By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

ArawakX’s chairman is asserting that regulators are placing too much emphasis on “accounting law” and ignoring “pipeline” business that could be worth up to $7m in fee income for the platform.

D’Arcy Rahming senior, also the crowd-funding platform’s chief executive, argued that the Securities Commission is “not recognising the operating side” of its business and the market it has built amid its ongoing bid for a Supreme Court order that will authorise the company’s winding-up.

The capital markets regulator has accused The Bahamas’ first-ever crowd-funding platform of having a solvency deficiency worth “at least $2.4m”, while also charging it with “governance irregularities, regulatory breaches and possible criminal infractions”.

Christina Rolle, the Securities Commission’s executive director, has also argued that these woes are sufficiently “insurmountable” to justify ArawakX’s winding-up amid allegations that investor funds were “commingled” with those belonging to the company; staff had not been paid for “several months”; and capital-raising companies had not received all monies due to them because these were being misused to fund the platform’s operations.

However, pushing back against these assertions, Mr Rahming told this newspaper: “Christina Rolle is using an accounting law versus the operations of a company. If you have a negative equity, it doesn’t mean you have a going concern issue. If you have negative equity and have no business in the pipeline, you have a problem.

“But if you have business in the pipeline, and I think it’s companies looking for over $70m of funding, we have a 10 percent fee so our potential at the highest level is $7m. I’m not suggesting we’re going to get every penny of that, but we clearly will get a percentage of that, which will put us in a good operating position.

“We have built a strong market, we have a strong need, and it’s unfortunate the operating side is not being recognised for what it is. Our auditor’s report, which was done for before the end of July [2022], was done prior to us having three successful companies go through. You cannot take a snapshot in July 2022 prior to us having pivoted and understood what it takes to get successful companies. There’s a lot of timing issues that are not being stated.”

The three crowd-fund raises referred to by Mr Rahming are Chef Culmer’s Tropical Gyro; Dr Daniel Johnson’s Footcare Rx; and Nassau Gas and Tanks. However, ArawakX’s own external auditors previously warned that so-called “pipeline” income - representing business that is on the books, but has yet to be earned through funds being paid by clients - could not be employed to restore the crowd-funding platform to a net positive equity position.

Lambert Longley, LDL & Associates managing partner, told the Securities Commission in a July 3, 2023, e-mail that ArawakX had sought to use this income - derived from projected listing and ‘roadshow’ fees that had yet to be earned - to eliminate its solvency deficiency as at February this year.

He, however, advised the crowd-funding platform that such sums could not be included in its management accounts yet. “The company’s net equity improved to $488,344 at February 28, 2023, but included ‘active user pipeline’ revenues from roadshow fees of $596,500 reported as generated in January and February 2023, and $60,000 from listing fees reported as generated between September and December 2022,” Mr Longley told the capital markets regulator.

“This revenue of $656,500 related to persons who have agreed to list on ArawakX (subject to verification of the details) but for whom services have not yet been delivered because of restrictions imposed by the Securities Commission. As such, we have advised that it would not be appropriate to recognise receivables or revenues for those transactions in the company’s accounts.

“We advised further that these future revenues represent an important source of capital that is expected to be injected in the future, but it cannot be recognised in the management accounts yet. They do not directly impact the company’s solvency at February 2023, but do provide evidence that the company has a source of revenue that will allow it to return to solvency when the restrictions are lifted.”

However, Mr Rahming argued that more credit should be given for this. “Ten percent of that, if we fully realise it, and I am not saying we will, but we will realise a portion of it. The last time I checked in our database there was about $70m worth of people asking for assistance,” he told Tribune Business. 

“We were at the stage where we had begun to work with the majority of them, and had Memorandums of Understanding and Letters of Intent. These are not numbers we are pulling out of thin air. These are people we were working with and spending time with to make them investable.”

When asked to break down the $70m by potential issuer, and for their identities, Mr Rahming pointed this newspaper to ArawakX’s website. Tribune Business found 17 potential issuers listed, with varying target sums between $250,000 and $4.5m, but the total capital being sought by this group amounted to some $24m - some way short of the total figure cited by the platform’s chairman. It is unclear if there are other issuers not cited on the website.

The Securities Commission, which finally received ArawakX’s draft financial statements for the year to end-July 2022 on July 11 this year, said the crowd-funding platform’s external auditors, Lambert Longley and his associate, Charlene Fox-Deveaux, had noted how $1.9m in equity capital had been raised from investors not approved by the regulator.

“The auditor, as a result, is proposing on the draft to classify these persons as creditors rather than equity investors,” the Securities Commission’s winding-up petition said. It also noted that ArawakX had incurred a “major net loss” for 2022, with the amount of ‘red ink’ growing “two times’ for the same 12-month period - from $908,637 to $1.75m.

Revenues of $211,135 were dwarfed by $1.909m in operating expenses, and the Securities Commission noted that its “negative equity” had “grown substantially” - increasing more than four-fold year-over-year - from -$551,000 in 2021 to -$2.3m.

“Income of $200,000 is only enough to pay the annual rent and cannot cover other operations expenses,” the regulator added. “Note indicated that accounts payable grew by 1,032 percent and additional debts of approximately $500,000 were indicated in notes 11 and 12. That this company does not have sufficient total assets to discharge itself of its debts, hence the equity is negative.”