The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas’ first-ever crowd-funding platform has vehemently denied there is any “ongoing commingling” of client and company funds and blamed an “accounting error” for the only occasion this occurred.

D’Arcy Rahming senior, ArawakX’s chairman, told Tribune Business that the company - not the Securities Commission - detected and then corrected this error as he pushed back against the regulator’s latest assertions it had used monies belonging to crowd-fund issuers and investors to pay its own operational expenses.

“Speaking to this charge if commingling, we have always maintained separate accounts,” he said. “We’ve always had internal controls, and always had professionals between us and our accounts. That’s the first thing. And you take any fiduciary account, it’s never perfect.”

Fiduciary accounts are used by financial services providers, including law firms, to hold monies and assets that belong to clients. “Some of this goes to the bank, and they may charge you fees, and those fees have to be taken back. What we had in this case is that we were given information that was not accurate, so in one of the accounts there was an accounting error,” Mr Rahming explained.

“As with any good financial system, this error was discovered, we repaired it and applied controls so that it didn’t happen again. This happened around November 2021. There is no ongoing commingling or anything happening because it wasn’t happening in the first place. It was an accounting incongruity that was corrected with a fiduciary account. The Commission did not come and point that out. We prudently corrected that.”

However, Christina Rolle, the Securities Commission’s executive director, in affidavit evidence filed with the Supreme Court, alleged that ArawakX’s use of a loan from its largest investor to pay sums due to crowd-funding issuers and subscribers creates “the irresistible inference” it was using client funds to cover operating expenses.

She claimed in October 5, 2023, legal filings that The Bahamas’ first-ever crowd-funding platform “should not have needed to seek a loan” from James Campbell, the former Colina Insurance Company president, as it should have been holding the required funds “in a fiduciary capacity”.

The capital markets regulator’s top executive, in legal filings designed to rebut ArawakX’s assertion that it remains solvent and has committed no regulatory or governance breaches to justify its winding-up, said loan agreements with P J Enterprises, Mr Campbell’s company, showed the proceeds were partially earmarked to pay sums due to companies that had raised equity capital via the platform or investors that had subscribed to such issues.

Ms Rolle said $95,500 would be used to finance a “payout” to Red Lobster, the restaurant brand which was ArawakX’s first successful crowd-fund raise. Another $9,257 was to be allocated to cover Securities Commission “issuer fees”, while another later loan was to finance a $68,486 “refund” to an investor who had subscribed for shares in the unsuccessful Mifi offering.

Referring to “the use of client funds to fund the operations” of ArawakX, the Securities Commission chief alleged: “The Commission notes that in the case of each of these stated purposes, the respondent [ArawakX] should not have needed to seek a loan for these purposes as they should have been holding the required client funds in a fiduciary capacity.

“Based on this documentation, there is in the Commission’s judgment the irresistible inference that the respondent used client or fiduciary funds to defray shortfalls in the respondent’s financial obligations to other parties.” ArawakX has previously countered that the investor involved with the Mifi “refund” had agreed to convert those funds into an equity stake in the crowd-funding platform itself.

However, Mr Rahming questioned why Mr Campbell would be willing to lend the crowd-funding platform money if it was commingling client funds. “If we were commingling, why would James Campbell give us money to correct that?” he asked. “It was an error done in the course of business.”

The ArawakX chief also alleged that the Securities Commission and Ms Rolle were wrongly taking snapshots, from a point in time, of historical data to make the case for the platform’s winding-up. “I think it’s unfair to use static data to prove ongoing things,” he added, referring in particular to the so-called “pipeline” of upcoming crowd-fund issues that ArawakX has leaned on to suggest it has strong prospects of becoming solvent.

“You can’t point back to when you were in primary school and say we will overlook what you did in university and only consider what you did in primary school. That’s what we’ve experienced with this regulator. She points to periods of time as opposed to looking at the whole picture. It’s painting an unfair picture.”

ArawakX had supplied the Securities Commission with a “pipeline forecast” that “represents a capital demand of over $60m. These companies are at different stages of onboarding with an objective to be listed on the platform by the end of the year.

“There are other companies that we are in discussions with but are still being evaluated or working with their respective business development managers to fine-tune their products to meet our requirements. The companies represent a wide range of industries, and include companies from outside of The Bahamas seeking to raise capital and establish a presence locally, as well as local companies seeking to grow and expand their operations outside of The Bahamas.”

This, though, made little impression on Ms Rolle and the Securities Commission. She reiterated the regulator’s position that it cannot include unearned revenues or income in its calculation of ArawakX’s solvency. “Tied to the respondent’s solvency claim is the assertion that there is pipeline business that should be considered by the Commission,” she acknowledged in her latest affidavit.

“In its assessment of the solvency and financial fitness of its registrants, the Commission is not able to entertain hypothetical projections about future earnings. The respondent should be aware of this and the Commission is gravely concerned that they would make such assertions nonetheless.”

Ms Rolle, though, said that “notwithstanding the Commission’s inability to consider the pipeline business as a solution for insolvency”, the regulator had reviewed the forecast provided by ArawakX on May 8, 2023, which projected that it could earn fee income of between $2.4m to $4.7m from the crowd-fund offerings it had potentially lined up.

However, the Securities Commission chief alleged that, based on its analysis and ArawakX’s past fee earnings, the projections were likely overblown. Ms Rolle alleged: “Based on the historical success rates of the six concluded listings (with a 67 percent success rate and 32.56 percent actual versus projected fees on successful raises, the Commission estimates that the respondent could reasonably project income of approximately $806,411 on their pipeline of 18 companies.

“Given that only seven of the 18 are indicated as having a listing agreement, that projection should be reduced to approximately $176,703.” As a result, the Securities Commission chief implied this will do little to address ArawakX’s solvency concerns in the regulator’s eyes