The Tribune

• Despite $2.659m ‘deficit’ at end-July 2022

• Prominent Bahamians are major investors

• Valuation: Commission ‘gravely concerned’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas’ first-ever crowd-funding platform purportedly increased in value from just $4.38m to an astonishing $201.75m in just 14 months, it was alleged yesterday, despite accounts revealing a $2.659m “deficit” at end-July 2022.

The Securities Commission, in documents supporting its Supreme Court petition to wind-up ArawakX, revealed it was “gravely concerned” the company had “made representations about its valuation” to prominent Bahamian investors without supplying any evidence to back such numbers. 

Among those induced to invest in ArawakX, and who parted with “substantial sums”, were prominent physician, Dr Harold Munnings, Lynden Johnson and Burchinald Gibson. The trio were named in an August 30, 2023, letter from Christina Rolle, the Securities Commission’s executive director, to D’Arcy Rahming senior, ArawakX’s chairman and chief executive, in which she said such investments had failed to obtain the regulator’s prior approval in accordance with the law.

“The Commission is gravely concerned that MDollaz has, in order to support its share offer prices, made representations about its valuation to investors such as Dr Harold Munnings but without providing any internationally acceptable process for valuation,” the Securities Commission chief wrote.

“This lack of process renders the valuation highly questionable at best, and raises the possibility of misrepresentation.” Given that ArawakX was only registered to conduct business as a crowd-funding marketplace on January 18, 2021, the jump in its purported valuation from $4.38m to $50m and then, latterly, to $201.75m is likely to raise eyebrows especially since it was in its fledgling start-up growth phase and has only handled a few issues to-date.

The Securities Commission doubled down on such concerns in its winding-up petition, filed with the Supreme Court yesterday, in which it revealed that 134 of the 136 alleged “shareholders” in ArawakX had not been approved as investors as required under the Securities Industry Act. The only two with such permission were Mr Rahming senior and his son, D’Arcy junior, who were both shown as holding equal 50 percent equity stakes when it it began conducting business.

“This was the first time the Commission became aware that the number of shareholders exceeded the threshold of a private company,” the capital markets regulator disclosed. ArawakX’s largest investor appears to have been former Colina Insurance Company president, James Campbell, who informed the Securities Commission he had injected $1.2m as a so-called ‘angel investor’ before being appointed to the Board of Directors.

The Securities Commission, though, noted that the $4.38m valuation placed on ArawakX by its principals, the Rahmings, during negotiations with Mr Campbell and his company, PJ Enterprises, had swiftly risen to $50m in talks with another investor.

“The additional information revealed that on July 28, 2020, the company issued Class B (cumulative redeemable MDollaz) preference shares at $1 per share to [Investor 15] with an option to convert into 5,000 ordinary shares at $5 per share,” the regulator alleged.

“This implies a valuation of the company at $50m, which is grossly different from the $4.38m valuation negotiated (between July 2020 to December 2021) with PJ Enterprises. The Commission is alarmed that MDollaz appears to have sold its shares at a premium prior to commencing any regulatory activity and using unsubstantiated valuation methods.

“Further, the Commission has no evidence that the Class B shares were ever created as they are not reflected in the share structure as filed with the Commission at the time of registration nor any time thereafter. This issue, from the Commission’s point of view, is insurmountable with respect to the company’s ability to regularise its governance issues and reflects misrepresentations made to the public,” the Securities Commission continued.

“The subscription agreements, term sheets and correspondences reflected the issuance of classes of shares at various share prices which were not reflected in the share structure of the company nor any suitable valuation provided to support the share prices. For example, investor 15 was advised that the company had a valuation of $201.75m.”

Investor 15, who is not identified by name, e-mailed D’Arcy Rahming junior on September 3, 2021, questioning that valuation. “Please help me to better understand the company valuation of $20m [sic, $200m]. Is it based on $710 per user? I don’t see it,” they wrote.

Mr Rahming junior responded by referring to “the valuation of $201.75m or $200m”. He added that this was based on the $710 “projected average yearly investment per user” and two investments per year. “The next round of funding is to get us to the 346,530 users,” he said, adding that multiplying the latter figure by $710, then 10 percent, gives $24.604m. The latter sum was then subject to an 8.2 multiplier from a “Harvard Business Review Study” on how start-ups are valued.

Investor 15, in an August 24, 2023, interview with the Securities Commission revealed they had invested $75,000 in ArawakX. “His investment was based on his trust and confidence in the principals, who indicated via e-mail that the company was valued at $200m (although he did not necessarily believe the valuation),” the Securities Commission said.

“It was evident that MDollaz [which operates as ArawakX] took steps since 2021 to raise additional capital to directly fund MDollaz without informing the Commission,” the regulator added. “MDollaz actions appear to be a distribution in contravention of the Securities Industry Act 2011.”

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.”