The Securities Commission of The Bahamas (SCB) began winding up proceedings of Mdollaz Ltd., trading as ArawakX, after finding via investigations and interviews 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 the SCB’s Executive Director Christina Rolle in the Supreme Court’s Commercial Division.
An SCB statement released yesterday explained that the court heard the matter between each side and adjourned the hearing to October 13.
Guardian Business was unable to obtain copies of ArawakX’s affidavit in reply up to press time.
“The Hon. 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 states in her affidavit that ArawakX’s most recent draft audited financials show that the company had a net loss of $1.75 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,” the affidavit states.
“Note 14 (of the audit) indicated that Mdollaz raised $1.9 million from persons not approved by the SCB. The draft financials are proposing to classify these persons as creditors rather than equity investors.
“The commission has no evidence that approval from these investors has been sought for such reclassification. Note 10 indicated that accounts payable grew by 1,032 percent and additional debts of approximately $500,000 where in notes 11 and 12 (of the audit). This company does not have sufficient total assets to discharge itself of its debts, hence the equity is negative.”
According to the affidavit, ArawakX’s principals sold shares in the company by offering differing valuations of the company to different shareholders, and offered employees share subscriptions in lieu of salary. The document goes on to state that one investor put $75,000 into ArawakX “based on his trust and confidence in the principals, who indicated via email that the company was valued at $200 million (although he did not necessarily believe this valuation)”.
A supporting document for one investor reveals that it was explained to him that the company was worth $20 million.
According to the affidavit, it was later explained by ArawakX’s chief technology officer and senior vice president of operations that the company’s valuation is about $201 million, based on a multiplier stemming from a Harvard Business Review study on how venture capitalists are valuing startups.
The affidavit also states that Mdollaz accounts collected funds on behalf of the companies they were raising money for, and used those funds to fund its operations, “then replacing those funds by soliciting investment in Mdollaz”.
“This pattern is confirmed in the loan agreements with PJ Enterprises, which notes the purpose of the loan as being for payouts to crowdfunded issuers,” the document states.
“This circumstance is a breach of Mdollaz’s fiduciary obligations as well as a breach of the rules.”
It is revealed in the document that a James Campbell invested $1.2 million in the company and was made a director of the board for Mdollaz, though the SCB stated that it was never made aware of this appointment.
Rolle states in her affidavit 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 the 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 – ArawakX CEO D’Arcy Rahming Sr. 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 in the document that the termination of the company’s Chief Financial Officer Michael Turnquest further raised his concerns on the operations of the company.
Rolle said in the affidavit that D’Arcy Rahming Sr. and Chief Technology Officer D’Arcy Rahming Jr. explained that Turnquest was terminated as a result of his lack of understanding of the company’s technology, and because he was
“unable to provide substance to financial projections he had produced”.
When interviewed by the SCB, Turnquest said the Rahmings “did not sufficiently allow for the flow of information throughout the company” to allow him to carry out his duties as CFO; that “he was not privy to certain financial information to properly prepare financial statements for the company; that “internal controls were weak”; and that “it was possible that clients’ funds were used to pay a particular founder perks which were identified as company expenses”.
Rolle’s affidavit states that in March of this year, the Rahmings were asked by the SCB to correct issues of directorship relating to Campbell and PJ Enterprises Limited; to correct the company’s capital issues; to explain and correct the commingling of client funds; to address changes in the corporate structure of the company that the SCB was not made aware of; and provide proper books and records of accounts.
The affidavit further states that the company’s compliance officer never filed any reports on the company, but noted some inconsistencies with KYC (know your customer) protocols.
The affidavit also states that last week, before suspending the company’s license, the Rahmings were given a final chance in an hour-long meeting, to explain how they could make the company solvent.
According to the affidavit, the SCB said its questions were met with silence by the Rahmings and answers from their attorney Kahlil Parker, KC, that did not address the SCB’s concerns.
“Counsel indicated that neither he nor his clients intended to address any of the commission’s concerns at the meeting as, in his view, the time allotted in the 30 August 2023 letter was insufficient and unreasonable,” the affidavit read.
“The commission was satisfied that the time allotted of two weeks (from 30 August 2023 to 13 September 2023), was a reasonable and sufficient time for the company to prepare to be heard, it already having been aware since March 2023 of the commission’s concerns.”
ArawakX is preparing to take the Securities Commission of The Bahamas to court, the company said in a recent letter to shareholders.
Last week, D’Arcy Rahming Sr. penned a letter to ArawakX shareholders explaining it is his belief that there is a hostile takeover of the company afoot. He leveled several disparaging claims against the SCB, claiming that the regulator has not stepped in to protect the company.
He also revealed in the letter that ArawakX was under investigation by the SCB.
The SCB released a statement last week stating that Rahming’s letter included “inflammatory misrepresentations and outright fabrications of the commission’s concerns” and potentially “libelous accusations”.
“The Securities Commission of The Bahamas has been made aware of a communication issued of today’s date to ‘stakeholders’ of Mdollaz Ltd., trading as ArawakX,” the statement said.
“The communication follows the commission’s investigations into the trading platform’s solvency and the suspension of the registration of Mdollaz trading as ArawakX on 30 August 2023.”
The SCB added:” The commission has exercised both patience and restraint in dealing with Mdollaz trading as ArawakX, and we continue to exercise our professionalism in this regard.
“However, the commission will not tolerate wild, misleading and potentially libelous accusations of the nature made in the referenced communication.
“The commission seeks only to resolve its regulatory concerns with the principals of Mdollaz trading as ArawakX in the interest of the investing public.
“As always, the commission remains committed to its professionalism and hopeful that these matters can come to a productive end.”
Rahming said in his letter last week that despite ArawakX’s issues with the SCB, the interests of the companies that have already been funded through the crowdfunding platform, and the interests of the shareholders, are still protected.
Rahming claimed that because of the success ArawakX has found since starting up, there are forces that wish to take over the business.
He said he plans to fight those forces and the SCB in court.
“I have every confidence in our legal system… We invite you to ask us any questions,” he said.
“We are prepared to share all communications… that we are lawfully able to share, as transparency is one of our core values at ArawakX.
“We believe that once the dust settles, our beautiful nation will be better for it. Do not be afraid.”
SCB shared some 200 documents and the affidavit on its website yesterday.