527 U.S. 1, 20–24 (1999). It held that “materiality of 

falsehood is an element of the federal mail fraud, wire fraud, and bank fraud 

statutes” that prohibit schemes to defraud. Id. at 25. By analogy then, although 

subsections (a) and (c) of Rule 10b-5 do not contain an express materiality 
88

element like subsection (b), the intended deception wrought by the scheme or 

practice must be material.18 This materiality requirement is distinct from the 

“reasonable investor” materiality requirement under subsection (b). See Basic, 

Inc. v. Levinson, 485 U.S. 224, 231–32 (1988). Under the common law, a matter 

may also be material if “the maker ... has reason to know that its recipient 

regards or is likely to regard the matter as important in determining his choice 

of action, although a reasonable man would not so regard it.” Restatement 

(Second) of Torts § 538 (1977); see Neder, 527 U.S. at 22 (citing Restatement 

with approval). In other words, the deception must have a purpose. Bebo’s own 

conduct perpetrated a scheme with the principal purpose and effect to deceive 

Ventas and the investing public about information that she thought mattered.

First, Bebo’s scheme operated as an intentional fraud on Ventas. From the 

beginning, Bebo was aware of the importance that Ventas placed on the 

financial covenants. She knew that, under the lease, ALC had a duty to satisfy 

those covenants, make materially correct quarterly reports on its compliance, 

and to promptly notify Ventas if it was not compliant. See Ex. 142 §§ 8.2.1, 

8.2.3(a), 8.2.5, 10.6, 25.3–.4 & Ex. D. Further, Bebo knew from ALC’s attempt 

to purchase the New Mexico properties in exchange for covenant relief that 

Ventas valued the covenants enough to not cheaply trade them away. See 

Tr. 436–38, 2360–61; Ex. 198. She nevertheless directed the falsification of 

ALC’s books and records to reflect faux occupants at the Ventas properties so 

that ALC would appear to be in compliance. This type of conduct involving the 

falsification of financial records and the orchestration of sham transactions is 

a typical scheme to defraud. See, e.g., SEC v. Monterosso, 756 F.3d 1326, 1334–

46 (11th Cir. 2014) (holding that the submission of “fictitiously manufactured 

invoices” and other manufactured evidence of nonexistent revenue was 

“overwhelming” evidence of a fraudulent scheme); SEC v. AgFeed Indus., Inc., 

No. 3:14-cv-663, 2016 WL 10934942, at *14–16 (M.D. Tenn. July 21, 2016) 

(concluding that allegations “involv[ing] false accounting entries, a double set 

of books and concealment, in addition to false revenue misstatements,” and 

concealment of evidence supported scheme liability); In re Parmalat Sec. Litig., 

376 F. Supp. 2d 472, 504 (S.D.N.Y. 2005) (holding that defendants could be 

liable for engaging in transactions that lacked economic substance). Contrary 

to Bebo’s contention that her scheme was unrelated to the sale of securities, 

 

18 By contrast, because a scheme (or practice) need not result in fraud, there 

is no need to prove other common law elements, such as reliance and damages. 

See Neder, 527 U.S. at 24–25. Moreover, reliance and actual harm (such as 

damages) are not elements required to be proven in a Commission action to 

enforce the antifraud provisions. See Graham v. SEC, 222 F.3d 994, 1001 n.15 

(D.C. Cir. 2000); SEC v. Rana Research, Inc., 8 F.3d 1358, 1363–64 (9th Cir. 

1993).
89

Resp’t Post-hr’g Reply Br. at 87–89, it became directly connected to the 

potential sale of securities once ALC decided to explore selling itself. 

While management was exploring the sale of the company, Bebo concealed 

the occupancy reconciliation scheme from Ventas. On July 27, 2011, in

response to Citibank’s request for information for a due-diligence data room, 

Bebo prevented Citibank from sending out facility occupancy numbers to 

Ventas, and asked that Citibank only share them with other bidders if 

necessary. Ex. 287 at 121071 (“[Rhinelander] and I do not want the individual 

facility listing and occupancy sent to Ventas at this time.”); Tr. 2830–31, 2903. 

She involved Rhinelander in this response, but it was her idea and she never 

told Rhinelander that the information that ALC provided to non-Ventas 

bidders would conflict with the information provided to Ventas. Tr. 2830–32. 

The next day, Bebo emailed Citibank the occupancy rates for the Ventas 

facilities without including the faux occupants. See Ex. 292. She reiterated that 

Citibank must “maintain this separately and do not release it to Ventas 

without [Rhinelander’s] specific permission.” Id. at 121196. Bebo claims she 

did not want Ventas to see the information because she viewed it as a 

competitor. Tr. 2117–18, 2120; see Tr. 2831. But her testimony conflicts with 

her deposition testimony admitting that if ALC gave Ventas the true resident 

occupancy figures, they would have been “knowledgeable of a different set of 

numbers, and so they would want a different explanation with regard to the 

differences.” Ex. 488 at 191; see Tr. 2126–27; see also Ex. 485 at 8 (“Bebo was 

concerned” when she first learned from Buono that “ALC had to provide info 

facility by facility” and she “admitted to him during the due diligence process 

that she lacked confidence that Ventas would stand by the ‘Joe Solari 

agreement’”). Even though she provided a plausible reason for withholding the 

information from Ventas, I find that her denial is not credible given her prior 

testimony and the way that she concealed from Rhinelander the impact of 

releasing the information. 

In addition, Bebo worried about revealing the scheme to other potential 

buyers and about those potential buyers revealing it to Ventas. Buono warned 

her that “any serious buyer” would ask about the 997 account “showing 

[negative] revenue” and, when told about the purported agreement with 

Ventas to include nonresidents, “call up Ventas” to confirm. Tr. 2373; see

Ex. 480 at 4; see also Ex. 485 at 8 (“[W]hen the figures are laid out by facility[,] 

the due diligence people will ask for revenue to be returned to entities out of 

the 997 account.”). He thought the other potential buyers “would struggle” with 

recognizing the purported agreement. Tr. 2373. Bebo acknowledged that 

whether Ventas would recognize the inclusion of employees in the covenant 

calculations “would matter to the potential bidders.” Tr. 2134–35. In March 

2012, their concerns were borne out when one of the non-Ventas bidders 
90

inquired about the reserve account, at which point Buono had to disclose how 

the 997 account worked to the board at the March 6 board meeting. Tr. 579–

82. That disclosure prompted Bebo to tell the Board that the 997 account 

resulted from “employees of ALC who were going to the facilities, and their 

time there was reflected in the occupancy and the revenue number” and 

claimed that Fonstad had provided a legal opinion approving of this practice, 

but she still failed to tell the board that she was including nonresidents who 

never stayed at the facilities and who were not ALC employees. Tr. 583–87. 

When Bell and Rhinelander drafted a letter to explain the 997 account to 

potential buyers, Bebo tried to stop them. Tr. 590–91, 595–96; Ex. 326 at 

39089–90. Bell felt that “Bebo was still pretending that we didn’t need the real 

information as to the numbers without employees for the Ventas facilities to 

know ... what the facilities were doing from a financial point of view.” Tr. 600–

01; see Ex. 328 at 5. Rhinelander rejected Bebo’s counsel, and ALC disclosed 

the information to the remaining bidders. Tr. 597–98, 2728–29, 4435–36.

Bebo, as owner of almost 100,000 shares of ALC common stock, also 

concealed negative news to keep her own equity interests as high as possible 

before ALC was purchased. She has acknowledged her personal interest in 

ALC’s share price. Tr. 4171–74. Indeed, it was not only the value of her stock 

that Bebo wanted to preserve, but the options she received periodically as 

performance bonuses. See Tr. 4171–72.

Accordingly, regardless of whether Bebo’s initial scheme to defraud 

Ventas was connected to the purchase or sale of securities, beginning no later 

than July 2011, Bebo worked to deceive Ventas as a potential purchaser of ALC 

stock and other potential purchasers. Her attempts to prevent Ventas and the 

other purchasers from discovering particulars of the occupancy reconciliation 

scheme, including the true nature of ALC’s purported agreement with Ventas 

and the 997 account, establishes that she acted with scienter. See Milligan, 

2010 WL 1143088, at *5.

Second, Bebo’s scheme operated as an intentional fraud on the investing 

public. As I concluded above, Bebo was responsible for intentionally 

misrepresenting in the notes to ALC’s financial statements that ALC was in 

compliance with the Ventas covenants. See, e.g., Ex. 2 at 30. Although, as I find 

below, she was the maker of the statements, whether she was the maker does 

not matter for scheme liability. See Lorenzo, 139 S. Ct. at 1103. Nor, as just 

discussed, does it matter under the applicable subjective materiality standard 

whether reasonable investors would alter their investment decisions based on 

the misrepresentations. What matters is that Bebo approved the inclusion of

the misstatements in twelve consecutive periodic reports because she thought 

that it was important to represent that ALC was in compliance. That she 

deliberately included a wide range of individuals who were not ALC employees 
91

or who never stayed at the Ventas properties as faux occupants, shows the 

importance that she placed on the inflated numbers. See, e.g., Tr. 1468–71, 

2046–50. Her attempts to conceal the scheme prove that she knew her actions 

were deceptive and intentional, demonstrating her scienter. 

Bebo violated Rule 10b-5(b).

Bebo knowingly misrepresented that ALC was in compliance with the 

Ventas financial covenants in each of the twelve periodic reports issued by ALC 

for 2009 through 2011 and that ALC did not believe that there was a likely risk 

of breach in certain 2011 reports. She also intentionally failed to disclose that 

the occupancy reconciliation scheme was the only reason that ALC could claim 

to be have satisfied the covenants. These misstatements and omissions were 

material because they concealed deliberate misconduct at the highest levels of 

ALC management. 

Under Rule 10b-5(b), it is unlawful “[t]o make any untrue statement of a 

material fact or to omit to state a material fact necessary in order to make the 

statements made, in the light of the circumstances under which they were 

made, not misleading.” 17 C.F.R. § 240.10b-5(b). To be liable, one must have 

“made” the statement. Janus Capital Grp. v. First Derivative Traders, 564 U.S. 

135, 141 (2011). 

Bebo was the maker of ALC’s periodic reports.

As a preliminary matter, even though all of the relevant misstatements 

and omissions concern what appeared, or did not appear, in ALC’s periodic 

reports, Bebo may be found liable as the maker. The “maker” of misstatements 

or omissions is “the person or entity with ultimate authority over the 

statement, including its content and whether and how to communicate it.” 

Janus Capital, 564 U.S. at 142. An executive who signs or certifies filings 

containing misstatements can be held liable as a maker of those 

misstatements. See SEC v. Brown, 878 F. Supp. 2d 109, 116 (D.D.C. 2012) 

(collecting cases); Local 703, I.B. of T. Grocery & Food Employees Welfare Fund 

v. Regions Fin. Corp., No. 10-cv-2847, 2011 WL 12627599, at *1 (N.D. Ala. Aug. 

23, 2011). As CEO, Bebo had responsibility for the content of ALC’s periodic 

reports and supposedly made sure that they did not contain material 

misstatements or omissions. Tr. 1767–68, 3845. And Bebo signed each of ALC’s 

annual reports and certified those reports plus every quarterly report. See, e.g., 

Ex. 2, Ex. 31.1; Ex. 5 at S-1 & Ex. 31.1. 

Bebo made misstatements of fact. 

Bebo made two untrue statements of facts in ALC’s periodic reports. First, 

each of ALC’s periodic reports for 2009 through 2011 stated that ALC was “in 
92

compliance with all” of “certain operating and occupancy covenants in the 

CaraVita operating lease [that] could give [Ventas] the right to accelerate the 

lease obligations and terminate [ALC’s] right to operate all or some of those 

properties” if ALC failed to meet them, and for which “declining economic 

conditions could constrain our ability to remain in compliance in the future.” 

Ex. 2 at 30; Ex. 3 at 38; Ex. 4 at 42; Ex. 5 at 45; Ex. 6 at 34; Ex. 7 at 36; Ex. 8 

at 38; Ex. 9 at 45; Ex. 10 at 32; Ex. 11 at 36; Ex. 12 at 36–37; Ex. 13 at 43. 

Second, ALC’s reports for the second and third quarters of 2011 and its annual 

report for that year each stated that “ALC does not believe that there is a 

reasonably likely degree of risk of breach of the CaraVita covenants.” Ex. 11 at 

36; Ex. 12 at 37; Ex. 13 at 43. 

Contrary to Bebo’s contentions, Resp’t Post-hr’g Br. at 177–83; Resp’t 

Supp’l Post-hr’g Br. at 29–35, neither is an unactionable statement of opinion. 

See generally Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension 

Fund, 575 U.S. 175 (2015). Statements of opinion—which often include signposting language, such as “believe”—do not create liability simply because they 

turn out to be incorrect. Id. at 182–84. In Omnicare, the Supreme Court held 

that even opinions may contain two types of facts that provide a basis for 

liability under the antifraud provisions: (1) “that the speaker actually holds 

the stated belief,” id. at 184–85; and (2) “embedded statements of fact,” id. at 

185–86. See, e.g., Tongue v. Sanofi, 816 F.3d 199, 209–14 (2d. Cir. 2016) 

(applying Omnicare to Section 10(b) and Rule 10b-5 because the relevant 

language is the same as Section 11 of the Securities Act). Under Omnicare, the 

first statement is not even an opinion, and the second statement, though 

opinion, contains actionable factual assertions. In both, the factual assertions 

are false.

First, the statement that ALC was “in compliance with all ... covenants” 

is a statement of fact. E.g., Ex. 2 at 30. Unlike other statements in ALC’s 

periodic reports, it lacks language indicating it was meant to be an opinion. 

See Omnicare, 575 U.S. at 188–90; see, e.g., Ex. 5 at 7 (“We believe we are in 

compliance with ... .”). Instead, it “expresses certainty about a thing” that can 

be proven true or false at the time it was made. Omnicare, 575 U.S. at 183. The 

statement refers to the “operating and occupancy covenants,” which 

correspond with the financial covenants in the lease, as the parties agree. E.g., 

Ex. 2 at 30; see Ex. 142 § 8.2.5; see, e.g., Resp’t Post-hr’g Br. at 180. Because 

the Ventas lease uses the word “noncompliance” interchangeably with 

“breach,” e.g., Ex. 142 § 42.12, there is no doubt what compliance requires. See 

also Mydlach v. DaimlerChrysler Corp., 875 N.E.2d 1047, 1059 (Ill. 2007) 

(“[W]hen performance of a duty under a contract is due any non-performance 

is a breach.” (quoting Restatement (Second) of Contracts § 235 (1979))).
93

Whether ALC had breached any of the financial covenants was therefore 

ascertainable at the time of each periodic report.

The first statement was false in each of the twelve periodic reports at 

issue. As the Division’s expert showed by performing the covenant calculations, 

ALC violated each covenant at least once per quarter from 2009 to 2011 once 

the faux occupants were eliminated from the numbers that ALC submitted to 

Ventas. See Ex. 377 at 24–27.

