Firing back at the Securities Commission of The Bahamas (SCB), ArawakX CEO and Chairman D'Arcy Rahming Sr. argued that his company is not insolvent and there was never any commingling of client funds.
The SCB is seeking to wind up MDollaz Ltd., which operates as ArawakX.
In an affidavit filed last week, Rahming said there was never any "substantive commingling" of client funds with the company's operational fund, but a mislabeling that resulted in Bank of The Bahamas freezing the company's accounts.
"Seeking to have the respondent (MDollaz) wound up without a hearing is one of the most serious and prejudicial remedial regulatory powers which the applicant (SCB) can exercise," Rahming said.
"The respondent, having participated in an 11 month-long investigation, while subject to comprehensive restrictions, none of which the respondent is alleged to have breached, had a legitimate expectation that should we not obtain the regulated return to business we were assured ... we would have been afforded a proper hearing to make our case against any charges or allegations flowing therefrom.
"It is important to note that, while couched in extremely pejorative terms, the applicant (SCB) has not purported to have made any substantive findings as against the respondent so as to warrant denying its right to be heard or at all. The respondent is not a danger to the public, and we deserve our right to be heard."
The SCB began winding up proceedings of MDollaz in mid-September after it said it found that the crowdfunding firm is insolvent, commingled company funds with investor money, and sold Mdollaz shares without SCB approval, according to an affidavit filed by SCB Executive Director Christina Rolle.
But Rahming denied those claims.
"At the outset, the respondent alerted the applicant to its concerns about, and the errors committed by its former chief financial officer, Mr. Campbell's (James Campbell) brother-in-law ...", who was terminated by MDollaz, and whose termination has not been challenged.
"However, to suggest that there was a substantive issue of commingling of funds, and to suggest that this was admitted is a prejudicial misreading of the record. The respondent at all material times maintained properly segregated accounts with the appropriate controls.
"The applicant has also paid insufficient regard to the fact that its actions during its unduly and oppressively prolonged investigation has effectively starved the respondent by preventing its operation."
Rahming said his company had not been given a fair hearing by the SCB before winding up proceedings were requested from the court.
"The applicant, at all material times prior to its attempt to wind-up the respondent by ambush, represented to the respondent that the issues being considered could be resolved amicably with a regulated return to operation," Rahming said.
"While the applicant (SCB) has, after the fact, cast various aspersions upon the respondent and its principals, the applicant has failed to demonstrate why it is in the public interest for the respondent to be denied a substantive and fair hearing ... and its right to receive a reasoned decision from the applicant, before being subjected to a draconian liquidation application.
"The applicant is asking the court to condemn the respondent on conjecture based upon its untested findings, and the respondent is keen to avoid this winding up application being turned into a de facto substantive hearing of matters properly for the applicant's determination in the first instance."
Winding up
The SCB said in a statement last month that the court heard the matter between each side and adjourned the hearing to October 13.
"... Chief Justice Sir Ian Winder granted an interim order to preserve the status quo with respect to the suspension of their [MDollaz] operations, pending hearing of the matter," the statement said.
Rolle stated in her affidavit that ArawakX's most recent draft audited financials show that the company had a net loss of $1.7 million in 2022, which has doubled over a 12-month period.
The affidavit adds that the company had a negative equity of $2.3 million at July 31, 2022, that grew from $551,000 in 2021. It also states that ArawakX raised almost $2 million from investors without approval from the SCB, which is the company's regulator.
"Income of $200,000 is only enough to pay the annual rent and cannot cover operation expenses," Rolle said in her affidavit.
In his affidavit, Rahming said that the months long investigations undertaken by the SCB hurt his business.
"The applicant is aware that the respondent has significant commercial prospects, particularly our pipeline business, the agreement in principal with the government, and our other business disclosed to them otherwise, 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, all of which militate against this accusation of insolvency," Rahming said.
