SEC Charges Medical Entrepreneur and Sales Ring in $15 Million Offering Fraud
Litigation Release No. 24802 / April, 22, 2020
Securities and Exchange Commission v. Renew Spinal Care, Inc., Laserscopic Medical Clinic, LLC, Joe Samuel Bailey, Barry Edward Mitchell, Laurence Grossnickle, and Charles Clement Goubert, Jr., Civil Action No. 2:20-cv-03676 (C.D. Ca. filed April 22, 2020)
On April 22, 2020, the Securities and Exchange Commission charged Arkansas-based medical services businessman Joe Samuel Bailey, his companies Renew Spinal Care, Inc. and Laserscopic Medical Clinic, LLC, and telemarketers Barry Edward Mitchell, Laurence Grossnickle, and Charles Clement Goubert, Jr. with fraud in connection with unregistered offerings that bilked hundreds of investors out of nearly $15 million dollars.
Bailey started Renew at a single location in Florida to provide minimally invasive spinal surgery. According to the SEC's complaint, Bailey sought to expand Renew's business by raising money from investors in a series of offerings to establish Renew-branded clinics throughout the country. Mitchell, Grossnickle, and Goubert, directly and through a commissioned sales staff, offered and sold the securities to investors using information obtained from Bailey through intermediaries. The offering documents represented to investors that their funds would be used to establish and market one or more designated Renew clinics, and provided the right to receive "success marketing fees" for each procedure performed at those clinics. The offerings raised approximately $15 million for 29 clinics. Although the offering documents stated that no sales commissions would be paid, Mitchell, Grossnickle, and Goubert allegedly misused approximately $7.6 million of the investor funds to take cash distributions, pay proscribed sales commissions, and for other unauthorized purposes. The complaint further alleges that Bailey, through Renew and a second company he controlled, Laserscopic, allegedly misused nearly $5 million of investor funds for expenses unrelated to the offerings. Bailey also used some investors' funds to pay "success fees" to other investors, despite the fact that Renew never established a single investor-funded, Renew-branded clinic.
Without admitting or denying the allegations in the complaint, all defendants have consented to be permanently enjoined from violating the antifraud provisions of Sections 17(a)(1) and 17(a)(3) of the Securities Act of 1933 and Section 10(b) of the Securities and Exchange Act of 1934 and Rules 10b-5(a) and 10b-5(c) thereunder, and to pay civil penalties in the amount of $189,427 each. Mitchell, Grossnickle, and Goubert have also consented to be permanently enjoined from violating the registration provisions of Sections 5(a) and 5(c) of the Securities Act and the antifraud provisions of Section 17(a)(2) of the Securities Act; to be enjoined from participating in the issuance, purchase, offer, or sale of any security, with exceptions for their personal accounts; and to pay disgorgement and prejudgment interest as follows: Mitchell ($634,123 in disgorgement plus prejudgment interest of $61,231); Grossnickle ($210,031 in disgorgement plus prejudgment interest of $20,281); and Goubert ($69,089 in disgorgement plus prejudgment interest of $6,671). Bailey, Renew, and Laserscopic have also consented to pay, on a joint and several basis with each other, disgorgement in the amount of $4,950,000 plus prejudgment interest of $410,476.
The SEC's investigation was conducted by Jeffrey Cohen and Melvin Warren, with litigation assistance from Keefe Bernstein, and supervised by Scott F. Mascianica and Eric Werner of the SEC's Fort Worth Regional Office.