By contrast, the second statement—that “ALC does not believe that there 

is a reasonably likely degree of risk of breach of the [Ventas] covenants”—is an 

opinion. E.g., Ex. 13 at 43 (emphasis added). It includes the signpost term 

believe, which each of ALC’s periodic reports advises identifies a “[f]orward 

looking statement[]” or “prediction[]” that is “subject to risks and uncertainties 

which could cause actual results to differ materially from those currently 

anticipated.” E.g., id. at 50; see Omnicare, 575 U.S. at 183–84. The statement 

is further hedged with words that do not ordinarily denote facts, such as 

reasonably, likely, and degree of risk. 

The statement of opinion, however, contains both types of factual 

assertions identified by the Court in Omnicare, and both are false. 

The statement necessarily includes the underlying factual assertion that 

ALC was not in breach at the time that the statement was made, and that 

assertion is false. No matter how much hedging language is used, a prediction 

that an event will not happen implicitly asserts that the event has not already 

happened. See Omnicare, 575 U.S. at 185–86. As I concluded above, ALC had 

breached at least one of the Ventas covenants during each of the periods in 

which the second statement was included in ALC’s periodic reports. See 

Ex. 377 at 24–27.

In addition, the statement is false because Bebo could not have truly held 

the opinion that breach was unlikely. Every quarter she supplied the names 

needed to boost the occupancy numbers so that the Ventas covenants could be 

satisfied, so she knew that ALC would not be satisfying the covenants without 

her occupancy reconciliation scheme. See, e.g., Tr. 816–17, 826, 1994, 1999–

2000, 2350–53, 4076–77. She necessarily knew that failure to comply with the 

covenants constituted a breach of those covenants. As noted above, the Ventas 

lease, which Bebo signed on behalf of ALC, used breach and noncompliance 

interchangeably. Ex. 142 at S-1 (8794). The lease did not condition breach on 

notice or proof by Ventas. Id. at 19–20. Bebo could not have thought that the 

covenant was waived or modified because the lease required any waiver of any 

term of the lease to be in writing, as Fonstad had advised her. Id. at 65; see

Ex. 1152 at 1. The February 2009 email from Bebo to Solari did not even 
94

mention the financial covenants, Ex. 1343 at 2, so the email could not have 

waived compliance with those covenants. 

Bebo made omissions of fact.

Bebo was required to disclose the occupancy reconciliation scheme in 

ALC’s periodic reports, yet she failed to do so. Bebo argues that “there was no 

duty to disclose the manner in which ALC was meeting with the covenants,” 

and that “[t]here is no evidence to suggest that anyone ever advised [her] to 

disclose any of the information” about the scheme. Resp’t Post-Hr’g Br. at 177, 

197; see Resp’t Post-Hr’g Reply Br. at 72–74. But there was a duty that arose 

from what ALC did say.

Bebo had a duty to disclose the scheme to make the statements regarding 

covenant compliance in the periodic reports not misleading. Section 10(b) and 

Rule 10b-5(b) “do not create an affirmative duty to disclose any and all material 

information.” Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 44–45 (2011). 

But once a respondent chooses to speak on a topic, she is “obligated to do so 

truthfully and in a way that [is] not misleading.” John J. Kenny, Securities Act 

Release No. 8234, 2003 WL 21078085, at *7 (May 14, 2003), pet. denied, 87 F. 

App’x 608 (8th Cir. 2004); see SEC v. Fehn, 97 F.3d 1276, 1290 n.12 (9th Cir. 

1996) (“Rule 10b-5 ... ‘imposes a duty to disclose material facts that are 

necessary to make disclosed statements, whether mandatory or volunteered, 

not misleading.” (quoting Hanon v. Dataproducts Corp., 976 F.2d 497, 504 (9th 

Cir. 1992))). Specifically, courts have elaborated that 

a company has a duty to disclose the uncharged 

wrongdoing of its employees when it: (1) “puts the reasons 

for its success at issue, but fails to disclose that a material 

source of its success is the use of improper or illegal 

business practices”; (2) “makes a statement that can be 

understood, by a reasonable investor, to deny that the 

illegal conduct is occurring”; or (3) “states an opinion that, 

absent disclosure, misleads investors about material facts 

underlying that belief.”

EIG Energy Fund XIV, L.P. v. Petróleo Brasileiro S.A., 246 F. Supp. 3d 52, 85–

87 (D.D.C. 2017) (quoting Menaldi v. Och–Ziff Capital Mgmt. Grp., 164 F. 

Supp. 3d 568, 581 (S.D.N.Y. 2016) (internal quotation marks omitted)), aff’d,

894 F.3d 339 (D.C. Cir. 2018), cert. denied, 139 S. Ct. 1324 (2019). Each of these 

three bases—and particularly the first—imposed a duty on Bebo to disclose her 

scheme.

Bebo put the reasons for ALC’s success at issue in ALC’s periodic reports. 

ALC repeatedly emphasized the importance of the Ventas properties in its 
95

public disclosures. When ALC announced the Ventas lease, its press release on 

January 2, 2008, highlighted the high occupancy rates at the eight facilities 

and the resulting significant expected annual revenue. Ex. 1 at 133 (including 

statements by Bebo). Then, on March 6, 2009, ALC disclosed to the market 

that “[i]f we had not made the CaraVita Acquisition, our occupancy would have 

declined during 2008.” Assisted Living Concepts, Inc., Annual Report (Form 

10-K) at 22–23 (Mar. 6, 2009) (ALC 2008 10-K); see id., at 24, 57. At the same 

time, ALC disclosed that it was “in compliance with all [Ventas financial] 

covenants,” but cautioned that “declining economic conditions could constrain 

our ability to remain in compliance in the future.” Id. at 48; see id. at 9, F-20. 

During the three years that followed, ALC’s periodic reports included the same 

compliance statement and warning about “poor economic conditions,” while 

also emphasizing that its growth strategy was based on “private pay 

occupancy.” E.g., Ex. 13 at 20, 43. Taking together ALC’s disclosures about

successful covenant compliance, its primary risk factor of unfavorable 

economic conditions, and its private-pay-occupancy strategy, a reasonable 

investor would understand ALC’s covenant compliance was due to the 

sufficiently favorable economic conditions allowing the success of its private 

pay strategy at the Ventas properties. 

ALC failed to disclose that a material source of its successful covenant 

compliance at Ventas facilities was Bebo’s scheme, as opposed to sufficiently 

favorable economic conditions and the private pay strategy. Unbeknownst to 

investors, starting in the first quarter of 2009, economic conditions were no 

longer sufficient to maintain the high occupancy rate at the Ventas facilities. 

See Ex. 1 at 133; ALC 2008 10-K at 22–23. Instead, occupancy and revenue had 

declined to such an extent that without the occupancy reconciliation scheme 

ALC would have failed to satisfy the covenants from then onward. See Ex. 377 

at 24–27. Bebo therefore had a duty to disclose that scheme to the market. 

In the alternative, a duty to disclose arose because ALC and Bebo made 

statements that would be understood, by a reasonable investor, to deny that 

misconduct was occurring. Among other statements: (i) ALC represented that 

it complied with all the lease covenants, including a promise to comply with 

federal laws and regulations, e.g., Ex. 9 at F-16; see Ex. 142 §§ 8.2.1, .2.4; (ii) 

ALC stated that its financial statements were prepared in accordance with 

GAAP, e.g., Ex. 13 at 44; (iii) Bebo certified that she had disclosed any fraud 

that involved management, e.g., id., Ex. 31.1; and (iv) ALC represented that 

Bebo had the highest ethical standards each time she was nominated to ALC’s 

board, e.g., Ex. 2073 at 4, 11–12; see, e.g., Ex. 13 at 52 (incorporating 

information about directors from proxy statement into annual report). Despite 

these statements in ALC’s public filings that suggested that ALC and Bebo, in 
96

particular, were acting ethically and in compliance with applicable laws, they 

were not doing so. 

Finally, ALC’s statement of belief about the negligible risk of covenant 

breach also imposed a duty to disclose because it misled investors about 

material facts underlying that belief. See, e.g., Ex. 13 at 43. Makers of 

statements of opinion may be liable if they “lacked the basis for making those 

statements that a reasonable investor would expect.” Omnicare, 575 U.S. at 

196. Here, ALC made the statement about compliance risk “in the face of 

[Fonstad’s] contrary advice” about the need for covenant waivers to be in 

writing, undermining the investors’ reasonable expectations that the 

statement of opinion “fairly align[ed] with the information in the issuer’s 

possession at the time.” Id. at 188–89. Under these circumstances, Bebo had a 

duty to disclose “material facts about the issuer’s inquiry into or knowledge 

concerning [the] statement of opinion.” Id. at 189. But she did not do so. 

Bebo’s misstatements and omissions were material.

A misstatement or omission is material if there is a substantial likelihood 

that a reasonable investor would view “disclosure of the omitted fact ... as 

having significantly altered the ‘total mix’ of information made available.” 

Matrixx, 563 U.S. at 38 (quoting Basic, 485 U.S. at 231–32). A corollary is that 

material statements create a substantial likelihood that a reasonable investor 

would deem the statement important when making an investment decision. 

Basic, 485 U.S. at 231–32. Whether a misstatement or omission is material 

depends on the case’s facts and circumstances. See Matrixx, 563 U.S. at 38–44. 

There is no bright-line rule of what is considered material. Basic, 485 U.S. at 

236. Indeed, “qualitative factors ... can turn a quantitatively immaterial 

statement into a material misstatement.” IBEW Local Union No. 58 Pension 

Tr. Fund & Annuity Fund v. Royal Bank of Scot. Grp., 783 F.3d 383, 390–91 

(2d Cir. 2015) (citing SAB No. 99, 64 Fed. Reg. at 45,152); see In re Kidder 

Peabody Sec. Litig., 10 F. Supp. 2d 398, 411 (S.D.N.Y. 1998) (“[T]he materiality 

of the misstatements must be considered in light of their impact on [the 

company]’s reputation, wholly apart from their statistical impact on [its] 

reported earnings.”). 

I conclude that the omissions in ALC’s periodic reports were material and 

that the misstatements, while not quantitatively material, were nonetheless

qualitatively material. In reaching these conclusions, I consider management’s 

involvement in the occupancy reconciliation scheme, the worst-case harm to 

ALC from breach of the covenants, the probability of that worst-case scenario, 
97

the actions and beliefs of ALC insiders, market reactions to disclosure events, 

and the private investors’ suit against Bebo and ALC. 

Management’s involvement in corporate fraud strongly 

supports a finding of materiality.

Bebo directed and participated in a years-long scheme to falsify ALC’s 

records and deceive a major contractual counterparty. That fact inevitably 

colors the misrepresentations and omissions in ALC’s periodic reports, 

weighing strongly, if not conclusively, in favor of materiality.

Generally, corporate fraud—especially by management—is important to a 

reasonable investor’s decisions with regard to that company. See United States 

v. Ferguson, 545 F. Supp. 2d 238, 240 (D. Conn. 2008) (holding that 

“management’s role in the alleged fraud is relevant evidence of materiality”). 

As one court explained, “it is plainly material to investors that executives of a 

company are acting fraudulently” because “executives who act fraudulently 

may subject their employer to a risk of legal action,” may “use their employer’s 

resources for their own ends, not to benefit shareholders,” and “are likely to be 

terminated.” In re Comverse Tech., Inc. Sec. Litig., 543 F. Supp. 2d 134, 151 

(E.D.N.Y. 2008) (citing Siemers v. Wells Fargo & Co., No. 05-cv-4518, 2007 WL 

1140660 at *8 (N.D. Cal. Apr. 17, 2007)); see Gebhardt v. ConAgra Foods, Inc., 

335 F.3d 824, 829–30 (8th Cir. 2003) (“Management’s integrity would probably 

be important to investors” if they knew senior managers were, at the very least, 

“oblivious to their underlings’ malfeasance.”); SEC v. Jos. Schlitz Brewing Co., 

452 F. Supp. 824, 829–30 (E.D. Wis. 1978) (finding that “the question of the 

integrity of management gives materiality to the matters the Commission 

claims should have been disclosed” when directors knowingly continued 

unlawful marketing practices); accord H.R. Rep. No. 90-1711, at 2–3 (1968) 

(“The competence and integrity of a company’s management ... are of vital 

importance to stockholders.”). This is in keeping with the Commission’s longheld view that “[o]f cardinal importance in any business is the quality of its 

management,” and thus, “[e]valuation of the quality of management ... is an 

essential ingredient of informed investment decision.” Franchard Corp., 

Securities Act Release No. 4710, 1964 WL 67454, at *5–6 (July 31, 1964). As 

the Commission’s staff has observed, “[w]hile the intent of management does 

not render a misstatement material, it may provide significant evidence of 

materiality.” SAB No. 99, 64 Fed. Reg. at 45,152–53.

Bebo’s direction of and ongoing involvement in the occupancy 

reconciliation scheme strongly indicate that the omissions and misstatements 

were material to the reasonable investor. Although the Ventas contract was 

worth roughly 5% of ALC’s revenues, see Ex. 13 at F-4 (total 2011 revenue of 

$234 million); Ex. 15 at 2 (of 5 PDF pages) (2011 revenue from Ventas 
98

properties of $13.3 million), a reasonable investor’s concern about management 

integrity would extend beyond that portion of the business. To put it a different 

way, a reasonable investor would react differently to, on the one hand, learning 

a company had incorrectly stated that it had met a target relevant to 5% of the 

business, and, on the other hand, that the company had deliberately 

misrepresented that it had met that target as part of an elaborate scheme to 

conceal its difficulties from investors and the company’s contractual 

counterparty. The second case, which is what Bebo oversaw as the CEO of ALC, 

put management’s integrity at issue. A reasonable investor would not want to 

hold shares of a business involved in such illicit activity, and so the failure to 

disclose the scheme was a material omission. See Comverse Tech., 543 F. Supp. 

2d at 151. And, similarly, a reasonable investor will likely wonder what else 

management might lie about, rendering misstatements that may not have 

been material based solely on percentages, nevertheless, material. 

The guidance of Commission staff in SAB No. 99 also shows why the 

concealment of the occupancy reconciliation scheme weighs heavily in favor of 

finding that the misstatements about covenant compliance were material. SAB 

No. 99 provides a non-exclusive list of factors “that may well render material 

a quantitatively small misstatement of a financial statement item,” including:

• Whether the misstatement arises from an item capable 

of precise measurement ....

• Whether the misstatement masks a change in earnings 

or other trends....

• Whether the misstatement affects the registrant’s 

compliance with regulatory requirements.

• Whether the misstatement affects the registrant’s 

compliance with loan covenants or other contractual 

requirements....

• Whether the misstatement involves concealment of an 

unlawful transaction.

64 Fed. Reg. at 45,152 (footnotes omitted); see Romine v. Acxiom Corp., 296 

F.3d 701, 710 (8th Cir. 2002) (finding SAB No. 99 “to be a persuasive guide in 

evaluating the materiality of an alleged misrepresentation” (citing Ganino v. 

Citizens Utils. Co., 228 F.3d 154, 163 (2d Cir. 2000))). These factors indicate

that the misrepresentations were material. First, each disclosure was 

susceptible to precise measurement—indeed, the underlying data was 

precisely measured—but intentionally reported falsely. Second, the 

misstatements masked a trend of decreasing occupancy and revenue at the 
99

Ventas facilities (even though ALC’s overall revenue was correctly reported). 

