By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Securities Commission has accused The Bahamas’ first-ever crowd-funding platform of “squandering the opportunity” to show why it should not be wound-up via the Supreme Court.

Christina Rolle, the capital markets regulator’s executive director, alleged in an October 5, 2023, hearing that ArawakX and its top officials said they came to the September 13 hearing before the Securities Commission “with the intention of not addressing any of the concerns” relating to its solvency, operations and corporate governance practices.

ArawakX and its senior executives have repeatedly complained that they have not been afforded due process by the Securities Commission, and not given a proper chance to put their case, ahead of this Friday’s Supreme Court hearing where both sides will lay out their arguments for and against the crowd-funding platform’s winding-up.

Ms Rolle, though, maintained that ArawakX’s allegations “of the Commission starving its operations and there being a year of mandatory inactivity is false”. While the regulator’s probe began almost a year ago, on October 11, 2022, she added that no restrictions were placed on its ability to conduct crowd-funding offerings until March 23, 2023, as a result of the findings from an inspection for-cause.

“They accepted the restrictions, and did not at any time make application for the approval of new business, which the Commission indicated they would be willing to consider notwithstanding the restrictions on the registration,” Ms Rolle alleged. “Furthermore, the Commission notes that the respondent could not properly fund its operations prior to the Commission’s investigation and continuously sought capital to do so.”

The Securities Commission chief, who argued that ArawakX was given “numerous opportunities to appear before the Commission to address issues of concern regarding its business practices, governance and solvency, added that the regulator cannot now regularise or approve the $1.9m that investors pledged to subscribe for shares in the crowd-fund platform as it would mean sanctioning investments for which approval was not properly sought.

“The Commission is unaware that the subscribers in company shares have agreed to be reclassified as debt,” Ms Rolle alleged. “Further, the Commission is not aware that redeemable preference shares validly exist or existed. This creates a number of issues that can only be properly addressed by a provisional liquidator who must, after investigation under proper court supervision, determine the proper classification for these subscribers.

However, Ken Donathan, ArawakX’s acting chief executive, argued in an October 5, 2023, affidavit that the crowd-funding platform is “being stymied by the applicant [Securities Commission’s] oppressive and unreasonable 11-month investigation” into the company and its operations.

Upon assuming his post, he alleged that “the practices then employed by the former chief financial officer were in my opinion inappropriate for the type of business being operated and were not sensitive to the operating cash position” at ArawakX. As a result, he initiated reforms requiring all bank balance to be reconciled daily, with daily reports on these and both processed and unprocessed transactions.

Outflows from fiduciary accounts, which held issuer/investor monies, had to be reviewed by two signatories as well as ArawakX’s compliance officer, with all transactions on its trading platform reconciled daily and unreconciled client deposits “actively followed up” with the bank of client in question.

“The respondent pivoted immediately,” Mr Donathan said of ArawakX, “and we successfully ensured that there was no long-lasting damage and that the proper protocols and processes were implemented and maintained.” He added that he assured the Securities Commission there was “no commingling of client funds”.

“At no point was it suggested by the applicant [Securities Commission] during my interview or otherwise that the applicant considered that the respondent had engaged in any misconduct under the Act or otherwise,” Mr Donathan alleged. “I was therefore taken by surprise at the applicant’s unfair, unreasonable and prejudicial representations to the Supreme Court in support of its ill-conceived application to have the respondent wound-up.

“The respondent remains a viable company with significant commercial prospects that are being stymied by the applicant’s oppressive and unreasonable 11-month investigation as compounded by the present application. The respondent can, and ought to be allowed to, return to operation as was at all material times advised by the public.

“ Even if the applicant genuinely held the views expressed in the petition, the respondent was entitled to a proper hearing to disabuse the applicant of its said views. The respondent poses no threat to the public, its issuers or subscribers, and I reject the applicant’s baseless suggestions in that regard.”