The former CFO and CEO of a company that operates assisted living centers were charged by the Securities and Exchange Commission with listing fake occupants at several senior residences to meet the terms of a lease and misrepresenting in regulatory filings that the company was in compliance with the lease.

wheelchairThe alleged fraud orchestrated by Assisted Living Concepts Inc.’s former CEO, Laurie Bebo, and former CFO John Buono between 2009 and early 2012 even extended to directing ALC staff to falsely identify Bebo’s parents and husband as residents of facilities that the company rented from Ventas Inc. Another of the purported senior residents was just seven years old, the SEC said in a news release on Wednesday.

“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,” Andrew J. Ceresney, director of the SEC Enforcement Division, said.

Under a covenant in ALC’s agreement with Ventas to rent eight facilities in four Southern states, the Menomonee Falls, Wisc.-based assisted living provider was required to maintain minimum occupancy rates and coverage ratios while operating the homes. A failure to meet the covenants constituted a default on the lease, which would have required ALC to pay all rent due on the remaining term of the agreement.

According to the SEC’s order instituting an administrative proceeding, if it violated the covenants ALC would have been forced to pay as much as $25 million during the three years of the alleged fraud.

Bebo, 43, and Buono, 51, were appointed CEO and CFO of ALC in November 2006 and October 2006, respectively. The company entered into the lease with Ventas in January 2008 even though, the SEC said, it considered the financial covenants to be “potentially onerous.”

By the first quarter of 2009, the SEC’s order alleges, occupancy at the Ventas facilities had declined to the point where ALC was in violation of the covenants and, rather than report the defaults to Ventas, the ALC board or its shareholders, “Bebo directed Buono and his staff to include employees and other nonresidents in the financial covenant calculations.”

“[W]ithout including these nonresidents in the calculations, ALC would have missed the covenant requirements by significant margins for several consecutive quarters,” the SEC said.

ALC, which went public in 2006, was bought by private equity firm TPG in July 2013. The company subsequently moved its headquarters to Chicago, and last March was renamed Enlivant.

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