Third, the statements themselves were sufficient to violate the Exchange Act’s 

books-and-records requirements, as I concluded above. Fourth, the 

misstatements specifically affected contractual covenant compliance. Fifth and 

most importantly, the misstatements facilitated the concealment of Bebo’s 

underlying fraudulent scheme. 

ALC’s May 14, 2012, Form 8-K does not undermine the conclusion that 

investors would have cared about management’s integrity because that report 

failed to fully disclose Bebo’s fraud. That 8-K stated Ventas issued a letter 

stating, among other things, that ALC “submitted fraudulent information by 

treating units leased to employees as bona fide rentals by third parties and, 

therefore, may not have been in compliance with the minimum occupancy 

covenant and coverage ratio covenants.” Ex. 2076 at 2. But it did not inform 

investors of ALC’s actual practices. ALC did not lease units to employees in 

arm’s-length transactions. Instead, at the end of each quarter, Bebo personally 

selected names of ALC employees, friends, family, and others, regardless of 

whether they actually stayed at or even visited a unit, and used those names 

to backfill all the deficits in occupancy rates that had transpired in the three 

prior months. Then, based on those faux occupants, she directed the transfer 

of a corresponding amount of revenue from an internal ALC revenue account 

to create the false impression that ALC was meeting the coverage ratio 

requirements. Then, again at Bebo’s direction, ALC provided false information 

about occupancy and revenue to Ventas, along with an officer certification that 

the information was true, and compliant with GAAP. So, while the May 14, 

2012, disclosure provided investors with an indication of the fraud that 

characterized Bebo’s scheme, among other things, it was far too little of what 

Bebo and ALC had a duty to disclose given their actionable omissions. As such,

any lack of significant investor reaction to the May 14 disclosure does not bear 

meaningfully on the materiality of the omissions, given the extent of the 

scheme that was not disclosed. 

The failure to disclose Bebo’s occupancy reconciliation scheme was 

therefore material. And given management’s role in the undisclosed scheme, 

this factor weighs heavily, if not decisively, in favor of finding the 

misrepresentations about ALC’s compliance with the Ventas financial 

covenants to be material. 

The worst-case scenario that could result from noncompliance 

with the financial covenants weighs in favor of materiality.

If the only information in the total mix of information was the worst-case 

scenario for covenant noncompliance, the fact of noncompliance would be 

material. 
100

ALC investors were on notice that “failure to meet certain operating and 

occupancy covenants in the [Ventas] operating lease could give the lessor the 

right to accelerate the lease obligations and terminate our right to operate all 

or some of those properties” and that “[t]he acceleration of the remaining 

obligation and loss of future cash flows from operating those properties could

have a material adverse impact on our operations.” E.g., Ex. 3 at 38 (emphases 

added). ALC disclosed that as of March 31, 2009, occupancy covenant breaches 

under the lease could lead to accelerated rent payments of $26.8 million. Ex. 2 

at 30. ALC also recognized intangible assets associated with the lease which 

would have been foregone had Ventas exercised its remedies and defaulted 

ALC. See, e.g., Ex. 5 at F-15 (describing the allocation of intangible assets to 

the Ventas lease as of fiscal year 2009); Ex. 377 at 19 (discussing the impact to 

ALC’s financial statements if it lost the Ventas lease). Barron’s expert 

testimony showed that had Ventas exercised its remedies under the lease, the 

impact to ALC’s financial statements could have exceeded $35 million in 2009, 

$30 million in 2010, or $25 million in 2011. Ex. 377 at 19. These potential 

remedies could have cost ALC 118%, 112%, or 64% of its adjusted net income 

in 2009, 2010, and 2011, respectively. Id. From 2009 to 2011, Grant Thornton 

planned its audits of ALC for those years to consider changes to adjusted net 

income of $1.153 million, $1.195 million, and $1.727 million as material. Id. at 

18. The potential impacts to adjusted net income far exceed these planning 

thresholds. Barron’s testimony also established that potential default 

consequences would have decreased total stockholders’ equity at least 5% each 

year and that cash flows from operations would have been decreased by at least 

30% each year. Id. at 19–20.

Bebo’s argument that the Ventas facilities constituted an immaterially 

small portion of ALC’s housing portfolio, does not mean that the potential 

consequences of breach were immaterial. See Resp’t Supp’l Post-hr’g Br. at 1 

(stating the Ventas facilities accounted for 5.6% of ALC’s revenue in 2011). 

Even if the Ventas facilities themselves did not represent a material portion of 

ALC’s portfolio or revenue stream, the consequences of breaching the leases 

could be material to the company. If Ventas had successfully sought rent 

acceleration and lease termination due to noncompliance with the financial 

covenants, the impact would have been quantitatively material.

The low likelihood that noncompliance would result in a worstcase scenario weighs against materiality.

Despite the magnitude of the harm in the worst-case scenario, the low risk 

of such an eventuality weighs against a finding of strictly quantitative 

materiality. The Division does not quantify the risk that acceleration and 

termination of the lease would come to pass or establish whether likelier 

outcomes would have been material. Absent the context of the occupancy 
101

reconciliation scheme, the risk of harm to ALC weighs against finding the 

misrepresentations to be material.

Evidence from market research suggests that the risk of acceleration and 

termination was low. Smith testified that based on his research, financial 

covenant violations almost always resolved without an action for default or 

assertion of the full scope of remedies. See Tr. 3634–35, 3660–63. Based on a 

market survey, Durso concluded that conditions during the 2008 to 2012 

economic crisis affected senior-care facilities industrywide and “demanded 

flexibility between the landlords and tenants of the facilities.” Ex. 2185 at 10–

11; see also Tr. 3444–45, 3563, 3568, 3575 (Grant Thornton auditor “not aware 

of any ... clients that I’ve worked with where the lender has taken the property” 

as a result of a financial covenant violation); Ex. 3322 at 1. 

Ventas’s actions were consistent with treating the worst-case scenario as 

unlikely. Doman—whose purview was oversight of the financial covenants—

testified that when operators breached occupancy covenants, Ventas 

monitored them more closely, rather than pursuing other remedies. Tr. 265–

67. He did not recall any instance in which Ventas defaulted a tenant between 

2009 and 2012 solely for a financial covenant violation. Tr. 379–80. Instead of 

acceleration and termination, Ventas advised ALC that it would seek a twelvemonth cash deposit of rent in response to a violation. Tr. 1614–15. 

In April 2012, Ventas filed suit against ALC for breaches of lease 

unrelated to the financial covenants. In an early settlement offer of April 27, 

ALC sought release from all Ventas’s claims, including a release relating to 

ALC “renting rooms ... to certain of its employees and including those 

employees in certificates and covenant calculations.” Ex. 350 at 151598. Two 

weeks later, Ventas sent ALC a notice memorializing numerous events of 

default, including submitting fraudulent information and possible occupancy 

and coverage ratios noncompliance. See Ex. 356 at 1 (providing notice that ALC 

may have breached the lease by failing to comply with the occupancy and 

coverage ratios). Ventas amended its complaint to include most of its new 

allegations of default in its lawsuit against ALC, but did not include claims 

regarding the financial covenant violations, see Ex. 1194 at 1–3; Tr. 3661–62,

and though it sought discovery on other issues, did not request information on 

the extent and nature of ALC’s financial covenant noncompliance before it

settled the litigation. The violations that Ventas pursued in its lawsuit were 

ones that posed “existential” threats to its facilities—that is, threats that 

would cause them to shut down. See Tr. 3658, 3662. Thus, the Division has 

failed to show that the Ventas lawsuit and resulting settlement supports a 

materiality finding.
102

Although, as discussed below, some within ALC were very concerned with 

avoiding violations of the financial covenants, ALC ultimately stated that 

acceleration and termination were unlikely. In its August 2011 response to the 

Division of Corporation Finance, ALC advised that the likely consequences, 

“such as restructuring of the lease or a requirement to have reserves to reduce 

the lessor’s risk exposure related to future rent payments, would not be 

reasonably likely to have a material adverse impact on the Company’s results 

of operations or financial condition.” Ex. 295 at 122837. ALC’s response was 

made available to the market. See Assisted Living Concepts, Inc., 

Correspondence (Aug. 4, 2011); see also Jt. Supp’l Ex. 1 at 108 (Rhinelander 

believed that, at most, ALC would have to “pay a few dollars”).

In sum, this evidence shows that acceleration and termination of the 

Ventas lease due to financial covenant violations were unlikely, and—at least 

as of the public disclosure of the August 2011 letter to Corporation Finance—

the public was aware of that fact. Although remedies short of the worst-case 

scenario could still have had a marked effect on ALC, the Division has failed 

to prove by a preponderance of the evidence that a reasonable investor would 

have considered these other potential costs, alone, to be quantitatively 

material. Therefore, this factor weighs against quantitative materiality.

The actions and beliefs of ALC insiders weigh marginally in 

favor of materiality.

The actions and statements of ALC insiders, including Bebo, demonstrate

that some attached outsized importance to compliance with the Ventas 

financial covenants and suggest that misrepresentations and omissions 

concerning compliance may have been material to a reasonable investor. But 

this evidence weighs only marginally in favor of materiality because it is 

unclear how much the public knew about these internal views. 

Bebo and other members of management took many actions during the 

relevant period that indicate covenant compliance was important. The very 

fact that she implemented the occupancy reconciliation scheme demonstrates

that she thought the issue was important enough to justify falsification of 

ALC’s records and concealment from Ventas. See Tr. 990, 1246–48, 2072, 

2348–49, 4669–70. Similarly, her attempt to obtain waiver of some of the 

covenants by purchasing underperforming New Mexico properties suggests 

that she thought avoiding breach had value to ALC. And she acknowledged 

that a potential purchaser of all of ALC’s stock would be interested in the 

validity of the purported February 2009 agreement with Ventas. Tr. 2134–36.

In addition, the ALC board cared about the company’s compliance with 

the Ventas covenants. Bebo testified that she understood financial covenant 
103

compliance to be sufficiently important to the board that it was included as an 

item in management’s quarterly reports to the board, Tr. 557, 576–78, 1357, 

1785–86, 1834, 2321–22, 2807–08; Ex. 98 at 5; Ex. 150, and monitored by Bebo 

and ALC’s accounting department in the interim, Tr. 838, 1839, 2321, 2327–

28. ALC’s chairman Hennigar (who held beneficial control of a majority of 

ALC’s voting shares) and other directors inquired at board meetings about 

ALC’s compliance with the covenants. See, e.g., Ex. 95 at 1, 4; Ex. 100 at 2; Ex. 

104 at 2–3; Tr. 1357. Buntain, a board member, testified that compliance was 

important to assessment of investment decisions and stock price expectations 

because breach could put downward pressure on ALC’s stock price; he also 

believed that Hennigar would care about compliance, given his family’s 

investment stake in the company. See Tr. 1357–59. 

There is no direct evidence, however, that a reasonable investor would 

have been aware of the importance that ALC insiders placed on covenant 

compliance.19 Indeed, as noted above, ALC publicly took the opposite position 

regarding possible breach of the occupancy and coverage covenants in August 

2011. See Ex. 295. That suggests that, at most, this evidence marginally 

weighs in favor of finding the misstatements about covenant compliance 

material. 

Market reactions to disclosure events do not weigh in favor of

materiality.

The evidence surrounding the two disclosure events in May 2012, does not 

weigh in favor of materiality—but it also does not weigh against materiality of 

the actionable misrepresentations and omissions. In both cases, the disclosures 

provided incomplete pictures of what was really happening within ALC, 

creating ambiguity about the significance of the market’s reaction.

 

19 The Division offers the views of ALC board members with investments in 

ALC as investor testimony, but the “reaction of individual investors is not 

determinative of materiality, since the standard is objective, not subjective.” 

David Henry Disraeli, Securities Act Release No. 8880, 2007 WL 4481515, at 

*6 & n.30 (Dec. 21, 2007) (quoting Richmark Capital Corp., Securities Act 

Release No. 8333, 2003 WL 22570712, *5 (Nov. 7, 2003), pet. denied, 86 F. 

App’x 744 (5th Cir. 2004)), pet. denied, 334 F. App’x 334 (D.C. Cir. 2009). Their 

views were possibly influenced by fiduciary concerns and access to information 

unavailable to a reasonable investor. In particular, Buntain’s emphasis on the 

covenants might not entirely align with those of a reasonable investor, as he 

had reservations about the lease from the start because of the covenant 

requirements and he abstained from voting to approve the lease. Tr. 1355–57.
104

Among various indicia of materiality, the effect of disclosure of 

information on an issuer’s share price can be a useful method of assessing 

whether an alleged misrepresentation or omission is material. See United

States v. Schiff, 602 F.3d 152, 171-72 (3d Cir. 2010) (noting drop in stock price 

is widely used as evidence of materiality assuming the market is efficient). 

That is because the market “is the most accurate and unbiased measure of 

whether reasonable investors found the information to be material.” SEC v. 

Mangan, 598 F. Supp. 2d 731, 736 (W.D.N.C. 2008). Indeed, “[m]any courts 

have held that information may be deemed immaterial as a matter of law when 

the public disclosure of such information has a negligible effect on the price of 

a stock.” Id.; see, e.g., Oran v. Stafford, 226 F.3d 275, 282–83 (3d Cir. 2000). 

But see Greenhouse v. MCG Capital Corp., 392 F.3d 650, 660–61 (4th Cir. 2004) 

(“The majority rule seems to be that [market reaction] can be some evidence, 

but not, standing alone, dispositive evidence.”); SEC v. RPM Int’l, Inc., 282 F. 

Supp. 3d 1, 24 (D.D.C. 2017) (collecting cases disagreeing with the rule that 

information is immaterial if disclosure has a negligible price impact). Event 

studies are often used to establish materiality. See, e.g., SEC v. ITT Educ. 

Servs., Inc., 311 F. Supp. 3d 977, 992–93 (S.D. Ind. 2018) (quoting the 

Commission’s position that “event studies are a widely used methodology for 

measuring the effect of an event ... on a company’s stock price” (omission in 

original)). Smith’s event study, while useful, is not dispositive. 

First, the market reaction to ALC’s disclosure on May 4, 2012, that ALC’s 

board “determined to investigate possible irregularities in connection with the 

Company’s lease with Ventas” does not establish materiality. Ex. 14 at 2. The 

Division hangs its disclosure-event argument on this May 4 disclosure. See Div. 

Post-hr’g Br. at 41. Following that disclosure the share price dropped from 

$19.17 to $16.80, which was a “statistically significant abnormal decline in the 

stock price.” Tr. 3637–38. But the disclosure of possible irregularities did not 

reveal the existence of the occupancy reconciliation scheme or the 

misrepresented compliance with the Ventas covenants. Ex. 14 at 2; see 

Tr. 3645–47; see also Ex. 357 at 3 (Ventas filing focusing on other issues, such 

as compliance with health and safety regulations); Ex. 1194 at 2–3 (same). In 

addition, the magnitude of the decline was inflated because of the market’s 

mistaken reaction to a press release shortly before the close of trading on May 

3, which the market interpreted as evidence that the company was being

bought out. Tr. 3638–41; Ex. 2186 at 16 & n.59; see Tr. 4495; Ex. 2081; 

Ex. 2130. ALC’s disclosure of the Ventas lawsuit further dampened such 

prospects. Tr. 3639–41 Although, as Bebo’s expert, Smith, concedes, the 

decline following the May 4 disclosure nevertheless had a statistically 

significant effect on ALC’s stock price, which resulted in part from the content 

of the disclosure, Tr. 3637–38, 3641, because the disclosure provided no 
105

indication, even in Ventas’s view, that it was related to the financial covenants, 

I do not find the market’s reaction establishes materiality. 

