There would be no problem if you told the client that you were faking the back end behavior and if the client's motivation is that they wanted to see the workflow to make sure that there wasn't a misunderstanding on what you were supposed to be implementing, then a mocked backend would be perfectly fine for their purposes.

Absolutely true. The comment, however, very, very strongly implied that the client wasn't made aware that the demo was faked. If the client was made aware, then why would they have someone hiding in the next room to "make it seem like it was working"?