R v Rivkin: A Landmark Case in Australian Insider Trading Law
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This article discusses the R v Rivkin case, a landmark case in Australian insider trading law. It analyzes the duties breached by Rivkin, the court's decision, and the impact of the decision on Australian insider trading law.
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Running head: CORPORATIONS LAW Corporations Law Name of the Student Name of the University Author Note
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1CORPORATIONS LAW Table of Contents R v Rivkin [2002] NSWSC 1182; 198 ALR 400; 45 ACSR 366..............................................2 Introduction............................................................................................................................2 Duties Breached.....................................................................................................................3 Analysis of the Decision of Court..........................................................................................5 Impact of the Decision...........................................................................................................8 Reference....................................................................................................................................9
2CORPORATIONS LAW R v Rivkin [2002] NSWSC 1182; 198 ALR 400; 45 ACSR 366 Introduction This case revolves around one of the most complicated yet crucial area of the corporations law, namely insider trading. Insider trading has been one of the most debatable zones of the corporations law (Agrawal and Cooper 2015). It attracted the attention of the judges and academics over the year for its complicated and unclear nature. Insider trading implies the trading of shares and securities by a person who is in possession of confidential information about the same relating to the fluctuations of its price, which is not accessible to public (Bromberg,Gilligan,HedgesandRamsay2016).Judicialpronouncementsinvolving prosecution and conviction owing to insider trading are rare in Australia. There are different notions about insider trading such as addressing it, extent of criminality present in it, various legal considerations regarding it, but all of them are of academic, journal- based, and theoretical in nature (Cui, Jo and Li 2015). Australian Law witnessed a handful of decided cases on insider trading involving the prosecution and conviction for the same. The instant case of R v. Rivkin is one of the very few cases, which resulted in the prosecution and conviction owing to insider trading (Huang and Xuan 2017). The Rivkin’s Case has attracted a considerable amount of attention from the media and the public during its trial as well as the subsequent appeal. The inception of the case lies in the willingness of Mr. Rivkin to sell a property situated in the eastern suburbs in Sydney. Mr. McGowan, who was holding the position of executive chairperson in Impulse Airlines, showed his interest in purchasing the property. Mr. McGowan initiated accordingly to Mr. Doff, the real estate agent and Mr. Dassakis, the manager of the group operations in the Rivkin group of companies for the same, which resulted in a telephone call was arranged by Mr. Dassakis and Mr. Doff, between Mr. Rivkin and Mr. McGowan. Mr. McGowan showed
3CORPORATIONS LAW his interest of buying the house to Mr. Rivkin over that telephone call and presented a conditional offer as he was making efforts to make a sale of his business. On further enquiry, Mr. McGowan informed Mr. Rivkin along with Mr Doff and Mr. Dassakis that there is a proposed merger of the Impulse Airlines with Qantas, which was in process seeking approval from the Australian Competition and Consumer Commission and he assured Mr. Rivkin about the surety of the approval. Mr. McGowan also warned Mr. Rivkin not to buy Qantas shares as he has now received confidential information about the same. However, Mr. Rivkin failed comply with the warning and ended up buying share of 50,000 under the name of Rivkin Invesments, in which he happened to be the sole director owning eleven percent of its shares. Subsequently, those shares were sold yielding a profit of $2,664.94. Afterwards, the merger took place resulting in a further escalation in the share price of Qantas but being already disposed off the shares the Rivkin Investment could not utilise escalation of price. Mr. Rivkin was prosecuted for insider trading in relation to the purchase he made of the shares of Qantas. The New South Wales Supreme Court fined Rivkin with $30,000 and a sentence of 9 month periodic detention. However, an appeal was preferred by Rivkin about the same to the New South Wales Court of Criminal Appeal. The appeal was dismissed and the decision of the New South Wales Supreme Court was being upheld (Overland 2015). Duties Breached In this case Section 1043A the Corporations Act 2001 was violated by Rivkin (Wang 2017). The section prohibits certain conducts of the person who possesses inside information. A person is said to have been involved in the insider trading in case it can be proved that his
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4CORPORATIONS LAW casecontainstheessentialelementsofinsidertrading.Toattracttheprovisionsof Corporations Act, 2001 the following elements must be satisfied: a)A person must have in possession of certain information: b)The information so possessed should not be generally available; c)The information should appear to be of material nature to a person of reasonable conscience; d)The person in possession of the information should have knowledge about the non- availability of the information to general public; e)The person should also have the knowledge regarding the materiality of the information; f)The person should have traded in the securities or suggested another person to deal in that securities being in possession of material information regarding the same (Katselas 2018). In this case, Rivkin was in possession of the information about the merger between the Impulse Airlines and Qantas. This satisfies the first requirement of insider trading. The proposed merger was not available to the public in general as it was awaiting the approval of the ACCC and the probability of the approval was communicated to Mr. Rivkin by Mr. McGowan. Therefore, it meets the second requirement of insider trading. The merger was expected to escalate the price of the shares of the companies. The merger was proposed for that reason only. Therefore, the third requirement of the insider trading was also satisfied. Mr. McGowan informed Mr. Rivkin about the proposed merger and made him aware of the confidentiality of the same, which makes Rivkin to be in possession of the knowledge