Conversely, the market reaction to the May 14, 2012, disclosure that ALC 

received a letter from Ventas asserting that ALC “submitted fraudulent 

information by treating units leased to employees as bona fide rentals by third 

parties and, therefore, may not have been in compliance with the minimum 

occupancy covenant and coverage ratio covenants,” Ex. 2076 at 2, does not 

establish immateriality. Bebo focuses on this event. See Resp’t Post-hr’g Br. at 

172–74. Smith found that the May 14 disclosure did not cause a statistically 

significant change in ALC’s stock price, after accounting for market and 

industry factors. Ex. 2186 at 14. He “concluded that there is no evidence that 

the information disclosed on May 14, 2012, including the Financial Covenant 

Allegations, had an impact on ALC stock price.” Id. at 15. The Division’s 

contention that the market was already aware of the information disclosed 

because of Ventas’s “publicly filed” suit, Div. Supp’l Post-Hr’g Reply Br. at 6 

n.2 (Nov. 1, 2019); see Ex. 14, is unconvincing given the lack of evidence that 

the market was actually made aware of the filing. See Ex. 2186 at 15–22; 

Tr. 3645–47. But, as with the May 4 disclosure and as I concluded above, the 

May 14 disclosure failed to inform the market about the most important 

aspects of the occupancy reconciliation scheme, including the fact that the CEO 

of ALC had deliberately masterminded the whole scheme over an extended 

period of time. Although ALC disclosed Ventas’s allegations of fraud with 

respect to the covenants without disclosing Bebo’s intentional misconduct on 

May 14, the fact that the market reaction was not statistically significant 

simply shows that the average investor did not consider Ventas’s assertion and 

ALC’s possible failure to comply with covenants to have been material. 

The private investor suit does not establish materiality.

Contrary to the Division’s contention, a district court’s order denying the 

defendants’ motion to dismiss a lawsuit filed against Bebo and ALC by ALC 

investors does not establish that Bebo’s false statements that ALC was 

complying with the Ventas covenants were material. Div. Post-Hr’g Br. at 48 

& n.23. Although the district court concluded that the plaintiffs had alleged 

“facts sufficient to establish that ALC and Bebo provided false statements 

when they stated that ALC was in compliance with its Lease with Ventas”—

implicitly finding the misrepresentations material—it never explicitly found 

that specific misrepresentations or omissions were material as a matter of law. 

Pension Trust Fund, 2013 WL 3154116, at *9; see id. at *11–12 (finding 

plaintiffs “barely” stated a claim based on occupancy reported in periodic 

reports). Absent such a legal conclusion and circumstances that would 

preclude relitigation of the issue, another court’s order on pleadings does not 

prevent me from reaching my own conclusions following a hearing and full 
106

presentation of the evidence. Cf. First Weber Grp. v. Horsfall, 738 F.3d 767, 

772–73 (7th Cir. 2013) (recounting requirements for issue preclusion under the 

law of Wisconsin, and most other jurisdictions). Because the district court 

failed to discuss the reasons that it implicitly held that misrepresentations 

about covenant compliance were material, I do not find the order useful as 

persuasive authority. 

In addition, the parties’ settlement of the private suit does not affect my 

analysis of materiality (or any other issue). See Lead Plaintiff’s Notice of 

Unopposed Motion for Preliminary Approval of Settlement, Pension Trust 

Fund, No. 12-cv-884, (E.D. Wis. Sept. 6, 2013), ECF No. 69. That ALC settled 

the case for $12 million may have suggested that the occupancy and coverageratio covenants were material if those allegations had been the only basis for 

the suit, see Ex. 366 at 9, but they were not. See Pension Trust Fund, 2013 WL 

3154116, at *9–13 (discussing other claims in the amended complaint). The 

primary basis on which the court found plaintiffs successfully pleaded a 

Section 10(b) claim was the broad array of violations like those in Ventas’s suit 

against ALC. See id. at *8–9. And I will not draw any conclusions from the 

mere fact of settlement because the defendants, including Bebo, did not admit 

liability. Ex. 366 at 23; accord Fed. R. Evid. 408 Advisory Comm. N. (1972) 

(justifying excluding evidence of settlements because the “evidence is 

irrelevant,” given the range of possible motivations for settlement). 

* * *

In conclusion, I find that both the omissions and the misstatements in 

ALC’s periodic reports were material. Given the context of the occupancy 

reconciliation scheme and the way that ALC put covenant compliance at issue, 

the failure to disclose Bebo’s scheme was material. And, although the foregoing 

factors present a close question regarding whether materiality has been 

established in a quantitative sense, I conclude that qualitative factors, 

particularly Bebo’s involvement in the scheme, establish that the untrue 

statements and omissions on covenant compliance were material from the 

perspective of a reasonable investor. 

Bebo caused ALC to violate Rule 10b-5(a), (b), and (c).

Bebo caused ALC to commit securities fraud. As noted above, causing 

liability requires a primary violation, an act or omission that caused the 

violation, and knowledge that the act or omission would contribute to the 

violation. See 15 U.S.C. § 78u-3(a); Fuller, 2003 WL 22016309, at *4. ALC 

committed primary violations of Section 10(b) and Rule 10b-5 because, as 

ALC’s CEO, Bebo’s actions are imputed to the company. Accord In re Amerco 

Derivative Litig., 252 P.3d 681, 696 (Nev. 2011) (under “basic corporate agency 
107

law,” officers’ actions are imputed to corporation). As is her scienter. See

Warwick Capital Mgmt., Inc., Investment Advisers Act of 1940 Release 

No. 2694, 2008 WL 149127, at *9 n.33 (Jan. 16, 2008). Those same actions 

establish that Bebo contributed to the violation and knew that she would do 

so.

Bebo violated the Exchange Act’s certification rule. 

Bebo is charged with falsely certifying each periodic report containing 

financial statements in violation of Exchange Act Rule 13a-14. OIP at 11. 

Rule 13a-14 requires an issuer’s principal executive to sign a number of 

certifications in an exhibit to each of the issuer’s periodic reports, including 

that:

based on her knowledge, the report “does not contain any untrue 

statement of material fact”; 

based on her knowledge, “the financial statements ... fairly present in all 

material respects the financial condition, results of operations and cash 

flows of” the issuer for the covered periods; 

she was “responsible for establishing and maintaining ... internal control 

over financial reporting”; and

she has disclosed to the auditors and audit committee “all significant 

deficiencies” in the internal controls and “[a]ny fraud, whether or not 

material, that involves management.” 

17 C.F.R. § 229.601(b)(31)(i); see 15 U.S.C. § 7241(a)(2)–(5); 17 C.F.R. 

§ 240.13a-14(a). The rule is violated if an officer certifies a report “without a 

sufficient basis to believe that the certification is accurate.” SEC v. Jensen, 835 

F.3d 1100, 1113 (9th Cir. 2016); accord Certification of Disclosure in 

Companies’ Quarterly and Annual Reports, 67 Fed. Reg. 57,276, 57,279 (Sept. 

9, 2002) (“[C]ertification statements [concerning material misstatements and 

an issuer’s financial condition] are to be made based on the knowledge of the 

certifying officer.”).20

 

20 Whether there is a more exacting state-of-mind requirement is an open 

question that I need not address because Bebo had actual knowledge of the 

truthfulness of her certifications. See SEC v. Ustian, No. 16-cv-3885, 2019 WL 

7486835, at *28 n.27 (N.D. Ill. Dec. 13, 2019) (collecting cases); see also Jensen, 

835 F.3d at 1117–21 (Bea, J., concurring) (stating the view that Rule 13a-14 

requires “a showing of recklessness or knowledge”).
108

The Division argues that Bebo violated Rule 13a-14 when she certified 

that ALC’s periodic reports did not contain material misstatements and fairly 

presented ALC’s financial condition and that ALC had implemented adequate 

internal controls. Div. Post-hr’g Br. at 55.

I agree that Bebo certified each of ALC’s twelve periodic reports for 2009 

to 2011 in violation of Rule 13a-14. As detailed with respect to the other 

charges, Bebo knew that the occupancy reconciliation scheme resulted in

material misstatements in the periodic reports and prevented the financial 

statements from fairly representing the condition and operations of ALC and 

that she had implemented the occupancy reconciliation scheme without 

controls that could have prevented the abuse. See 15 U.S.C. § 7241(a)(2)–(4) 

And she did not disclose to Grant Thornton or ALC’s audit committee that 

members of ALC’s management, herself included, were intentionally falsifying 

occupancy records and concealing that fact from Ventas. See id. § 7241(a)(5)(B). 

She nevertheless certified that none of these deficiencies were present. Exs. 2–

13 (certification of Laurie A. Bebo attached to periodic reports as Ex. 31.1). 

Contrary to Bebo’s argument, claims against individual officers for 

violations of Rule 13a-14 may be pursued by the Division in this forum. To 

support her argument, Bebo cites SEC v. Black, No. 04-cv-7377, 2008 WL 

4394891, at *16–17 (N.D. Ill. Sept. 24, 2008). See Resp’t Post-hr’g Br. at 214–

15. But Black is an outlier; “SEC claims brought under Rule 13a-14 are 

routinely permitted”—including by other district courts in the same district as 

Black—because the Commission has the authority to bring suit in district court 

for violations of the federal securities laws. SEC v. Brown, 740 F. Supp. 2d 148, 

164–65 (D.D.C. 2010) (citing 15 U.S.C. § 78u(d)(1)); see SEC v. Ustian, 229 F. 

Supp. 3d 739, 777 (N.D. Ill. 2017) (rejecting Black and collecting cases). 

Similarly, Exchange Act Section 21C, under which this proceeding was 

brought, permits the Commission to institute an administrative proceeding 

and impose sanctions against any person who has violated a regulation 

promulgated under the Exchange Act. 15 U.S.C. § 78u-3(a); see id. §§ 78u2(a)(2), 78u-3(e) (permitting civil money penalties and disgorgement in ceaseand-desist proceedings). 

Bebo caused violations of the Exchange Act’s reporting provisions.

Bebo is charged with causing ALC to file factually inaccurate annual and 

quarterly reports and to omit material information from those reports 

necessary to make the disclosures not misleading, in violation of Exchange Act 

Section 13(a) and Rules 13a-1, 13a-13, and 12b-20. OIP at 11. 

Section 13(a) and Rules 13a-1 and 13a-13 provide, in part, that issuers 

with securities registered under Exchange Act Section 12 like ALC must file 
109

annual and quarterly reports. 15 U.S.C. § 78m(a); 17 C.F.R. § 240.13a-1, .13a13. An issuer’s “obligation to file these reports includes an obligation that the 

filings be accurate.” Robert W. Armstrong, Exchange Act Release No. 51920, 

2005 WL 1498425, at *10 (June 24, 2005) (citing United States v. Bilzerian, 

926 F.2d 1285, 1298 (2d Cir. 1991)). Rule 12b-20 provides that “further 

material information, if any,” must be added “as may be necessary to make the 

required statements, in the light of the circumstances under which they are 

made not misleading.” 17 C.F.R. § 240.12b-20; see also SEC v. Falstaff Brewing 

Corp., 629 F.2d 62, 70–72 (D.C. Cir. 1980) (including statements in a periodic 

report about a major litigation against the issuer involving a default but failing 

to disclose that the issuer’s actions caused the default violated Rule 12b-20). 

Liability under these provisions requires a showing of the false statements’ 

materiality. See SEC v. Blackburn, 431 F. Supp. 3d 774, 815 (E.D. La. 2019). 

No showing of scienter is required to prove these reporting violations. SEC v. 

McNulty, 137 F.3d 732, 740–41 (2d Cir. 1998); Gregory M. Dearlove, Exchange 

Act Release No. 57244, 2008 WL 281105, at *31 (Jan. 31, 2008), pet. denied, 

573 F.3d 801 (D.C. Cir. 2009).

To prove that Bebo caused ALC’s violations of these provisions, the 

Division must show (1) a primary violation, (2) an act or omission by Bebo that 

caused the violation, and (3) that Bebo knew, or should have known, that her 

conduct would contribute to the violation. Fuller, 2003 WL 22016309, at *4. 

ALC violated Section 13(a) and Rules 13a-1, 13a-13, and 12b-20 because 

it included materially false statements in its required annual and quarterly 

reports with the Commission and omitted material information needed to 

make the disclosures not materially misleading. For the reporting periods at 

issue, 2009 to 2011, ALC was a public company required to file reports with 

the Commission. As discussed above, the statements in the reports that ALC 

was in compliance with the Ventas lease covenants and that it believed there 

was not a reasonably likely risk of breach were materially false. Further, ALC 

did not disclose Bebo’s occupancy reconciliation scheme, which was required to 

make the disclosures not materially misleading because ALC’s purported 

compliance was due to Bebo’s scheme.

As a maker of the misstatements with control and responsibility for the 

contents of the reports, Bebo caused twelve reporting violations under Section 

13(a) and Rules 13a-1, 13a-13, and 12b-20, one for each Form 10-K and Form 

10-Q covering the years 2009 to 2011. Bebo signed each of ALC’s annual 

reports and certified those reports plus every quarterly report, while knowing 

that the statements were false or misleading. Bebo caused the misstatements 

and omissions by signing and certifying the reports with knowledge of the 

contents’ falsity. See Fuller, 2003 WL 22016309, at *8. Even if others also had 

an obligation to ensure the accuracy of the information in ALC’s periodic 
110

reports, that does not insulate Bebo from liability for her own misconduct. See 

id. at *8 n.45.

Bebo violated the Exchange Act’s prohibition against misleading 

auditors.

Bebo is charged with misleading ALC’s auditors in connection with their 

audits of ALC’s publicly filed financial statements in violation of Exchange Act 

Rule 13b2-2. OIP at 11. 

Rule 13b2-2(a) prohibits any officer or director of an issuer from making 

or causing to be made a materially false or misleading statement, or omitting 

or causing to be omitted a material fact needed to make statements made not 

misleading, to an accountant in connection with an audit of financial 

statements or reports filed with the Commission. 17 C.F.R. § 240.13b2-2(a).

The term “officer” includes “president, vice president, secretary, treasurer or 

principal financial officer, comptroller or principal accounting officer, and any 

person routinely performing corresponding functions with respect to any 

organization.” 17 C.F.R. § 240.3b-2. As the CEO who signed management 

representation letters to Grant Thornton, Bebo was an officer within the 

meaning of the rule. See McConville, 2005 WL 1560276, at *13 (signing 

management representation letters is an officer’s responsibility).

One circuit court has held that to be liable under Rule 13b2-2, the alleged 

wrongdoer must have had “knowledge that [s]he was signing a false 

management representation letter” to the accountants. SEC v. Todd, 642 F.3d 

1207, 1224 (9th Cir. 2011). Most courts, however, have held that scienter is not 

required to prove a violation. See, e.g., SEC v. Das, 723 F.3d 943, 955 (8th Cir. 

