The Tribune

• Crowd-fund platform ‘at least $2.4m’ insolvent

• Chair defiant: ‘We intend to refute everything’

• ‘Funds misused, staff unpaid, issuers owed’ 

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas’ first-ever crowd-funding platform has a solvency deficiency of “at least $2.4m”, regulators charged yesterday, while accusing it of “governance irregularities, regulatory breaches and possible criminal infractions”.

The Securities Commission, in legal documents filed with the Supreme Court, asserted 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.

D’Arcy Rahming senior, ArawakX’s chairman and chief executive, last night told Tribune Business that “we intend to refute everything” as he vehemently denied the Securities Commission’s allegations against himself, his son, D’Arcy Rahming junior, and the crowd-funding platform itself (see other article on Page 2B). 

He declined to provide much detail ahead of ArawakX’s legal response to the Bahamian capital markets regulator, which is due to be filed with the Supreme Court by September 25, but the documents released by the Securities Commission give a completely different perspective to the two sides’ year-long battle than that already provided by the crowd-funding platform.

The regulator, in its petition for ArawakX’s winding-up and the appointment of Ecovis Bahamas accountant, James Gomez, as provisional liquidator, asserted that the crowd-funding platform “has committed certain breaches under the Securities Industries Act that warrant criminal penalties” being imposed.

Arguing that the crowd-funding platform has failed to provide satisfactory evidence that it can remedy its solvency deficiency and alleged regulatory breaches, the regulator added that “it is in the public interest - and in the interest if clients and/or investors - that the company be wound-up” and likely placed in a Supreme Court-supervised liquidation.

“The Commission is satisfied that the company’s insolvency issues, governance irregularities, regulatory breaches and possible criminal infractions have together become insurmountable, resulting in there being more than sufficient evidence to have the company wound-up,” Christina Rolle, the Securities Commission’s executive director, alleged in an affidavit supporting the winding-up petition.

The petition, as previously reported by Tribune Business, will be heard by the Supreme Court on October 13 when attorneys for both the Securities Commission and ArawakX present their respective arguments for and against the crowd-funding platform’s potential liquidation.

Mdollaz, which trades as ArawakX, was registered with the Securities Commission on January 18, 2021, to conduct business as a crowd-funding marketplace and clearing facility under the Securities Industry (Business Capital) Rules 2021. It was initially owned 50/50 by Mr Rahming and his son.

Hillary Deveaux, one of Ms Rolle’s predecessors as Securities Commission executive director, was on Mdollaz/ArawakX’s Board but he resigned on December 9, 2022, to become a whistleblower. Together with James Campbell, the former Colina Insurance Company president, and Felix Stubbs, the former IBM Bahamas chief, he met with the regulator on October 11, 2022, to voice concerns about the platform’s operations and corporate governance structure.

“Mr Campbell, in particular, who is a silent investor in the company and invested roughly $1.2m, expressed deep concerns about the direction and operations of the company,” the Securities Commission’s winding-up petition alleged. 

The former Colina chief asserted “that since operations began the company had been cash strapped, and that roughly $1.5m received from investors had been spent as only one out of the six crowdfund offerings that was listed on the platform had met its minimum ask”. 

It was also claimed that ArawakX staff “had not been paid for several months”, while $40,000 “was moved from the fiduciary account to the operating account” - suggesting that client/investor monies were used to finance the platform’s operating expenses. When this was brought to Mr Rahming senior’s attention, he allegedly described this as “an error”.

Mr Campbell also alleged that senior ArawakX executives were travelling and spending lavishly to promote the business, which he argued was not wise given the company’s financial position. The Securities Commission, meanwhile, noted that the former Colina chief’s appointment to ArawakX’s Board on January 10, 2022, was a breach of the Securities Industry Act because it had not received prior approval from the regulator.

The regulator then met with the Rahmings, who admitted that ArawakX’s “funds were temporarily commingled with investors but that this mistake was quickly rectified and the company learned from this error”. They also acknowledged that “while staff had not been paid their entire salary”, employees understood “Mdollaz was operating in a new space” and were “willing to work on this basis” as they shared the platform’s crowd-funding vision and goals.

