SEC charges Assisted Living Concepts execs with fraud

The U.S. Securities and Exchange Commission has charged two former top executives at assisted living facility operator Assisted Living Concepts Inc. with fraud.

According to the charges, Laurie Bebo, then chief executive officer, and John Buono, then chief financial officer, listed fake occupants at some of ALC’s senior living facilities to avoid defaulting on its lease.

ALC was acquired last year by TPG, a global private investment firm, and moved its headquarters from Menomonee Falls to Chicago. Assisted Living Concepts and its subsidiaries operate more than 200 assisted living residences comprising more than 9,000 resident units in 19 states.

The SEC Enforcement Division has alleged that Bebo and Buono “devised a scheme involving false disclosures and manipulation of internal books and records” when it appeared they may default on covenants in the company’s lease agreement with Chicago-based real estate investment trust Ventas Inc. Under the covenants, ALC was to maintain certain occupancy rates and coverage ratios, or default on its lease. A default would require ALC to pay the remaining rent amount due for the full lease term, which would have totaled tens of millions of dollars.

According to the SEC, the executives directed accountants to falsify occupants and calculations to meet the requirements laid out in the covenants. Bebo’s family members and friends, one of whom was only seven years old, and current and former employees of ALC were listed as fake residents. The fraud took place from 2009 to 2012, the SEC said.

“Rather than come clean with their landlord and investors, these executives falsely portrayed family and friends as senior housing occupants and certified misleading company filings,” said Andrew J. Ceresney, director of the SEC Enforcement Division. “False filings threaten the integrity of financial reporting in our markets and will be pursued vigorously.”

An earlier settlement with Ventas resulted in a net loss of $19.5 million in the first six months of 2012—nearly equal to ALC’s entire net income for 2011.

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