2013); SEC v. Goldstone, 952 F. Supp. 2d 1060, 1211–15 (D.N.M. 2013); SEC 

v. Espuelas, 698 F. Supp. 2d 415, 436 (S.D.N.Y. 2010). In promulgating Rule 

13b2-2, the Commission declined to include a scienter requirement because 

Section 13(b)(2)(A) contains no words indicating that the Congress intended to 

impose that requirement. Promotion of the Reliability of Financial Information 

and Prevention of the Concealment of Questionable or Illegal Corporate 

Payments and Practices, 44 Fed. Reg. 10, 964, 10,968–69 (Feb. 23, 1979).

The Division argues three circumstances establish Bebo’s Rule 13b2-2 

liability: (1) twelve representation letters to Grant Thornton that Bebo signed 

in connection with audits of ALC’s financial statements from 2009 to 2011,

which falsely represented that ALC “complied with all aspects of contractual 

agreements that would have a material effect on the financial statements in 

the event of a noncompliance”; (2) the lists of false occupants Bebo provided 

Grant Thornton quarterly; and (3) the representation letter regarding the 2011 

audit where Bebo represented she had “no knowledge of any allegations of 
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fraud or suspected fraud affecting” ALC from employees, even though 

Grochowski confronted her in 2011 about the propriety of the Ventas lease 

covenant calculations. See Div. Post-hr’g Br. at 54; Exs. 61–72; Tr. 1152–54, 

2699–2700. 

ALC’s statements that it was in compliance with the Ventas lease were 

material, and Bebo knew those statements were false. Bebo nonetheless signed 

twelve letters to Grant Thornton during its audits of ALC’s financial 

statements falsely representing that ALC was in compliance with all contracts 

that would have a material effect. See Exs. 61–72. Bebo knew Grant Thornton 

received the fictitious lists of residents that she engineered to create the false 

impression that ALC met the financial covenants. See Tr. 4070–73, 4124. Bebo 

correctly notes that some evidence indicates Grant Thornton was on notice that 

the lists did not reflect actual occupants, Resp’t Post-hr’g Reply Br. at 93; 

Tr. 3400–04 (Robinson testimony), but throughout the same period, Bebo 

falsely represented to Grant Thornton that an agreement with Ventas allowed 

her to satisfy the financial covenants in this way, which she knew to be false.

See Tr. 3366, 3495–96. 

I need not decide whether scienter must be proved to establish a Rule 

13b2-2 violation, as the Division has proved Bebo acted knowingly. As noted, 

Bebo intentionally misled Grant Thornton into the false understanding that 

Bebo had secured Ventas’s agreement to allow ALC to use fictitious occupants 

to satisfy the financial covenants, and provided them with quarterly 

representation letters stating ALC was in “full” compliance with material 

contractual agreements, even though she knew ALC was not. 

I find that Bebo committed twelve violations of Exchange Act Rule 13b2-

2, one per representation letter to Grant Thornton in connection with ALC’s 

audits from 2009 to 2011.

21

Sanctions

The Commission directed that I determine whether a cease-and-desist 

order, an officer-and-director bar, disgorgement, and civil money penalties 

should be imposed against Bebo. OIP at 12. The Division seeks all the 

preceding sanctions except disgorgement. See Div. Post-hr’g Br. at 56–59; Div. 

Ltr. Br. at 1 (July 8, 2020).

 

21 I do not base this finding on the 2011 representation letter’s statement 

regarding no knowledge of fraud allegations despite Grochowski’s complaint to 

Bebo that year because Grochowski alleged accounting improprieties under 

GAAP, not fraud specifically. See Tr. 1190–91, 1209. 
112

Bebo generally opposes the sanctions sought by the Division but 

acknowledges that a cease-and-desist order would likely be issued if I find that 

she violated the securities laws. See Resp’t Post-hr’g Br. at 270–88. 

Disgorgement

The OIP directed that I determine whether ordering disgorgement against 

Bebo is appropriate. OIP at 12. Although the Division originally sought 

disgorgement of Bebo’s discretionary bonuses earned during the years 2009 to 

2011, see Div. Post-hr’g Br. at 57, it waived its request after I asked the parties 

to address the effects of Liu v. SEC, 140 S. Ct. 1936 (2020). Div. Ltr. Br. at 1; 

see Bebo, Admin. Proc. Rulings Release No. 6775, 2020 SEC LEXIS 2204 (ALJ 

July 15, 2020) (finding waiver); Div. Supp’l Ltr. Br. (July 21, 2020) (failing to 

deny waiver). Instead, the Division responded that “it would be more 

appropriate to proceed with statutory penalties” as opposed to disgorgement 

“given the unique record in this case.” Div. Ltr. Br. at 1. 

Because the Division waived or, at a minimum, forfeited its right to seek 

disgorgement by failing to respond to my questions about Liu, I decline to

impose the sanction. “Statements by ... staff ... do not necessarily bind th[e] 

Commission,” George Salloum, Exchange Act Release No. 35563, 1995 WL 

215268, at *6 n.40 (Apr. 5, 1995), but the Commission typically declines to 

consider positions abandoned by the Division. See, e.g., Larry C. Grossman, 

Securities Act Release No. 10473, 2018 WL 1532792, at *2 & n.12 (Mar. 29, 

2018) (respecting the parties’ agreement that disgorgement should not be 

imposed); James S. Tagliaferri, Securities Act Release No. 10308, 2017 WL 

632134, at *2 n.17 (Feb. 15, 2017) (considering a charge from the OIP 

“abandoned” when “the Division declined to pursue that alleged violation in its 

motion for summary disposition”).

This accords with the practice in other forums, where parties are usually 

held to their decisions to abandon claims or arguments. See Gordon Brent 

Pierce, Securities Act Release No. 10067, 2016 WL 1566396, at *3 (Apr. 18, 

2016) (“[A] right of any ... sort may be forfeited in ... civil cases by the failure 

to make timely assertion of the right before a tribunal having jurisdiction to 

determine it.” (quoting United States v. Olano, 507 U.S. 725, 731 (1993))). And 

it is appropriate here, where the Division bore the burdens of proof and 

persuasion, yet failed to make any argument or identify record evidence 

necessary to satisfy the limiting principles identified in Liu. See Robert D. 

Potts, Exchange Act Release No. 39126, 1997 WL 690519, at *11 (Sept. 24, 

1997) (noting that the Division bears the burdens of proof and persuasion in 

administrative proceedings), pet. denied, 151 F.3d 810 (8th Cir. 1998); see also

Liu, 140 S. Ct. at 1942, 1944–47, 1949–50 (explaining that disgorgement is an 
113

equitable remedy traditionally limited to an individual wrongdoer’s net profits

from the wrongdoing—minus legitimate expenses—to be awarded for victims). 

Accordingly, I decline to order disgorgement in this proceeding.

Cease-and-Desist Order and the Public Interest

Exchange Act Section 21C authorizes a cease-and-desist order against any 

person found to have violated, or caused a violation of, a provision of that act 

or its regulations. See 15 U.S.C. § 78u-3(a). To issue such an order, “there must 

be some likelihood of future violations.” KPMG Peat Marwick LLP, Exchange 

Act Release No. 43862, 2001 WL 47245, at *24 (Jan. 19, 2001), pet. denied, 289 

F.3d 109 (D.C. Cir. 2002). The “risk” of future violations “need not be very great 

to warrant issuing a cease-and-desist order. Absent evidence to the contrary, a 

finding of violation raises a sufficient risk of future violation.” Id.; see also id.

at *26.

The Commission considers the public-interest factors described in 

Steadman v. SEC, 603 F.2d 1126, 1140 (5th. Cir. 1979), aff’d on other grounds, 

450 U.S. 91 (1981), when determining whether to issue a cease-and-desist 

order. KPMG Peat Marwick, 2001 WL 47245, at *23 & n.114, *26; see Timothy 

S. Dembski, Securities Act Release No. 10326, 2017 WL 1103685, at *14 (Mar. 

24, 2017), pet. denied, 726 F. App’x 841 (2d Cir. 2018). These factors include: 

the egregiousness of the respondent’s actions, the isolated or recurrent nature 

of the infraction, the degree of scienter involved, the sincerity of the 

respondent’s assurances against future violations, the respondent’s recognition 

of the wrongful nature of her conduct, and the likelihood that the respondent’s 

occupation will present opportunities for future violations. KPMG Peat 

Marwick, 2001 WL 47245, at *26; see also Steadman, 603 F.2d at 1140. The 

Commission also considers “whether the violation is recent, the degree of harm 

to investors or the marketplace resulting from the violation, and the remedial 

function to be served by the cease-and-desist order in the context of any other 

sanctions being sought in the same proceedings.” KPMG Peat Marwick, 2001 

WL 47245, at *26. No single factor in this analysis is dispositive, and the entire 

record is considered when deciding whether to issue a cease-and-desist order. 

Id.

1. Egregiousness

Bebo’s scheme and the various violations she committed or caused to be 

committed by ALC to carry it out were egregious. When ALC could not meet 

the Ventas lease covenants, Bebo orchestrated a fictitious process to deceive 

Ventas, and others, to create the false impression that ALC in fact met those 

requirements. To do so, after each of the twelve quarters in which ALC would 

have failed a financial covenant, Bebo personally selected names of 
114

nonresidents who did stay or visit the facilities to backfill the gaps. These faux

occupants falsely boosted occupancy numbers and associated revenue reported 

to Ventas. Bebo not only orchestrated the fraud, but actively participated: She 

falsified ALC’s records by including names of faux occupants, reported false 

information to Ventas, misled ALC’s external auditors, misled ALC’s board, 

made misstatements through ALC’s periodic reports, and caused various 

violations by ALC.

The Commission has “repeatedly held that conduct that violates the 

antifraud provisions of the securities laws is especially serious and subject to 

the severest of sanctions under the securities laws.” Peter Siris, Exchange Act 

Release No. 71068, 2013 WL 6528874, at *6 (Dec. 12, 2013) (internal quotation 

marks omitted), pet. denied, 773 F.3d 89 (D.C. Cir. 2014). Bebo’s violations of 

reporting obligations and books-and-records requirements were also egregious 

and demonstrated a flagrant disregard of the securities laws’ protections. 

Commission-required periodic reports are the “primary statutory tools for 

protecting the integrity of the securities marketplace,” China-Biotics, Inc., 

Exchange Act Release No. 70800, 2013 WL 5883342, at *11 (Nov. 4, 2013), and 

books-and-records regulations are the “bedrock elements of our system of 

corporate disclosure and accountability.” Michael C. Pattison, Exchange Act 

Release No. 67900, 2012 WL 4320146, at *8 (Sept. 20, 2012) (quoting SEC v. 

World-Wide Coin Inv., Ltd., 567 F. Supp. 724, 746 (N.D. Ga. 1983)). 

2. Recurrence

Bebo began her scheme at the beginning of 2009, and she perpetuated it 

at least quarterly for more than three years, making the misconduct recurrent. 

See, e.g., Siris, 2013 WL 6528874, at *5–6 (fraudulent misconduct over two 

years involving 10 transactions was recurrent); Fundamental Portfolio 

Advisors, Inc., Exchange Act Release No. 48177, 2003 WL 21658248, at *16

(July 15, 2003) (describing violations that “continued for almost two years” as 

not isolated), pet. denied, 167 F. App’x 836 (2d Cir. 2006). The scheme would 

not have continued without Bebo’s recurrent misconduct.

3. Scienter

As I have already found, Bebo acted intentionally and with scienter. 

Bebo’s violations, and those she caused, were committed with knowledge that 

her scheme was based on false, manufactured information. To keep up the 

appearance of propriety, she actively concealed key aspects of her scheme from 

ALC’s board, its external auditors, the public, and Ventas. 
115

4. Sincerity of assurances against future violations

Bebo has not provided sincere assurances against future violations, or, for 

that matter, any such assurances.

5. Recognition of wrongdoing

The Division argues that Bebo has not admitted wrongdoing and “testified 

that she does not believe she did anything wrong.” Div. Post-hr’g. Br. at 56. 

Following the hearing, Bebo acknowledged that the procedures for 

documenting employee stays at the facilities “were not as robust as they should 

have been.” Resp’t Post-hr’g Br. at 106. Bebo argues that she should not be 

“punished” for exercising her right to defend herself from the Division’s 

charges. Resp’t Post-hr’g. Reply Br. at 106 (citing SEC v. Johnson, 595 F. Supp. 

2d 40, 45 (D.D.C. 2007)). Johnson rejected the contention that a defendant’s 

testimony that “he thinks he did nothing wrong” establishes a failure to 

recognize wrongdoing, because the defendant has a right to vigorously contest 

the SEC’s allegations. 595 F. Supp. 2d at 45. I do not draw a negative inference 

from Bebo’s vigorous defense to the charges. However, Bebo’s misconduct did 

not involve mere technical violations, unclear standards, or an isolated 

incident. It concerned outright falsification of records, a fraudulent scheme 

deliberately perpetrated for years, and misleading multiple individuals, 

entities, and the public—which, despite overwhelming evidence of wrongdoing, 

she has not acknowledged.

Except for her post-hearing brief’s acknowledgement, Bebo missed the 

opportunity to demonstrate that she recognized the wrongfulness of her 

actions. In other words, this is an opportunity that Bebo missed to mitigate 

sanctions. See Geiger v. SEC, 363 F.3d 481, 489 (D.C. Cir. 2004) (“[The 

respondent] still thinks he did nothing wrong, which casts doubts on his 

promise that he will mend his ways.”); Jose P. Zollino, Exchange Act Release 

No. 55107, 2007 WL 98919, at *6 (Jan. 16, 2007) (“[F]ailure to acknowledge 

guilt or show remorse indicates that there is a significant risk that, given the 

opportunity, [the respondent] would commit further misconduct in the 

future.”); see also Seghers v. SEC, 548 F.3d 129, 136 (D.C. Cir. 2008) (due 

process is not violated where a defendant is “given the option of recognizing 

the wrongfulness of [her] conduct or refusing to do so and risking more severe 

remedial action”).

6. Opportunities for future violations

Because I determine, below, that Bebo will be subject to an officer-anddirector bar with the right to reapply to work in that capacity, if she 

successfully seeks permission to have the bar lifted, she would be able to serve 

in positions that would present opportunities for future violations. 
116

7. Recency

Bebo’s last violations took place more than eight years ago, and are 

therefore not recent. However, I find that the absence of recent violations “is 

outweighed by the other factors previously discussed.” Robert W. Armstrong, 

III, Exchange Act Release No. 51920, 2005 WL 1498425, at *15 (June 24, 2005).

8. Harm

Harm to investors is difficult to quantify in this case. However, Bebo’s 

misconduct can be clearly tied to approximately $1 million spent by ALC on an 

investigation into Bebo’s actions.22 This expense was borne by the company, 

and represents $1 million that could have otherwise been used to better benefit 

shareholders. Additionally, investors and the marketplace are harmed when 

false and misleading statements are disseminated to investors and when 

managers certify the accuracy of misleading periodic reports. See Rockies 

Fund, Inc., Exchange Act Release No. 54892, 2006 WL 3542989, at *5 (Dec. 7, 

2006) (“The dissemination of false and misleading financial information, such 

as in the periodic reports at issue, causes serious harm to investors and the 

marketplace.”), pet. denied, 298 F. App’x 4 (D.C. Cir. 2008); see also SEC v. 