"Had the respondent been given a proper opportunity to be heard, we would have been able to substantively demonstrate that we are able to address the applicant's purported concerns."
He adds: "The suggestion that the respondent is over $2 million in debt is also false and misleading, 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 $1.2 million.
"The applicant has approached the court with extremely prejudicial language, suggestive of conclusions arrived at after a proper investigation, hearing, deliberation, and determination, which did not take place.
"There has been no reasonable and lawful conclusions arrived at by the applicant as against the respondent. Ms. Rolle's affidavit merely presents a narrative, which we refute and are able to rebut.
"Ms. Rolle also cynically and prejudicially couches the pending applications of the respondent's subscribers as a liability, when she is fully aware that they have to be characterized as such until they are regularized by the applicant, as she at all material times represented they would be.
"Again, for the avoidance of doubt, the respondent rejects that it is insolvent in the sum of at least $2.4 million. The respondent is not the subject of any financial claims or demands as at the date hereof."
In her affidavit, Rolle said James Campbell invested $1.2 million in MDollaz and was made a director of the board for the company, though the SCB stated that it was never made aware of this appointment.
Rahming contends Campbell was never formally appointed to the board of the company.
Rolle states that former SCB Executive Director Hillary Deveaux was a director on MDollaz's board, and came along with Campbell and another board member, Felix Stubbs, to inform the SCB of "issues with the company, specifically discussing its corporate structure".
According to Rolle's affidavit, Campbell advised the commission that since ArawakX began, the company was "cash strapped" and his investment was spent on only one of six crowdfunded offerings.
He said at that time staff had not been paid for several months.
Campbell also revealed to the SCB that when $40,000 was moved from the company's fiduciary account to its operating account - a possible case of commingling client funds with company funds - Rahming advised him that it was an error.
Mdollaz's Bank of The Bahamas' accounts were subsequently frozen for a time, but were allowed to be unfrozen after a petition to the court by the company. That case is still to be heard.
Campbell also explained that despite the company's "poor financial position", senior employees travelled extensively to promote the business.
Campbell said that the termination of the company's Chief Financial Officer Michael Turnquest further raised his concerns on the operations of the company.
But Rahming said there have been no breaches in his company that would be classified as criminal, and explained that all of the issues stated by the SCB can be remediated.
"A winding up order would be an unreasonable, unlawful, and a disproportionate result in all the circumstances and damage the markets built by the respondent and its issuers and subscribers who continue to wish to engage with the respondent and its markets," he said.
"There is no substitute for the respondent's presence in the market at present."
Rahming's affidavit also explained that the SCB made an offer that would allow the company time to become solvent if it was found that it was not, and if it was found that the company had no record of wrongdoing.
However, Rahming said the SCB has found no evidence to warrant a status of insolvency and still has decided to wind-up the company.
"The Respondent engaged with the Applicant in good faith on the understanding and assurance that, absent any finding of wrongdoing, the Applicant 'will give you a timeline to get solvent', if the Respondent was found to be insolvent," Rahming said.
"While the Respondent maintains that it is not insolvent and that its business remains capable of addressing such capital concerns as may remain, the applicant assured the respondent that should it determine that the respondent was not solvent it would be given a timeline to become solvent.
"Again, the record reflects that the applicant has made no findings of wrongdoing as against the respondent so as to deprive the respondent of its opportunity to address any solvency issues pursuant to a capital management plan issued by the applicant."
Company owners who raised money through embattled crowdfunding platform ArawakX sought to assure shareholders last month that their investments are safe and that their businesses are growing thanks to the investments shareholders injected.
Chef Kevin Culmer, owner of Tropical Gyros, and Dr. Danny Johnson, principal of Foot Care Rx, called into the talk show "Morning Blend Business" on Guardian Radio 96.9 FM to explain to host Dwight Strachan that despite winding up proceedings for ArawakX being started by the SCB, their companies are still trying to create value for the shareholders they obtained through crowdfunding on ArawakX.
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