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ArawakX attorney hit at 'degradation ceremony'

By Neil Hartnell

Tribune Business Editor

ArawakX’s attorney blasted that he was “not going to sit here in a degradation ceremony” after regulators voiced concern that the crowd-funding platform was using “delaying tactics” in response to its solvency concerns.

Khalil Parker KC, who is also the Bahamas Bar Association’s president, took exception to such suggestions by Christina Rolle, the Securities Commission’s executive director, during a tense September 13, 2023, hearing that was held to enable ArawakX to respond to concerns that also covered regulatory compliance, governance and its business practices.

The meeting transcript, filed five days later with the Supreme Court as evidence to support the Securities Commission’s bid to wind-up The Bahamas’ first-ever crowd-funding platform, also revealed Mr Parker’s objections to the regulator characterising the change in its share capital as an attempt to dilute - and reduce the influence of - its largest investor.

James Campbell, the former Colina Insurance Company president, who invested $1.6m in equity and loans with MDollaz, ArawakX’s parent, seemingly sparked ArawakX’s regulatory woes when he turned ‘whistleblower’ and approached the Securities Commission with allegations relating to the platform’s finances, governance and operations.

And Ms Rolle, in an August 30, 2023, letter to D’Arcy Rahming senior, ArawakX’s chairman and chief executive, suggested the change in the crowd-funding platform’s capital structure from what was originally set out in its Memorandum and Articles of Association was designed to “diminish the potential authority” and influence of Mr Campbell and his company, PJ Enterprises.

ArawakX’s initial capital was $5,000, divided into 5,000 shares with a par value of $1 each, but Ms Rolle said the Companies Registry revealed this was subsequently changed to $100,000 divided into 10m shares each with a par value of one cent. This change, she added, was done without the knowledge or approval of the Securities Commission.

“The Commission notes that the act of changing the capital structure appears to have been done to accomplish at least two things,” Ms Rolle wrote. “Firstly, the diminution of the potential authority or influence of lenders to the company and, of particular note, is the impact of the share structure in relation to the primary lender, PJ Enterprises.”

This interpretation was rejected by Mr Parker during the September 13, 2023, hearing during which only he spoke on ArawakX’s behalf. Accusing the Securities Commission of having pre-determined the issue, he alleged it was Mr Campbell’s decision to approach the regulator with his allegations that had diminished the crowd-funding platform’s share capital rather than his client deliberately seeking to dilute its largest investor.

“Let me remind you. You are suggesting that ArawakX has not been responding substantively to your concerns,” Mr Parker said. “As I have demonstrated in our letter, we have substantively responded to your concerns and yet coming into our hearing you tell us that we have been misleading, we have been willfully concealing.

“You have suggested that the alteration in our share capital was somehow intended to defraud a third party when, in fact, the premise of that third party’s approach to you required us to expand our share capital. And that tells me there is a preconceived notion on the other side of the table.”

Ms Rolle, meanwhile, in her August 30 letter also alleged that ArawakX’s share capital alteration was designed to facilitate “subsequent unauthorised share offerings” to a combination of clients, outside investors and service providers in a bid to solve its under-capitalisation woes.

“It is evident that MDollaz has had financial problems for quite some time, which appears to be the basis for the company pursuing additional funding through offering shares in MDollaz to various investors,” the Securities Commission chief wrote.”The Commission further notes that MDollaz’ current financials show that MDollaz is heavily indebted despite having attempted to raise additional capital by the aforesaid means....

“The Commission notes that it has been made aware of offers made to the more than 134 members of the public without the Commission’s prior and/or subsequent approval at varying per share prices of $1, $2.50, $5 and $8 with no discernible difference other than the person to whom the offer was made.

“MDollaz actions of offering its shares to various members of the public contravened the requirements of the Securities Industries Act 2011 as any distribution of shares to the public requires the Commission’s approval prior to the distribution.” The August 30, 2023, letter, which suspended ArawakX’s registration for 15 days, called for the September 13 meeting and requested that the crowd-funding platform provide written replies to the regulator’s queries by September 11.

However, Mr Parker complained at the September 13 hearing that his clients had not been afforded “due process” nor given “a full and frank opportunity” to provide a full response to the Securities Commission’s questions as he pleaded for more time to do so.

This prompted Ms Rolle to point out that the regulator’s issues with ArawakX dated back some six months, and that a few extra days provided for the reply was unlikely to make little difference. “I don’t think that we will entertain any delaying tactics without any substantive answers to the issues that are on the table,” the Securities Commission chief said.

Mr Parker immediately shot back: “For the record, I didn’t come here to be insulted. I will not be insulted. This is not a delaying tactic. You have a duty as a regulator to afford people the benefit of due process..... And so I am not going to sit here in a degradation ceremony to be told that I’m trying to delay.

“You have the power of the pen. If you give us the time that we request, and we do not, or we fall short of the Glory of the Lord on that occasion, then so be it. But to say that you have your written response in on the 11th, and come in for a substantive hearing on the 13th, and then you say you sent a breakdown of what you really want to know at 5.51 pm the day before, and to say come tomorrow to answer that. That is not due process.”

Ms Rolle countered that the Securities Commission sent the 5.51pm questions “to help you, to give some assistance, because it seemed to us you were struggling with focusing on the issues at hand.... I don’t think you’ve been insulted”. Mr Parker replied: “You said delaying tactic”, to which the Securities Commission chief replied that he was “being overly aggressive to me”.

This was denied by Mr Parker, to which Ms Rolle said: “Your tone sounds very aggressive.” Yet Mr Parker insisted: “You tell me that I am coming here to delay the process.” The two sides then moved on, with Ms Rolle asserting the Securities Commission had exercised “extreme patience” in trying to prod ArawakX to resolve its concerns.

“The company is insolvent. That is what the financial statements are showing. That it is insolvent. We need to know how does ArawakX solve this issue? That’s what we need to know,” Ms Rolle said. The Securities Commission twice during the September 13 hearing asked, and failed, to get an answer to this question, with the meeting twice temporarily halted so that Mr Parker could speak with his clients - Messrs D’Arcy Rahming senior and junior - privately.

“Does ArawakX have a means of solving the solvency issue that does not involve earning their way out of it? That’s the only question I ask,” Ms Rolle said, with Mr Parker replying: “We will respond to you on that by Friday.” This did not satisfy Ms Rolle, who said the question was a “yes or no” answer, adding: “Do you have a means, do you have a plan for solving this solvency issue that does not involve an earn out.”

Mr Parker began to repeat his previous answer, to which Ms Rolle interjected: “OK, that’s fine. I take that as a ‘no’.” Mr Parker then said: “I don’t think that is a fair conjecture and we reject the premise of the ‘no’, but it is your one question and we appreciate it.”

Ms Rolle tried asking the same question again later in the meeting, addressing Mr Rahming senior directly. However, he remained silent, with Mr Parker doing all the talking and arguing that his client had not been given sufficient time to respond.