Dresser Indus., Inc., 628 F.2d 1368, 1377 (D.C. Cir. 1980) (“Dissemination of 

false or misleading information by companies to members of the investing 

public may distort the efficient workings of the securities markets and injure 

investors who rely on the accuracy and completeness of the company’s public 

disclosures.”). Although the total monetary cost of Bebo’s misconduct to 

investors cannot be ascertained on this record, her pattern of misconduct 

deprived investors and potential investors of accurate information about ALC’s 

financial condition. Cf. Absolute Potential, Inc., Exchange Act Release 

No. 71866, 2014 WL 1338256, at *6 (Apr. 4, 2014).

Given that Bebo’s misconduct caused direct financial harm to ALC and 

deprived the marketplace of accurate information about her scheme and risks 

to ALC from that scheme, the harm from her misconduct supports imposing 

sanctions.

9. Remedial function in the context of other sanctions

A cease-and-desist order would work along with the other sanctions 

imposed. It is prospective—prohibiting Bebo from future violations, no matter 

 

22 ALC also paid $12 million to settle a shareholders’ lawsuit that made 

allegations similar to those in Ventas’s suit against ALC, but also included 

allegations regarding Bebo’s scheme. The record does not establish what 

portion of that settlement, if any, can be attributed to Bebo’s violations. 
117

if she is in a leading role at another public company. The officer-and-director 

bar and civil penalties serve related but different functions. 

I find that the foregoing factors support ordering Bebo to cease and desist 

from future violations of the securities statutes and rules that she violated or 

caused to be violated.

Officer-and-Director Bar

Exchange Act Section 21C(f) authorizes barring a respondent, who has 

violated Exchange Act Section 10(b), from acting as an officer or director of any 

issuer with securities registered under Exchange Act Section 12 or required to 

file reports under Section 15(d) if her conduct demonstrates unfitness to serve 

as an officer or director. 15 U.S.C. § 78u-3(f). 

I will consider six non-exclusive factors in assessing whether Bebo is unfit 

to act as an officer or director: (1) the egregiousness of the underlying securities

law violation; (2) the respondent’s recidivism; (3) the respondent’s role or 

position in the fraud; (4) the respondent’s degree of scienter; (5) the 

respondent’s economic stake in the violation; and (6) the likelihood that 

misconduct will recur. See SEC v. Bankosky, 716 F.3d 45, 48 (2d Cir. 2013)

(citing SEC v. Patel, 61 F.3d 137, 141 (2d Cir. 1995)); SEC v. Quinlan, 373 F. 

App’x 581, 586 (6th Cir. 2010). Given the significant overlap of factors one, 

four, and six with the Steadman factors discussed above, I conduct a separate 

analysis only of factors two, three, and five below.

Recidivism

Bebo argues that the lack of “any evidence that [she] is a ‘repeat offender’” 

weighs against imposing a bar. Resp’t Post-hr’g Br. at 285. She points to two 

federal district court cases in which the courts considered the defendants’ lack 

of previous violations very important when declining to order officer-anddirector bars. Id. at 285–86 (citing SEC v. Stanard, No. 06-cv-7736, 2009 WL 

196023, at *33 (S.D.N.Y. Jan. 27, 2009) (finding “particularly relevant [the] 

lack of previous securities law violations”), and SEC v. Dibella, No. 04-cv-1342, 

2008 WL 6965807, at *11 (D. Conn. Mar. 13, 2008) (declining to order bar 

despite finding scienter in part because the court found the conduct was the 

defendant’s first and only securities law violation). The Division has not 

rebutted this point or identified any evidence that Bebo previously committed

securities law violations, so this factor weighs in her favor.

Role or Position in the Fraud

Bebo used her position as CEO of ALC to orchestrate and carry out the 

fraudulent scheme. Bebo contends that her “prominent position in [ALC] alone 
118

cannot justify” imposing a bar. Resp’t Post-hr’g Br. at 287 (citing SEC v. 

Nocella, No. 12-cv-1051, 2014 WL 4105945, at *2 (S.D. Tex. Aug. 11, 2014)). 

However, in Nocella, as Bebo herself admits, the defendants “did not create or 

implement the programs on their own.” Resp’t Post-hr’g Br. at 287 (quoting 

Nocella, 2014 WL 4105945, at *2). By contrast, Bebo created the occupancy 

reconciliation scheme and implemented perhaps the most significant aspect of 

it—identifying individuals after the fact to satisfy the lease covenants. In 

Nocella, the court also observed that the defendants, “[a]s CEO and CFO ... 

are abstractly accountable for the actions of the company and cannot claim 

they were oblivious. This does not mean, however, that they were individually 

responsible for incorrect accounting.” 2014 WL 4105945, at *2. Bebo is more 

than “abstractly accountable” here because the challenged actions are all 

either her own, or, even if they were carried out by subordinates, it is because 

Bebo directed the incorrect accounting, and in many cases signed the entries 

on the general ledger herself. Bebo’s integral role in the fraud is shown by her 

creation and execution of the scheme, not by the mere fact she was CEO during 

the fraud.

Economic Stake in the Violation

As CEO, Bebo’s economic interests in ALC were in her salary, bonus, 

stock, and stock options. Because the Ventas lease concerned approximately

5% of ALC’s overall operations, her economic stake in the violation was small 

as compared to her other economic interests. As discussed in the unjust 

enrichment section of the public interest analysis below, Bebo’s bonuses 

relating to her Ventas scheme were worth roughly $55,000 from 2009 to 2011.

See Stipulations, ¶¶ 13–15 (Bebo’s bonus amounts); Ex. 13 at 3, F-24 (ALC 

operated 9,325 units as of December 31, 2011, and 541 were leased from 

Ventas). 

Bebo argues that the Division’s theory of her “financial gain based on ... 

continued employment at ALC is not enough to support a director and officer 

bar.” Resp’t Post-hr’g Br. at 287 (citing SEC v. Shanahan, No. 07-cv-2879, 2010 

WL 173819, at *16 (D. Minn. Jan. 13, 2010), where, as one factor in declining 

to order a bar, the court indicated the economic stake was “minimal” because 

“the only financial benefit was job retention”). But Shanahan does not hold 

that continued employment can never be a relevant financial benefit—and it 

would not be persuasive if it did. See 2010 WL 173819, at *16 (contrasting 

another case in which a bar was appropriate when an executive’s compensation 

was “hundreds of thousands of dollars”). Bebo was well compensated for 

running a public company and her position likely would have been jeopardized

if ALC had failed to satisfy its contractual obligations. Moreover, unlike 

Shanahan, concealment of Bebo’s scheme from the board ensured continued 

bonuses and options, not just continued employment. Further, concealment 
119

from Ventas supported that enrichment and, in the context of ALC being for 

sale, made Ventas, or another purchaser, more likely to buy or pay more for 

ALC, increasing the value of Bebo’s ALC stock. Although she did not earn 

millions of dollars from her fraud, her economic stake was not insignificant.

As for her ability to serve as an officer or director in the future, Bebo’s 

scienter, central role in the fraud, failure to fully recognize her wrongdoing, 

and possibility of future recurrence are troubling. On the other hand, her clean 

securities record before this action and her relatively modest economic stake 

in the violation are factors militating against a permanent bar. Bebo urges that 

I should consider the appropriateness of an industry-specific or time-limited 

bar before imposing a permanent bar. Resp’t Post-hr’g Br. at 285 (quoting

Patel, 61 F.3d at 142). This is precisely what the OIP requires. OIP at 12; see

15 U.S.C. § 78u-3(f). As the Division has not established that Bebo has a 

history of unfitness, I consider the sufficiency of alternatives to a permanent 

bar, such as a bar with the right to reapply.

23 Indeed, one of the authorities the 

Division cites in support of a bar, SEC v. Hall, 759 F. App’x 877, 884–85 (11th

Cir. 2019) (per curiam), affirmed a 10-year officer-and-director bar where the 

defendant violated federal antifraud provisions and reaped almost $4 million 

in ill-gotten gains. 

Bebo argues that she “has already been effectively barred from her 

profession for years as a result of the Division’s accusations against her.” Resp’t

Post-hr’g Br. at 288 (citing SEC v. Schroeder, No. 07-03798, 2010 WL 4789441 

(N.D. Cal. Nov. 17, 2010)). In Schroeder, the court rejected the Commission’s 

request to impose a five-year bar in part because it appeared the defendant 

“had difficulty obtaining regular employment since [his company] made public” 

the fraud allegations, making him “effectively barred from his profession for 

four years.” Schroeder, 2010 WL 4789441 at *2 (primarily rejecting the bar 

because the defendant, unlike Bebo, lacked “sufficient” scienter). To the extent 

that Schroeder stands for the proposition that a period of unemployment 

following a Commission enforcement action may excuse the need for a bar 

when a defendant lacks a high degree of scienter, the Commission has rejected 

that proposition in holding that consequences of misconduct and allegations 

regarding that misconduct do not mitigate against sanctions. See Crow, 

Brourman & Chatkin, Inc., Exchange Act Release No. 7860, 1966 WL 84556,

at *2 (Apr. 12, 1966) (rejecting respondent’s argument that he was “‘effectively 

 

23 The Commission’s “usual practice” when imposing a time-limited bar is to 

impose a bar with the right for a respondent to reapply for reinstatement so 

that the Commission can evaluate the public interest. Edgar R. Page, 

Investment Advisers Act of 1940 Release No. 4400, 2016 WL 3030845, at *9 

n.45 (May 27, 2016).
120

barred’ from employment” after an OIP was issued because the OIP “did not 

constitute a legal bar to such employment and ... the asserted effect of such 

order is one of the possible consequences of remedial proceedings which are 

made public by the Commission”); see also Thomas C. Gonnella, Securities Act 

Release No. 10119, 2016 WL 4233837, at *13 (Aug. 10, 2016) (“[W]e have 

repeatedly stated that the collateral consequences of misconduct, including the 

loss of employment, reputation, and income, are not mitigating.”), pet. denied, 

954 F.3d 536 (2d Cir. 2020). Accordingly, collateral consequences that Bebo has 

faced do not lessen the need for sanctions. 

The Division argues that Bebo should receive a permanent bar because 

Buono was barred, but that bar was imposed as part of a settlement and I give 

it no weight in my decision.24

Weighing the factors and considering that Bebo has not violated the 

securities laws since her misconduct ended, I find that a bar with the right to 

reapply after six years is appropriate. A six-year bar is twice the length of her 

three-year misconduct and provides ample opportunity to reassess her fitness. 

Notwithstanding the other factors supporting a permanent bar, I am 

persuaded that in the circumstances of this case, a bar with the right to reapply 

will adequately serve the public interest. If Bebo reapplies to serve as an officer 

or director of a public company after six years, the Commission would have the 

benefit of assessing her activities and suitability based on the six years of the 

bar, and the eight years that preceded it after Bebo’s misconduct ended. Before 

then, as the Division notes, a bar would not “prohibit Bebo from being 

employed in the assisted living industry, or any other industry” provided she 

is not in positions of leadership in a public corporation, Div. Post-hr’g Reply 

Br. at 59, and she could also serve in the leadership of a private corporation. 

 

24 See Bebo, Exchange Act Release No. 74177, 2015 WL 366000, at *1 n.1, 

*11 (Jan. 29, 2015) (indicating the findings in the order imposing sanctions on 

Buono “are not binding on any other person or entity in this or any other 

proceeding”); see also Joseph John VanCook, Exchange Act Release 

No. 61039A, 2009 WL 4026291, at *19 (Nov. 20, 2009) (“[T]he sanctions that 

are imposed in settled cases are the result of a myriad ‘pragmatic 

considerations such as the avoidance of time-and-manpower-consuming 

adversarial litigation’ that enter into decisions to accept offers of settlement 

from respondents. For this reason they cannot be meaningfully compared to 

the sanctions imposed in litigated cases, which are the result of fact-specific 

considerations of various factors designed to best protect the public interest.” 

(quoting Philip A. Lehman, Exchange Act Release No. 54660, 2006 WL 

3054584, at *9 (Oct. 27, 2006))), pet. denied, 653 F.3d 130 (2d Cir. 2011). The 

same reasoning applies to the other sanctions as well.
121

Accordingly, I will prohibit Bebo from serving as an officer or director of a 

public company with the right to reapply in six years.

Civil Penalties

Exchange Act Section 21B(a)(2) authorizes civil penalties in cease-anddesist proceedings against any person who has violated, or caused a violation 

of, a provision of that act or a rule or regulation thereunder. 15 U.S.C. § 78u2(a)(2). I must decide three issues before imposing civil penalties. First, I 

determine that imposing civil penalties is in the public interest. Second, I find 

it appropriate to impose penalties for each individual violation rather than a 

single penalty for Bebo’s entire course of conduct. Third, I determine that some 

violations, but not all, caused substantial losses or risk of substantial losses 

and therefore justify third-tier penalties.

Civil penalties are in the public interest.

When determining whether civil penalties are in the public interest, the 

Commission considers six factors listed in the securities statutes: (1) whether 

the violation involved fraud, deceit, manipulation, or deliberate or reckless 

disregard of a regulatory requirement; (2) the resulting harm, directly or 

indirectly, to other persons; (3) any unjust enrichment and prior restitution; 

(4) the respondent’s prior regulatory record; (5) the need for deterrence; and 

(6) such other matters as justice may require. See, e.g., 15 U.S.C. § 78u-2(c).

Fraud or deceit 

The violations involve fraud, which requires scienter, so the first factor is 

satisfied.

Harm directly or indirectly to other persons

Bebo’s violations resulted in approximately $1 million of losses to ALC and 

its shareholders.

Unjust enrichment or prior restitution

Bebo’s concealment of her scheme from the board allowed her to receive 

discretionary bonuses that she would not have had the board known of her 

misconduct, and that concealment protected her stock options from being 

suspended or revoked upon revelation of fraud. Three board members who 

served on the compensation committee testified that they would not have 

awarded Bebo a discretionary bonus if they had known of her scheme. See Tr. 

654–55, 2659, 2850–51. Bebo cross-examined all three of the board members 

but did nothing to undercut that testimony. Bebo also had the opportunity to
122

question other board members at the hearing, but did not establish that any 

other board member would have awarded her a bonus in these circumstances. 

I am unpersuaded by Bebo’s argument that I should disregard the board 

members’ testimony because the board approved her final bonus in March 

2012, shortly after they learned that ALC had included certain employees in 

the calculations to satisfy the occupancy covenants. Resp’t Ltr. Br. at 3 n.2 

(July 8, 2020). As discussed in my factual findings, the board was not fully 

aware of Bebo’s scheme, including its most egregious aspects, at that time. 

Bebo also claims that board member testimony is refuted by the fact they 

awarded Buono a bonus in 2013. See Resp’t Post-hr’g Br. at 206, 272–73; Resp’t

Post-hr’g Reply Br. at 100. However, Buono’s 2013 bonus is not sufficiently 

analogous because there is no evidence that the board considered the scheme 

orchestrated by Bebo to be Buono’s fault, even though he implemented part of 

it under her leadership. For example, Buntain believed Buono “was doing what 

he was instructed to by” Bebo and “didn’t see him as the ringleader of the 

operation and manipulating the numbers.” Tr. 1390–91.

