Friday, September 29, 2023
• Chair warns of ‘markets damage’ if wound-up
• And rejects allegation of ‘criminal infractions’
• Closure would be ‘unlawful, disproportionate’
By NEIL HARTNELL
Tribune Business Editor
The Bahamas’ first-ever crowd-funding platform is asserting it has “lucrative prospects” rather than a $2.4m solvency deficiency as it bids to defeat the Securities Commission’s bid to wind-up its operations.
D’Arcy Rahming senior, ArawakX’s chairman and chief executive, alleged in a September 27, 2023, affidavit that the capital markets regulator’s attempt to enforce its closure via the Supreme Court would be “an unreasonable, unlawful and disproportionate result” that will “damage the markets built” by the platform for the equity financing of small and medium-sized businesses by Bahamians.
Seeking to make the case for why ArawakX should not be subjected to a winding-up Order, he also vehemently refuted the Securities Commission’s allegations that it had committed “governance irregularities, regulatory breaches and possible criminal infractions”.
And, blasting assertions that the crowd-funding platform is also $2m in debt, Mr Rahming countered that there was no evidence “of a single complaint from a member of the public, client or investor” over its operations and pledged that it would abide by any plan agreed with the Securities Commission to increase its equity capital.
“For the avoidance of doubt, the respondent rejects that it is insolvent in the sum of at least $2.4m,” the ArawakX chief said, seeking to rebut the Securities Commission’s most damaging concerns. “The respondent is not the subject of any financial claims or demands as at the date hereof. The respondent also denies that it has committed breaches under the ‘Securities Industries Act that warrant criminal penalties’.
“The respondent also rejects the suggestion that it has been unable to sufficiently provide reasons and/or documentation to satisfy the Commission that it can remediate these issues. Even the record before the court herein does not support this conclusion.
“The respondent is a company with lucrative financial prospects, with no pending financial claims or complaints against it, and with successful litigation before the Supreme Court against its bankers in the midst of significant settlement discussions. A winding-up Order would be an unreasonable, unlawful and disproportionate result in all the circumstances and damage the markets built by the respondent and its issuers and subscribers.”
Mr Rahming asserted that “there is no substitute for the respondent’s presence in the market at present”, effectively implying that ArawakX is irreplaceable in the short-term as a mechanism to connect Bahamian companies seeking equity financing via crowd funding with local investors.
“Again, absent evidence of a single complaint from a member of the public, client or investor regarding the respondent, it cannot credibly be said that it would be in the public interest to have the company wound-up,” argued Mr Rahming, who previously served eight years on the Securities Commission’s disciplinary committee.
His assertion that there is no “evidence of a single complaint” stands in contrast to the Securities Commission’s version of events, and its account of how James Campbell, the former Colina Insurance Company president, who was ArawakX’s largest investor via almost $1.6m in equity and debt, had approached it last year to voice concerns about the platform’s operations and corporate governance structure (see other article on Page 1B).
The reference to Supreme Court litigation with “bankers” refers to the legal action ArawakX initiated against Bank of The Bahamas after the BISX-listed institution froze all its accounts amid the fall-out from the platform’s battle with Mr Campbell.
Mr Rahming and MDollaz Ltd, ArawakX’s parent, continue to insist the company is financially solvent but this appears to be largely based on its future earnings prospects. The Securities Commission, by contrast, appears to want the solvency and equity capital concerns addressed through Mr Rahming and his son, D’Arcy junior, investing more of their own funds.
“The applicant [Securities Commission] is aware that the respondent has significant commercial prospects, particularly our pipeline business, the agreement in principle with the Government [to develop a savings bond product] and out other business disclosed to them, and an outstanding claim for significant damages against the Bank of The Bahamas in pending litigation with respect to which we are engaged in settlement discussions,” Mr Rahming asserted.
He argued that this counters “this accusation of insolvency”, and again alleged that the Securities Commission had not allowed it to show it could “substantively address” the insolvency concerns. Rather than being given the chance to provide answers to these questions by Friday, September 18, as it had promised to do, Mr Rahming said ArawakX found itself subject to an “ambush” and battling to defeat a winding-up petition filed by the regulator that very same day .
He also denied that the crowd-funding platform is $2m in debt, arguing that Mr Campbell is seeking an equity interest in ArawakX rather than repayment of his $1.2m investment. “The suggestion that the respondent is over $2m in debt is also false and misleading,” Mr Rahming argued, “as the applicant is and was at all material times aware that Mr Campbell is seeking an equity position in the respondent and not money with respect to his purported claim for $1.2m.”
Accusing the Securities Commission of a “document dump”, the ArawakX chief argued that the regulator had failed to present any evidence or findings of “governance irregularities, regulatory breaches and possible criminal infractions” that would warrant the crowd-funding platform’s winding-up.
“Instead of affording the respondent a hearing following an 11-month long investigation, and then rendering a reasoned decision, the appellant has unreasonably, unlawfully and oppressively sought to foist responsibility for considering the materials and evidence elicited during the investigation and arriving at a reasoned decision upon the court,” Mr Rahming charged.
“The respondent remains prepared, and hereby undertakes, to abide by any mutually acceptable plan and/or remains prepared to receive, participate in and comply with a reasonable ‘capital management plan’ as promised and may be issued by the [Securities Commission] in order to return to operation.”
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.”