The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

ArawakX’s president says “nobody can deny the good” it achieved as Securities Commission attorneys hailed the appointment of provisional liquidators as vital to “protecting the capital markets”.

D’Arcy Rahming senior, head of The Bahamas’ first-ever crowd-funding platform, told Tribune Business that he and and his colleagues had shown themselves to be “pioneers in this field” and “innovators” despite the Chief Justice last week ordering that they - for the moment at least - surrender control of the company.

That, though, is not how Michael Scott KC, who represented the Securities Commission in its successful bid to have a provisional liquidator take charge of ArawakX, sees things. Besides the capital markets regulator’s case being “self-evident”, he argued that Sir Ian Winder’s decision was critical to preventing “threatened reputational damage” to both the financial services industry and crowd-funding as a concept.

Both men spoke out after the Supreme Court on Friday agreed to the appointment of Ed Rahming, founder and managing director of Intelisys (Bahamas), and Cheryl Simms, the Kikivarakis & Co accountant, as co-provisional liquidators for ArawakX. They will now take control of the company’s operations and corporate records from management, which must surrender both.

The petition for the full winding-up of the crowd-funding platform will be heard on March 11 and 12, 2024. It will give Mr Rahming, his son and their attorneys another opportunity to contest the move, and the Securities Commission’s application, in the hope they can regain control despite the Chief Justice finding the regulator has made “a prima facie case” for the winding-up.

Mr Rahming told this newspaper he had yet to decide whether to appeal Sir Ian’s initial verdict. “I have to discuss that with my attorney,” he said. “What we’re doing right now is taking stock of where everything is, reviewing everything and then we will make a decision. We just need some time to digest, to review and discuss our options.

Reiterating that he has “every confidence in the legal system” when it comes to the outcome of ArawakX’s battle with the Securities Commission, Mr Rahming added: “Of course I would have liked the ruling to go our way but it didn’t go that way. I live in a land of laws and obey them.”

The ArawakX president said the “substantive case”, in the form of the full winding-up petition, has yet to be heard and argued that once it happens “people will understand what it takes to operate in this market and the adjustments needed on the regulatory side to make this possible”.

Implying that the Securities Commission’s approach to regulation is too prescriptive and rigid, Mr Rahming added: “Crowd-funding is needed in The Bahamas, and needs specialist skill-sets and a specialist mindset to operate an exchange in this environment.”

He argued that it was difficult to do so given the regulatory framework in which ArawakX operated, and said: “A lot of adjustments we had to take on the chin. We’ve been pioneers, innovators in this field and that will be very clear to anybody following up on this.... Hopefully adjustments will be made, but it’s kind of tough being the first one in.”

Pointing to the four issuers, out of six total offerings, that met their minimum crowd-fund raise via ArawakX, Mr Rahming added: “Nobody can deny the good things we have been doing. That’s undeniable. We have created jobs, we have provided capital to market participants. We had a pipeline. People are still calling me daily.

“There’s no one in the region that had a successful launch of this and we did. I have every confidence it will survive, because it’s good for the people and good for the country. Here am I, bloodied but unbowed.”

Mr Scott, though, countered that Sir Ian’s judgment shows precisely why the Securities Commission’s regulatory action was “self-evidently not only in the interests of the financial services industry but in the public interest as well as having regard to the reputational damage or threatened reputational damage to the industry and this new technology of crowd-funding”.

Acknowledging that crowd-funding, in and of itself, provides a mechanism to link entrepreneurs requiring financing with potential investors if done correctly, Mr Scott added: “The reputational fall-out from the activities of MDollaz, trading as ArawakX, threatened the growth of that industry and reputation in general of financial services in The Bahamas.

“I think it was the right decision and, as he said in his judgment, there were more than sufficient grounds for bringing a winding-up petition. I have no doubt that in the events which will follow next year, a winding-up Order will be made.

“It is important and vital to the industry that we shut down market abuse by rogue operators. Last week was an important step in the protection of the local capital markets and to protect the burgeoning growth, which is still very embryonic, of the crowd-funding prototype.”

Sir Ian on Thursday ruled there is more than sufficient evidence” of ArawakX’s $2.4m insolvency to justify appointing a provisional liquidator to take control of its affairs and protect assets.

Deciding in favour of the Securities Commission, he was satisfied the regulator had made “a prima facie case” to oust directors and management of The Bahamas’ first-ever crowd-funding platform on the basis of its solvency deficiency, alleged legal and regulatory breaches that include the “commingling” of client and company monies, and corporate governance deficiencies.

In particular, Sir Ian found ArawakX and its principals provided “no real evidence.... to counter” the capital markets regulator’s assertions that it was insolvent since draft audited financial statements showed negative equity of $2.3m at end-July 2022.

“I accept, on the evidence, that 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 cause to have the company wound-up,” the Chief Justice wrote in yesterday’s 19-page verdict.

“I am satisfied that the Commission has made out a case that there is a necessity to appoint provisional liquidators to prevent mismanagement or misconduct on the part of the company’s directors and that it is in the public interest.”

While appointing a provisional liquidator is “a serious step”, he added that it did not necessarily mean ArawakX will go into full liquidation. To secure the former, the Securities Commission only needed to establish “a prima facie case”, which “is not a very high bar at all”, and Sir Ian found that the crowd-funding platform’s matter “easily qualifies”.

“There is more than sufficient evidence to find that the company is insolvent, if only to a prima facie standard,” Sir Ian ruled. He cited ArawakX’s draft financial statements, including the $2.3m negative equity that had risen “substantially” from a negative $551,000 in 2021, and the “major net loss” of $1.75m for that year. This had “grown by two times” compared to 2021’s $909,000 loss.

ArawakX’s $200,000 income was only sufficient to pay its rent, and no other operating expenses, while the raising of $1.9m from investors had not been approved by the Securities Commission. Accounts payables had risen by 1,032 percent; additional debts of $500,000 were identified; there were insufficient assets to meet all debts; and some investors and staff had been unable to receive refunds and salaries, respectively.