Bebo’s discretionary bonuses for the years 2009 to 2011 totaled a little over 

$1 million. See Stipulations ¶¶ 13–15. On this record though, it is difficult to 

conclude that this entire bonus amount constitutes unjust enrichment, as the 

Division argues. Bebo provided real and valuable services to ALC for which 

bonuses were awarded. Cf. SEC v. Church Extension of the Church of God, Inc., 

429 F. Supp. 2d 1045, 1050 (S.D. Ind. 2005) (ordering defendants to disgorge 

half rather than their full salaries because the defendants also provided “real 

and valuable services” unrelated to the fraud). As Bebo describes it, “this case 

centers on certain terms within a lease agreement that accounted for only 

about 4% of the facilities operated by the company and only 5.6% of its revenue 

(in 2011).” Resp’t Supp’l Post-hr’g. Br. at 1; see also Resp’t Arg. Pres. at 4; Ex. 

13 at 3, F-24 (ALC operated 9,325 units as of December 31, 2011 and 541 were 

the Ventas facilities). As CEO, the services Bebo provided to ALC for which

she was awarded bonuses covered not just her work on Ventas—which was 

roughly 5% of ALC’s business—but hundreds of other facilities with thousands 

of residents accounting for the balance of ALC’s revenue. Notwithstanding the 

Division’s argument that Bebo would not have received any discretionary 

bonuses if the board knew of her scheme, of the bonuses that she did receive, 

roughly 95% of them can be attributed to work not subject to this enforcement 

action. In other words, a reasonable amount of her unjust enrichment is 5% of 

her discretionary bonuses from 2009 to 2011—or roughly $55,000 in total. Bebo 

acknowledges that, according to the formula used to determine her 

discretionary bonuses, in 2010 the Ventas facilities contributed 7.7% of the 

financial metric used to determine her bonus that year, and that calculations 

for 2009 and 2011 would be similar. Resp’t Supp’l Ltr. Br. at 3 (July 21, 2020). 
123

Bebo’s stock option awards were also subject to cancellation if the 

compensation committee determined she committed an act of fraud or 

dishonesty. See Ex. 1246 at 4. According to ALC, the grant date fair value of 

Bebo’s options awards during the pertinent period totaled $981,920, but they 

were subject to vesting conditions, some awards were forfeited, and the parties 

have not briefed how much Bebo gained from these awards. See Ex. 2072 at 16; 

Ex. 2073 at 26; Ex. 2074 at 23 & n.1. Although the record does not indicate the 

precise measure of the gain she actually realized from these stock options, 

these awards were not canceled, and she stood to reap additional financial 

benefits despite engaging in flagrant misconduct. 

Bebo also acknowledged that minimizing negative disclosures about the 

Ventas properties helped to preserve the value of the actual ALC stock she 

held, which approached 100,000 shares. See Tr. 4171–74.

Bebo’s unjust enrichment is but one consideration in my analysis. See 

Ralph Calabro, Securities Act Release No. 9798, 2015 WL 3439152, at *46 

(May 29, 2015) (considering, among other factors, evidence of respondent’s 

unjust enrichment when determining whether civil penalties were in the 

public interest). I consider this point mainly for the fact that Bebo, as a CEO 

of a publicly traded company, reaped financial benefits from ALC while 

committing serious misconduct. That consideration weighs heavily in favor of 

civil penalties. The precise amount of illicit profits is not dispositive to my 

determination.

Prior regulatory record history

The Division has not argued that Bebo has any past record of regulatory 

violations, so this factor weighs against the need for penalties.

Need for deterrence

The Division argues for “a large penalty against Bebo, to punish her for 

her fraud and deter similar misconduct by other highly compensated 

executives” and that “a multi-million dollar penalty is well justified and 

consistent with other financial fraud cases against CEOs.” Div. Supp’l Posthr’g Reply Br. at 41. One important rationale for imposing civil penalties is to 

deter both the violator and others similarly situated from future violations. See 

Johnny Clifton, Securities Act Release No. 9417, 2013 WL 3487076, at *16 

(July 12, 2013) (third-tier penalty was “necessary to deter [the respondent] 

from future misconduct and will have an additional remedial effect of deterring 

others from engaging in similar misconduct”). The need to impose penalties to 

deter Bebo is somewhat mitigated by the cease-and-desist order and officerand-director bar, but is still necessary given that she may return to such roles, 

as well as to punish her for past violations. A penalty would also effect general 
124

deterrence. In a similar securities fraud context, one court observed “that a 

significant civil penalty is required to adequately punish and deter [the 

defendant] and others from attempting” the type of fraudulent scheme the 

defendant conducted. SEC v. Aly, No. 16-cv-3853, 2018 WL 4853031, at *5 

(S.D.N.Y. Oct. 5, 2018). I agree with the Division that any civil penalty imposed 

should be sufficient in magnitude to influence CEOs of publicly traded 

companies to not violate, or cause to be violated, the securities laws that Bebo 

has violated. 

Such other matters as justice may require 

Bebo argues that her reliance on advice of counsel mitigates the need for 

sanctions that may otherwise be appropriate. See Resp’t Post-hr’g Br. at 282–

83. Relevant considerations for the mitigating effect of advice of counsel in 

determining whether sanctions are in the public interest include the extent a 

respondent seeks advice of counsel, how clear the advice was, and respondent’s 

reasons for following or disregarding the advice. Blinder, Robinson & Co. v. 

SEC, 837 F.2d 1099, 1109 (D.C. Cir. 1988). Applying these principles to Bebo’s 

case, I find that she never sought advice to the necessary extent because she 

did not fully inform counsel of the actions she intended to take, and she 

ignored, for no demonstrated good reason, even the limited advice she received. 

I have considered and rejected her reliance claim in the context of deciding 

liability and the same reasoning applies here. After considering Bebo’s cited 

authorities, I do not find that her reliance on the advice of counsel as it pertains 

to her misconduct mitigates the need for penalties.

* * *

Based on the foregoing factors, I find that significant penalties are in the 

public interest. The only consideration that weighs in her favor is her lack of 

prior regulatory violations. But here, given the large number of Bebo’s knowing 

violations, I do not find her prior clean record obviates the need for penalties.

Multiple penalties are appropriate.

The securities statutes allow a penalty to be imposed for each act or 

omission, but leave the precise unit of violation undefined. Anthony Fields, 

CPA, Securities Act Release No. 9727, 2015 WL 728005, at *24 n.162 (Feb. 20, 

2015). The Division requests penalties “for each of the seven quarters 

(following the July 21, 2010 enactment of the Dodd-Frank Act) in which Bebo 

made false statements/certifications in ALC’s Forms 10-K and 10-Q, lied to 

auditors, falsified ALC’s books and records, and engaged in her fraudulent 
125

scheme.”25 Div. Post-hr’g Br. at 58. Bebo contends that “a single, minimal firsttier penalty should be imposed based on Ms. Bebo’s entire course of conduct” 

because in “the vast majority of prior cases ... maximum civil penalties have 

been calculated based on a defendant’s entire course of conduct, rather than 

an overly literal application of the statute.” Resp’t Post-hr’g Br. at 283–84 

(citing cases). She also argues that “one penalty is appropriate under recent 

case law developments.” Resp’t Supp’l Post-hr’g Br. at 40; see id., at 38–39. 

Bebo argues that her “acts constitute a single course of conduct for purposes of 

calculating penalties” because the “case involves one alleged misstatement 

repeated in various Commission filings, and only one course of conduct with 

respect to the reason that statement was allegedly false or misleading.” Id. at 

40. In response, the Division cites examples and argues that “formulating a 

penalty based on the number of distinct violations ... is well established by the 

Commission [and] federal courts.” Div. Supp’l Post-hr’g Reply Br. at 41. 

I examine Commission opinions and federal district court decisions in 

assessing whether to adopt the single course of conduct rationale, although I 

am mindful that “the appropriateness of the sanctions imposed depends on the 

facts and circumstances of the particular case and cannot be determined 

precisely by comparison with action taken in other cases.” Scott Epstein, 

Exchange Act Release No. 59328, 2009 WL 223611, at *21 n.75 (Jan. 30, 2009), 

pet. denied, 416 F. App’x 142 (3d Cir. 2010); accord Geiger, 363 F.3d at 488 

(“The Commission is not obligated to make its sanctions uniform, so we will 

not compare this sanction to those imposed in previous cases.”).

Commission Opinions

The Commission has employed its wide discretion in assessing the unit of 

violation. It has imposed multiple penalties when “misconduct followed a 

general pattern” but contained “distinct and separate” acts and omissions. Eric 

J. Brown, Exchange Act Release No. 66469, 2012 WL 625874, at *17 (Feb. 27, 

2012). It has also imposed one penalty for repeated misconduct. Fields, 2015 

WL 728005, at *24 n.162. 

Bebo cites Fundamental Portfolio Advisors, Inc., where the Commission 

imposed two penalties when a fund sold its shares under two fraudulent 

prospectuses in 1993 and 1994, as the Division requested, rather than 

 

25 Before the effective date of Dodd-Frank, the Division would have been 

unable to seek penalties in cease-and-desist proceedings against Bebo, and any 

penalties they seek now must be based on conduct after that date. See DoddFrank Wall Street Reform and Consumer Protection Act, Pub. L. 111-203, 

§ 929(P)(a)(2), 124 Stat. 1376, 1863 (2010); see also Bartko v. SEC, 845 F.3d 

1217, 1223–24 (D.C. Cir. 2017).
126

imposing penalties based on each sale. Securities Act Release No. 8251, 2003 

WL 21658248, at *18 (July 15, 2003). The penalties were issued for violations 

arising out of essentially the same course of conduct, but for two different 

periods, which is inconsistent with Bebo’s contention that a single penalty 

should be imposed for her course of conduct. Id. at *18. The Division cites 

Francis V. Lorenzo, Securities Act Release No. 9762, 2015 WL 1927763, *17 

(Apr. 29, 2015), vacated in part on other grounds, 872 F.3d 578 (D.C. Cir. 2017), 

aff’d 139 S. Ct. 1094 (2019), where the Commission found that a penalty for 

each of the respondent’s two emails containing misstatements was in the 

public interest. See Div. Supp’l Post-hr’g Reply Br. at 41. The Commission 

observed that “[w]hile the emails he sent were largely the same and sent close 

in time, they were not identical and provided Lorenzo two separate 

opportunities to mislead customers.” Lorenzo, 2015 WL 1927763, at *17. Thus, 

where the facts show there was more than one violative act or omission, the 

Commission often exercises its discretion to impose more than one penalty.

Bebo also cites Mohammed Riad, where the Commission sustained an 

ALJ’s assessed penalty based on a determination that respondents’ fraudulent 

characterizations of their fund strategies in two annual reports constituted a 

“single course of action” and neither party challenged this determination. 

Exchange Act Release No. 78049, 2016 WL 3226836, at *46 (June 13, 2016)

(quotation marks omitted). However, the Commission also pointed out that its 

“decision should not be regarded as endorsing the view that misconduct like 

respondents’ could be characterized only as a single violative course of action.” 

Id. at *46 n.150 (emphasis in original). Because the position urged by Bebo was 

not endorsed by the Commission, nor litigated by the parties, I do not find Riad 

a persuasive basis to impose only one penalty here.

Federal cases

Bebo contends that federal district courts have recently trended toward 

calculating one penalty for a single court of conduct, rather than penalties for 

each act or omission constituting a violation. See Resp’t Post-hr’g Br. at 283–

84; Resp’t Supp’l Post-hr’g Br. at 39. However, I do not discern such a trend 

from recent decisions. Compare SEC v. Riel, 282 F. Supp. 3d 499, 528–29 

(N.D.N.Y. 2017) (imposing one penalty for fraudulent scheme harming five 

investors over Division’s request for five penalties), SEC v. Garfield Taylor, 

Inc., 134 F. Supp. 3d 107, 110 (D.D.C. 2015) (treating a Ponzi scheme as “a 

single scheme or plan” and assessing a single monetary penalty on each 

defendant despite Division’s argument for penalties based on number of 

victims), SEC v. Rabinovich & Assocs., LP, No. 07-cv-10547, 2008 WL 4937360, 

at *6 (S.D.N.Y. Nov. 18, 2008) (imposing single penalty because the “repeated 

violations ... all arose from a single scheme or plan”), and SEC v. BIC Real 

Estate Dev. Corp., No. 16-cv-344, 2017 WL 1740136, at *6 n.2, *7 (E.D. Cal. 
127

May 4, 2017) (casting doubt on Division’s assertion that one penalty for each 

of the 549 victims would be appropriate before imposing a $12 million penalty, 

which equaled the amount of disgorgement ordered), with SEC v. GTF Enters., 

Inc., No. 10-cv-4258, 2015 WL 728159, at *4 (S.D.N.Y. Feb. 19, 2015) (collecting 

cases basing the unit of violation on the number of investors defrauded, 

fraudulent transactions, or statutes violated), SEC v. Huff, 758 F. Supp. 2d 

1288, 1366 (S.D. Fla. 2010) (imposing a third-tier penalty for each of six 

periodic filings containing similar misstatements), aff’d 455 F. App’x 882 (11th 

Cir. 2012), SEC v. Colonial Inv. Mgmt. LLC, 659 F. Supp. 2d 467, 500, 503 

(S.D.N.Y. 2009) (imposing one penalty per violative transaction, for a total of 

18 penalties), aff’d 381 F. App’x 27, 32 (2d Cir. 2010), and SEC v. Life Partners 

Holdings Inc., No. 12-cv-33, 2018 WL 5733137, at *5–6 (W.D. Tex. Sept. 28, 

2018) (rejecting argument that violations “must and should be bundled 

together” and imposing 51 penalties on one defendant and 34 penalties on 

another defendant). 

Based on my review of the preceding cases, I acknowledge that one 

approach federal courts have taken is to impose one penalty based on a 

defendant’s entire course of conduct. However, Bebo has not established that 

this approach is a dominant trend. There are at least three other robust 

approaches—one for which penalties are based on the number of transactions 

or misstatements, another for which penalties are based on the number of 

victims, and a third for which penalties are based on the number of statutory 

provisions violated. Even if there were a trend toward imposing a single 

penalty, as Bebo suggests, the determination of penalties must be made based 

on the facts and circumstances of this particular case and not only by reference 

to other cases or trends. Epstein, 2009 WL 223611, at *21 n.75. Among the 

cases consistent with a single penalty, I have not identified a case that is 

sufficiently factually similar to persuade me to follow it, nor one that presents 

a generally persuasive rationale for applying that approach to this case.

* * *

I disagree that imposing only one penalty on Bebo based on the singlecourse-of-conduct rationale would be appropriate. The cases simply do not 

show why that rationale applies here. While imposing a single penalty for an 

entire course of conduct may be reasonable in certain circumstances, that is 

not the case here. In a case like this, where there is repeated fraud, significant 

harm, and unjust enrichment, I am concerned that adopting a one-penalty 

approach would compromise deterrence.
128

Third-tier penalties are appropriate for some violations.

The Exchange Act outlines a three-tiered system for determining the 

maximum civil penalty for each act or omission. First-tier penalties are 

available based on the fact of the violation alone. 15 U.S.C. § 78u-2(b)(1). 

