Case Study Of R V Rivkin (2002) NSWSC: Insider Trading Charges

Discuss about the Case Study of  R v Rivkin (2002) NSWSC.

Introduction to Rivkin's case

Rivkin's case received a lot of attention from the media at the time of trial and later on during appeal. As a result, the universal type of the facts is known extensively. In this case, Mr. Rivkin wanted to sell his residence in the Sydney suburbs. For this purpose he had appointed real estate agent, Mr. Doff. On the other hand, Mr. Gerard McGowan was willing to buy the home. Mcgowan was also acting as the executive chairperson of Impulse Airlines. He contacted Mr. Doff and also Mr. Dassakis was the operations manager of the Rivkin’s companies. On 24, April, 2001, both of them set up a telephone call with Mr. Rivkin. During this call, Mr. McGowan told Mr. Rivkin that he wanted to purchase the house and in this regard he was willing to confidentially offer the purchase because at present he was trying to sell his business. When Mr. Rivkin asked for more details, he told Mr. Rivkin, and also to Mr. Doff and Mr. Dassakis that he was doing so merge his airline with Qantas and he was waiting for the nod of approval by the Australian Competition and Consumer Commission regarding the deal. He replied Mr. Rivkin told him that he was of the opinion that ACCC was not going to approve the deal. However, Mr. McGowan told that according to in the approval from ACCC was forthcoming. At the same time, he also told Mr. McGowan, that he could now trade in the shares of Qantas, because of the knowledge that was available with Mr. Rivkin regarding the planned deal amid Impulse and Qantas. Under these circumstances, Mr. Rivkin decided that we will provide a 7 day conditional contract for purchasing the home but ultimately it did not progress. 

However, in a few hours of making the call, Mr. Rivkin asked to SEATS operator working with Rivkin Discount Stockbroking and asked to buy 50,000 shares in Qantas for Rivkin Investments. Rivkin Investments had the only director in the form of Mr. Rivkin. He had a shareholding interest of 11% in the company. Therefore on 1 May, 2001 acting on the instructions of Mr. Rivkin, the shares in Qantas was traded for a profit of $2664.94. On the same day itself, the shares of Qantas Airlines were subjected to a provisional trading stop. A combined declaration was made by Impulse and Qantas that they had entered into a virtual or contractual merger. After the combined statement, a significant rise took place in the share price of Qantas. Because Rivkin Investments had already sold its shares in Qantas before the combined statement, it would not receive the benefits that was the result of the rise in the share price of Qantas, though there was a price rise when the Qantas shares were purchased and sold by Rivkin Investments.

Details of the Trade

Under these circumstances, Mr. Rivkin was accused and prosecuted for insider trading regarding the trade of Qantas shares. After a jury trial and conviction for insider trading in NSW Supreme Court, a fine of $30,000 was imposed on Mr. Rivkin, and he was sentenced to 9 months periodic imprisonment. The maximum penalty that can be imposed in this case was a fine of $200,000 or imprisonment that may go up to five years or both. However, Mr. Rivkin made an appeal against the conviction and sentence in the NSW Court of Criminal Appeal but the conviction as well as the sentence for both upheld. At the same time, Mr. Rivkin was also tried in accordance with section 1002G(2), Corporations Act. This provision has now been replaced by different provisions of Division 3, Part 7.10. 

The main issues related with insider trading that were present in this case included the fact if Mr. Rivkin actually possessed the "information"? It also needs to be seen what was the nature and scope of information that should be possessed by the person. Can such information include the source of information also. Another question was if the information available with Mr. Rivkin was also generally available. It has to be seen if any reasonable person anticipated the information received by Mr. Rivkin to have a significant impact on the price of Qantas shares.

In this case, it was unsuccessfully argued by the counsel for Mr. Rivkin that during that are there was an error of law due to the reason that the information that has been alleged by the Crown to be possessed by Mr. Rivkin was not information for the purpose of "Corporations Act". Mainly this submission was based on the fact that the pertinent knowledge that was available with Mr. Rivkin was not the actual state of affairs that had been exchanged to Mr. Rivkin. However, the fact that it was stated by Mr. McGowan that such conditions were present. Therefore it can be stated that Mr. Rivkin was aware of the facts that had been told by Mr. McGowan regarding the proposed merger deal between Impulse Airlines and Qantas instead of the fact that such a deal was actually present. Therefore, Mr. Rifkin argued that he could possess the information only if he had really known certainly that the offer of amalgamation was certainly existed, which he was not. 

However, the argument was easily discarded by the court. The source of information can clearly influence the apparent dependability of information. It is obvious that the basis of information can be treated as an element of the information. This has been accepted by the court in the Rivkin case. It was stated that the information includes the source and the state of affairs that have been communicated. Therefore it is not unexpected that the decision was made by the court and the proposal was rejected that an supposed insider trader should have information only if he or she had the familiarity that particular conditions was present instead of mere knowledge that something has been said regarding the presence of a certain state of affairs (Tomasic, 1990). It is not necessary that a person should have knowledge of belief in the truth of the information possessed by them before. They are covered by the ban imposed on insider trading. In such cases it is sufficient that the person merely had the information. If knowledge regarding the truth off information was needed, the rumors and Boston's can never be considered as information (Semaan, Freeman and Adams, 1999,). The traders involved in insider trading that takes place on account of a rumour would merely have to argue that they did not necessarily know if the rumor was true and only they have heard the rumour and acted upon it, for the purpose of escaping liability (Whincop, 1996).