However, the falling-out with Mr Campbell resulted in Bank of The Bahamas freezing/blocking all of ArawakX’s operating and client accounts at end-October 2022. The BISX-listed bank “indicated that the account balances appeared to be used for general purposes, and that it was difficult to determine that they were used for clients alone”.

Mr Rahming blamed this alleged “commingling” on Bank of The Bahamas’ “mislabeling of transaction descriptions”, and ArawakX subsequently launched legal action against the bank that is still ongoing. However, this - together with the earlier meeting with Messrs Deveaux, Campbell and Stubbs - triggered a Securities Commission ‘inspection for cause’ of the crowd-funding platform on January 7, 2023.

Ms Rolle, in her affidavit, alleged that this showed ArawakX owed a six-figure sum to companies that had raised monies from investors via the crowd-funding platform. “There were discrepancies with client subscription agreements, namely that the company owed its issuers $221,276 with $8,806 being owed to Tropical Gyro, $83,167 being owed to Foot Care Rx, and $129,303 being owed to Nassau Gas,” she asserted.

“The Commission cannot determine whether these specific funds have been paid to issuers as yet, having not received a response to our query on the point. Tropical Gyro’s distribution closed on October 7, 2022; Foot Care Rx’s distribution closed on October 31, 2022; and Nassau Gas’ distribution closed on December 20, 2022.” Foot Care Rx’s principal is former minster of youth, sports and culture, Dr Danny Johnson.

Ms Rolle thus alleged that not all sums raised from Bahamian investors were passed to the issuing companies within three days of the offering’s close, as required by law. However, ArawakX has previously said that not all investor pledges actually materialise into money invested, as crowd-funding typically attracts small retail players parting with small sums of money.

Meanwhile, the Securities Commission inspection allegedly found that “the receipt of client funds occurred between ‘fiduciary’ and ‘operational’ accounts”, some of which were in the name of another entity, MDollaz Technology. This company was not licensed by the regulator, and the latter added: “By receiving and holding client funds, MDollaz Technology conducted business for which it is not licensed, potentially contravening various laws in The Bahamas.

“When questioned on this point, MDollaz advised the Commission that they only used MDollaz Technology accounts because they were in the process of obtaining an account in the name of the licensed entity. Up to June 2023, the Bank of The Bahamas account of MDollaz Technology still held client balances.

“During the months of March, April and August 2022, staff salaries were processed using the MDollaz Technology ‘fiduciary’ account at Bank of The Bahamas. This appears to be a use of client funds to fund the operations of MDollaz.” It was also noted that an investor was not refunded the $26,004 he placed with Bahamas Myfi’s failed capital raise but, instead, these monies were paid into MDollaz’s operational account.

ArawakX subsequently alleged that the investor in question, Lynden Johnson, had decided to become a shareholder in MDollaz and the $26,004 was reallocated for this purpose. It alleged that Mr Johnson then increased his investment in the platform to $50,000.

As a result of its findings, the Securities Commission imposed regulatory restrictions on ArawakX on March 23, 2023. These barred it from accepting new clients, investors and issuers, and also blocked it from receiving more funds from existing investors. Crowd-funding activity was to cease, and the platform had to provide key documents and answer the regulator’s questions.

Interviews with two past ArawakX chief financial officers, Michael Turnquest and Samuel Wilkinson, revealed similar complaints that both were provided with insufficient financial records and information to carry out their jobs, “that there was resistance all around from the principals to implement proper systems and controls”, and “it was possible that clients’ funds were used to pay a particular founder perks”.

Amid ongoing concerns about ArawakX’s financial solvency, and further complaints from investors, the winding-up petition alleged: “The Commission’s analysis of the bank account statements showed that, at all material times, due to subscribers (issuers) was larger than the balances held on their fiduciary accounts. 

“This is strong evidence that they were collecting funds on behalf of issuers, using those funds to fund their operations and then replacing those funds by soliciting investments in MDollaz. This pattern is confirmed in the loan agreements with PJ Enterprises [Mr Campbell’s firm], which notes that one of the purposes of the loan was payouts to crowd-fund issuers. This circumstance is a breach of MDollaz’ fiduciary obligations as well as a breach of the Rules.”

Further meetings and correspondence failed to ease the Securities Commission’s concerns, leading to last Friday’s bid to initiate the winding-up proceedings.