Second-tier penalties may be imposed if the misconduct involved fraud, deceit, 

manipulation, or deliberate or reckless disregard of a regulatory requirement. 

15 U.S.C. §78u-2(b)(2). Third-tier penalties require the additional finding that 

the misconduct, “directly or indirectly, resulted in substantial losses or created 

a significant risk of substantial losses to other persons or resulted in 

substantial pecuniary gain” to the respondent who committed the violation. 15 

U.S.C. § 78u-2(b)(3). At a minimum, the record supports second-tier penalties 

for Bebo’s misconduct, which evidenced scienter and was deceitful. See SEC v. 

M&A W., Inc., 538 F.3d 1043, 1054 (9th Cir. 2008) (“[T]he imposition of secondtier penalties requires an assessment of scienter.”). For a natural person’s 

misconduct that occurred between March 4, 2009, and March 5, 2013, the 

maximum second-tier penalty per violation is $75,000 and the maximum thirdtier penalty per violation is $150,000. 17 C.F.R. § 201.1001 tbl.I.

The Division requests third-tier penalties and argues that Bebo “caused 

substantial losses” in five respects. See, e.g., Div. Post-hr’g Reply Br. at 58–59.

Bebo responds that the Division has not established a causal link between 

Bebo’s alleged misconduct and the purported losses. See, e.g., Resp’t Post-hr’g 

Br. at 278.

I find that Bebo’s misconduct resulted in substantial losses in one 

instance—ALC’s expenses covering the internal investigation. As the Division 

points out, ALC paid its outside attorneys approximately $1 million to 

investigate the allegations about Bebo’s scheme. See Div. Post-hr’g Reply Br. 

at 58 (citing Tr. 671). ALC, and its shareholders, would not have borne this 

cost in the absence of Bebo’s misconduct. I find that this loss, on its own, is 

sufficient in absolute terms to qualify as a substantial loss. 

Bebo’s cited cases do not convince me that the Division has not established 

a proper link between Bebo’s misconduct and the loss. See SEC v. Platforms 

Wireless Int’l Corp., No. 04-cv-2105, 2007 WL 1238707, at *14 (S.D. Cal. Apr. 

25, 2007) (declining to impose third-tier penalties where there was “no 

evidence” of substantial losses), vacated in part on other grounds, 559 F. Supp. 

2d 1091 (S.D. Cal. 2008); SEC v. Pattison, No. 08-cv-4238, 2011 WL 723600, at 

*5 (N.D. Cal. Feb. 23, 2011) (declining to impose third-tier penalties for other 

violations where jury found no Rule 10b-5 violation and the Division did not 

prove losses “proximately caused” by defendant’s violations). By contrast, here 

there is evidence that the loss discussed was a reasonably foreseeable 

consequence of Bebo’s violations and directly flowed from her misconduct. 
129

Accordingly, Bebo’s violations directly or indirectly resulted in a $1 million 

loss, an amount I find substantial. See, e.g., Dennis J. Malouf, Securities Act 

Release No. 10115, 2016 WL 4035575, at *27 (July 27, 2016) (finding both 

losses of about $250,000 and gain of about $1 million to be “substantial”), pet. 

denied, 933 F.3d 1248 (10th Cir. 2019); David E. Lynch, Exchange Act Release 

No. 46439, 2002 WL 1997953, at *4 (Aug. 30, 2002) (finding $485,000 to be 

“substantial” gain).

The Division’s four other argued examples of substantial losses do not 

persuade me. The Division argues that the $12 million that ALC paid to settle 

shareholder litigation over Bebo’s scheme was a loss to ALC shareholders from 

Bebo’s misconduct. See Div. Post-hr’g Br. at 58. Bebo points out that evidence 

regarding settlements is generally inadmissible in court because parties may 

settle litigation for numerous reasons and settlement is not an admission of 

liability. Resp’t Post-hr’g Reply Br. at 103 (citing Fed. R. Evid. 408). She also 

argues that including a settlement payment as a loss is inappropriate because 

when the SEC makes allegations, public shareholders may file their own suit 

on related grounds, and thus the SEC creates the risk of a substantial loss 

simply by bringing the allegations. Id. at 103–04. I have not relied on the 

settlement’s existence or terms to find Bebo’s violations or the validity of the 

shareholders’ allegations, and considering a settlement for other reasons is not 

prohibited by Federal Rule of Evidence 408. However, given the varied reasons 

parties may settle litigation and the lack of evidence about whether any portion 

of the settlement is directly attributable to Bebo’s misconduct, I decline to 

consider the settlement payout a substantial loss in this context.

The Division failed to prove that Bebo’s violations caused ALC’s stock 

price to drop. See Div. Supp’l Post-hr’g Reply Br. at 40. Although the Division 

also claims ALC paid $34 million above appraised value for the Ventas 

facilities and that ALC’s auditor wrote the overpayment reflected damages for 

occupancy covenant failures, Div. Post-hr’g Br. at 58, the Division failed to 

establish that the purchase price was increased because of Bebo’s fraud,26 that 

is, even if decreased occupancy rates had depressed the commercial appraisals 

of the properties, the Division did not establish, or even allege, that Bebo’s 

violations were the cause of decreased occupancy, which resulted from other 

factors. In addition, as I found, the auditor’s note was made in error. Moreover, 

the Division has not established what portion of the overpayment owed to 

covenant failures and, critically, even after Ventas learned of ALC’s fraudulent 

 

26 Because this finding is dispositive of the Division’s argument, I need not 

decide the disputed issues of whether: (i) ALC agreed to pay more than the fair 

market value for the twelve facilities, and (ii) the purchase increased ALC’s 

value. 
130

leasing practice, it opted not to include those allegations in its amended 

complaint against ALC. Finally, the Division argues that ALC’s 

indemnification of Bebo during this proceeding and the preceding investigation 

establishes a substantial loss. See Div. Post-hr’g Reply Br. at 59. However, the 

Division did not establish that the amount paid was substantial or cite to

authority for the proposition that corporate indemnification of this sort can 

constitute a substantial loss, so I do not consider it in my determination. 

In addition to actual losses, the Division also argues that Bebo’s violations 

“created ... a substantial risk of loss to ALC and its investors.” Div. Post-hr’g 

Br. at 58. Bebo contends that such “a blanket accusation of risk will not 

suffice.” Resp’t Post-hr’g Br. at 278. There is, however, evidence that Bebo’s 

misconduct created a significant risk of substantial losses to others. As 

discussed previously, her actions put ALC’s operations at risk because they 

demonstrated a lack of integrity on management’s part. Bebo’s falsification of 

occupancy numbers covered up declining financial performance and this 

misconduct substantially increased the risk of adverse legal action and the 

termination of Bebo and other members of her management team—all of which 

could have materially impacted ALC’s reputation and, in turn, its finances. Cf.

Comverse Tech., 543 F. Supp. 2d at 151 (describing ways in which management 

misconduct may be material). Accordingly, in addition to causing substantial 

losses, Bebo’s misconduct also created a significant risk of substantial loss to 

ALC’s shareholders.

Penalties are imposed.

Considering the above factors, I find it in the public interest to impose the 

following penalties. I impose two third-tier penalties of $150,000 each, for a 

total of $300,000 to punish Bebo’s scheme that violated Section 10(b) and Rule 

10b-5(a) and (c). I impose two penalties because her scheme operated as a fraud 

against both (1) the general public and (2) Ventas and other potential 

purchasers of ALC’s business. She committed acts in furtherance of the scheme 

that were specific to Ventas. She orchestrated and perpetuated the scheme, 

with scienter, up until the time ALC terminated her employment. That scheme 

caused the actual loss to ALC of $1 million or more for its internal 

investigation, Tr. 671, and posed a substantial risk of loss to Ventas from 

Bebo’s efforts to conceal from them that the properties they had leased to ALC 

had become unprofitable, to the tune of $2 million of losses per year.27

 

27 Although ALC’s overall balance sheet was accurate, Ventas was kept in 

the dark that their own properties had grossly deteriorated in profitability 

under Bebo’s tenure. 
131

I also impose thirty second-tier penalties of $25,000 each, for a total of 

$750,000, attributed to: seven quarters she knowingly falsified books, records, 

and accounts in violation of Section 13(b)(5); seven quarters of Section 10(b) 

and Rule 10b-5(b) violations for misleading statements and omissions in ALC’s 

periodic reports; seven false certifications of ALC’s periodic filing in violation 

of Rule 13a-14; seven violations of Rule 13b2-2 by making materially 

misleading misstatements and omissions to ALC’s external accountant, Grant 

Thornton, in connection with its periodic reports; and two additional violations

of Section 13(b)(5) for Bebo’s failure to implement a system of internal controls 

in two crucial areas defined by Sections 13(b)(2)(B)(ii) and (iv). Although the 

internal controls violations persisted over multiple quarters, unlike the other 

violations, following her initial failure to implement controls in these two 

areas, these were not violations that she was actively recommitting each 

quarter. Each of these violations involved either fraud, deceit, or deliberate or 

reckless disregard of regulatory requirements. While these violations could be 

penalized under the third tier, I find that given the two penalties for the overall 

schemes, the actual and substantial risk of loss has already been taken 

adequately into account. 

I have determined it would not benefit the public interest to penalize Bebo 

further for the remaining violations. The seven quarters she falsified and 

caused to be falsified books, records, and accounts in violation of SEC Rule 

13b2-1 and caused ALC to make and keep books, records, and accounts, which 

failed, in reasonable detail, to accurately and fairly reflect the transactions and 

dispositions of the assets ALC, in violation of Exchange Act Section 13(b)(2)(A), 

represent the same conduct that is adequately penalized by the seven secondtier penalties for her knowing falsification of books records and accounts in 

violation of 13(b)(5). That $175,000 penalty, of $25,000 increments for each 

quarter she falsified books and records, should represent an adequate specific 

and general deterrent regarding such misconduct. Bebo’s causing of ALC’s 

failure to devise and maintain a sufficient system of internal controls, in 

violation of Section 13(b)(2)(B)(ii) and (iv), has similarly been adequately 

penalized by the two second-tier penalties for her knowing failure to implement 

such controls in those area. Bebo’s seven violations related to Section 13(a) and 

Rules 13a-1, 13a-13, and 12b-20 are likewise adequately penalized by the seven 

penalties for her violations of Section 10(b) and Rule 10b-5(b), as well as the 

seven penalties for her violations of Rule 13a-14.

The total penalty of $1,050,000 is much less than the maximum possible 

penalty for each of her statutory and regulatory violations, but still represents 

an amount sufficient to satisfy the public interest. This penalty is in line with 

the amounts of $1 million or more imposed on CEOs of public companies traded 

on major national exchanges for violations of the securities laws. See Div. 
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Supp’l Post-Hr’g Reply Br. at 41 (collecting cases). During each year of her 

three-year fraud, ALC paid her nearly a million dollars in compensation, not 

including stock options, and she received an additional multi-million dollar 

payment from ALC in 2013. Ex. 1173. While there is no requirement that a 

penalty amount match or exceed the sum the respondent’s misconduct caused 

the public company, and hence its shareholders, to lose, Bebo’s misconduct can 

be tied to roughly $1 million of expense that ALC incurred in investigating her 

fraudulent scheme.28 I have considered this parallel in deciding on a penalty 

that is not grossly disproportionate to ALC’s direct losses. In addition, although 

the means by which I calculated the penalty were different than those proposed 

by the Division, I likewise considered their request for penalties as another 

measure to ensure the amount imposed is not disproportionate. Finally, I have 

considered whether any of the public interest factors, or other matters, favor

reducing the penalty further, and I have found they do not. In my discretion 

and considering the public interest, I impose civil penalties totaling 

$1,050,000.

Record Certification

I certify that the record includes the items set forth in the record index 

issued by the Secretary of the Commission on June 9, 2020, and the following 

additional items: my orders dated June 18 (AP-6770) and July 15, 2020 (AP6775); an email from my office to the parties dated June 24, 2020; letter briefs 

from the Division dated July 8 and July 21, 2020; and letter briefs from Bebo 

dated July 8 and July 21, 2020. See 17 C.F.R. § 201.351(b). As the exhibit list 

is from 2015, I note that Joint Supplemental Exhibit Nos. 1 and 2—filed with 

the Secretary on September 30, 2019, and February 24, 2020, respectively—

are also admitted exhibits.

Order

I ADMIT Joint Supplemental Exhibit No. 2.

Under Section 21C(a) of the Securities Exchange Act of 1934, Laurie Bebo 

must CEASE AND DESIST from committing or causing violations, and any 

future violations, of Exchange Act Sections 10(b), 13(a), 13(b)(2)(A), 

13(b)(2)(B), and 13(b)(5), and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13a-14, 13b2-

1, and 13b2-2 thereunder.

 

28 Even Bebo, who takes a very different view of the risks of her scheme, 

acknowledged that ALC could be forced to pay a “toll” of $1 million for financial 

covenant violations. Tr. 3960.
133

Under Section 21C(f) of the Securities Exchange Act of 1934, Laurie Bebo 

is PROHIBITED from acting as an officer or director of any issuer that has a 

class of securities registered under Exchange Act Section 12 or that is required 

to file reports under Exchange Act Section 15(d); provided, however, that after 

six years, she may reapply to the Commission to have this prohibition lifted.

Under Section 21B(a)(2) of the Securities Exchange Act of 1934, Laurie 

Bebo must PAY CIVIL MONETARY PENALTIES in the amount of $1,050,000.

Payment of civil penalties must be made no later than 21 days following 

the day this initial decision becomes final, unless the Commission directs 

otherwise. Payment must be made in one of the following ways: (1) transmitted 

electronically to the Commission, which will provide detailed ACH 

transfer/Fedwire instructions upon request; (2) direct payments from a bank 

account via Pay.gov through the SEC website at http://www.sec.gov/ofm; or 

(3) by certified check, bank cashier’s check, bank money order, or United States 

postal money order made payable to the Securities and Exchange Commission 

and hand-delivered or mailed to the following address alongside a cover letter 

identifying Respondent and Administrative Proceeding File No. 3-16293: 

Enterprise Services Center, Accounts Receivable Branch, HQ Bldg., Room 181, 

AMZ-341, 6500 South MacArthur Blvd., Oklahoma City, Oklahoma 73169. A 

copy of the cover letter and instrument of payment must be sent to the 

Commission’s Division of Enforcement, directed to the attention of counsel of 

record.

This initial decision will become effective in accordance with and subject 

to the provisions of Rule 360. See 17 C.F.R. § 201.360. Under that rule, a party 

may file a petition for review of this initial decision within 21 days after service 

of the initial decision. Under Rule of Practice 111, a party may also file a 

motion to correct a manifest error of fact within ten days of the initial decision. 

See 17 C.F.R. § 201.111. If a motion to correct a manifest error of fact is filed 

by a party, then a party has 21 days to file a petition for review from the date 

of the order resolving such motion to correct a manifest error of fact.

The initial decision will not become final until the Commission enters an 

order of finality. The Commission will enter an order of finality unless a party 

files a petition for review or motion to correct a manifest error of fact or the 

Commission determines on its own initiative to review the initial decision as 
134

to a party. If any of these events occur, the initial decision will not become final 

as to that party.

_______________________________

Jason S. Patil

Administrative Law Judge

Served by email on all parties.