Legal Issues regarding Insider Trading

Consequently, share trading on the basis of rumor and speculation would have taken place almost with impunity as in such a case it would become nearly impossible to establish that the individual having the information also knew it to be true. At the same time it would add another layer of complexity to the already difficult issue regarding what was known by the alleged insider trader or what they ought to have known (Gething, 1998). Elaborate tests would be required to be developed in order to decide if the defendant had any knowledge regarding the truth of the information received by them by imposing such further tests the already complex field of corporate law will become more complex.

It is clear that the definition of information also includes the matters of supposition. It is not necessary that information should be specific for precise. The defendant is not required to have actual knowledge regarding the truth of the rumor on any other type of information for the purpose of coming under the scope of insider trading prohibition. At the same time, it has been judicially recognized that information also includes a rumor that something is happening, which is neither believed by the person not disbelieved (Tomasic and  Pentony, 1989). Hence, it can be presumed that information may also include a rumor that something is about to happen, and which is not believed or disbelieved by the person. Keeping about the issue of liability and materiality, when the type of information circulating in the financial marketplace is considered, obviously a distinction has to be made between the following examples of information like the press release address to ASX & by company secretary; statement made by trusted stockbroker that he has heard regarding a company is going to launch a takeover bid for the other company; or, a statement overheard while walking in the street that the brother of the passerby has heard that one company is about to launch a takeover bid for the other company. 

An analysis of the above method is meant reveals that regulations related with insider trading have long been considered as extremely difficult and complex area. The judgment provided in Rivkin’s case can help in resolving some of the complex issues related with the contentious elements of the offense of insider trading. However, consideration needs to be provided to the fact that it is highly desirable that an offense that has been the subject of relatively recent reforms still requires extensive judicial interpretation for resolving the unnecessary uncertainty (Goldwassser, 1999). For instance, the issue is the information should be "readily available" in Australia for the purpose of being considered as the mission generally available can be easily addressed and resolved by making an amendment to the Corporations Act. It should not be required that we have to rely on the courts for resolving the uncertainties that are present when the legislation fails to clearly express the necessary elements of the offense of insider trading (Black, 1992). Unfortunately as a result of the question marks , which is still present regarding the issue, cases like Rivkin will continue to be considered as the key to reform and resolution.

Arguments against the Charges

Therefore in the end, it can be stated that the judgment delivered by the NSW Court of Criminal Appeal in Rivkin case should be considered as a welcome and much-needed pronouncement regarding the state of law related with the offense of insider trading. There are only a few decided cases relate to this area of law, particularly involving successful convictions and prosecutions after a plea of not guilty. At the same time, the Rivkin's also provides a rare chance for the judicial review of the offense of insider trading that has long been considered as an extremely difficult offense for prosecution.

However, the uncertainty that is present regarding the meaning and scope of "generally available" and "readily observable" is still present. In order to achieve certainty, this issue needs clarification in future. In the same way, while it is helpful that it is now clear that the test to decide what the alleged insider trader "ought to have known reasonably" is mainly subjective in nature, the application of the test may be clumsy and convoluted. Therefore it is also desirable that the issue should also be simplified in future. Despite the presence of such criticism, the pronouncements made by the NSW Court of Criminal Appeal in Rivkin's case should significantly help in understanding and and allies in the insider trading legislation. The additional clarity provided by the judgment delivered in Rivkin's case will hopefully help in making sure that the elements of the offense of insider trading understood in a better way.

Therefore, even if it cannot be stated that all the uncertainty related with the offense of insider trading has been resolved, but the clarification provided in Rivkin's case can help in alleviating some of the perceived difficulties related with successful prosecution of insider trading. 

References

Black, A., 1992, The Reform of Insider Trading Law in Australia, 15 UNIVERSITY N.S.W. L.J. 214  

Gething, M., 1998, Insider Trading Enforcement: Where Are We Now and Where Do We Go From Here?, 16 COMPANY S.L.J. 607  

Goldwassser, V., 1999, The Enforcement Dilemma in Australian Securities Regulation, 27 AUSTRALIAN B.L.R. 482

Semaan, L., Freeman M and Adams, M., 1999, Is Insider Trading A Necessary Evil for Efficient Markets?: An International Comparative Analysis, 17 COMPANY S. L. J. 220  

Tomasic R and  Pentony, B., 1989, The Prosecution of Insider Trading: Obstacles to Enforcement, 22 Australian N.Z.J.C. 65

Tomasic, R., 1990, Corporate Crime: Making the Law More Credible, 8 Company S. L. J. 369  

Whincop, M., 1996, Towards a Proprietary Rights and Market Microstructural Theory of Insider Trading Regulation – The Case of Primary Securities Markets Transactions, 7 Journal B.F.L.P. 212