5CORPORATIONS LAW about the confidentiality of the information. This ensures the fourth requirement of the insider trading to be present. Mr. Rivkin anticipated the escalation in the price of the share and made the purchases of the shares. This makes the knowledge of Mr. Rivkin regarding the materiality of the information of the proposed merger visible. This makes the fifth requirement of the insider trading to be satisfied. Rivkin made a purchase of shares of Qantas under the name of Rivkin Investments in which he is the sole director. This makes it evident Rivkin has procured another person to buy such shares. Thus, it can be stated that Rivkin has also satisfied the last requirement for insider trading. Therefore, it is evident that in the present case Rivkin has satisfied all the requirements of insider trading. The shares bought by him, though was sold by him before the merger, but the shares were bought by him in furtherance of the information provided to him about the proposed merger. Moreover, the shares he bought yield a profit to him. Thus, it can be stated that Rivkin is violative of the Section 1043A Corporations Act 2001 and is a party to insider trading (Hodgson, Seamer and Uylangco 2018). Analysis of the Decision of Court The decision of the court in this case though a landmark judgment and an irreplaceable contribution towards the Australian Law of insider trading, a certain aspects can be analysed to conceive a better understanding (Wang 2017). In this case, Mr. Rivkin was not in possession of the information directly. He acquired the possession of the information from Mr. McGowan. However, in analysing the concept of insider trading the source of the knowledge is immaterial. The possession of knowledge irrespective of the source if required. Though, the information was available to Mr. Rivkin
6CORPORATIONS LAW thoughMr.McGowan,butforthepurposeofinsidertradingthepossessionofthe information is enough and not the source of the information. Therefore, it can be stated that the court decision was apt with respect to this contention. Another aspect that needs analysis is the general availability of the information. In this case the merger was a confidential information and the confidentiality was specifically mentioned by Mr. McGowan. The merger being in process and awaiting the approval of the ACCC is evidently a confidential information. Therefore, from this aspect also the court’s decision can be regarded as appropriate The materiality of the information is of utmost importance while deciding a case of insider trading. In this case, the question, which arises is the materiality of the information of the merger. The escalation of the price of the share can be anticipated by the occurrence of the merger. In this context the decision of the court in this regard was on point. In insider trading, the knowledge of the person possessing the information regarding the general non-availability of the same must be proved. In this case, being specifically informed by Mr. McGowan, Mr. Rivkin was having the knowledge of the materiality of the same. Hence the court decision can be appreciated under this aspect. One of the most important requirement of insider trading is the buying of share in furtherance of that inside information(Tricker and Tricker 2015). The buying would also come under the purview of insider trading if the person possessing the information has procured some other person to buy the share. In this case, the shares of Qantas were bought under the name of Rivkin Investments. Mr. Rivkin was the sole director of the Rivkin Investments and he directed the shares to be bought under the name of Rivkin Investments. This makes him the buyer of the shares for the purpose of insider trading. Therefore, the court’s decision of rendering Mr. Rivkin liable of insider trading was just.
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7CORPORATIONS LAW However, in the case of Australian Securities and Investments Commission v Petsas (2005) 23 ACLC 269, the court declared the person communicating the information to an outsider is more at fault than the person using the information for insider trading. The court held both the user of the information and the person disclosing the information liable, but the court’s contention was that the person disclosing the information available to him is more liable than the person who receives and thus uses it. This is because the person leaking the confidential information is under an obligation to protect that information as he is in a fiduciary relationship with the company to protect the information but the person utilising the information is not in a fiduciary relationship with the company. In Rivkin’s case, the decision held the person utilising the information to be liable for insider trading. in this case the person leaking the information was not held liable. This decision of the court needs to be analysed under this aspect. In Rivkin’s case, the person disclosing the information stated it in a conversation and specifically communicated it as a confidential information. He also warned Rivkin not to disclose the same. This creates an obligation on part of Rivkin to protect the information. Therefore, in this case Rivkin is the person who misused the information and not the person who disclosed it. Moreover, the Rivkin’s case was the first case involving the prosecution and conviction under the insider trading. The case is an important contribution in the field of insider trading in Australia. The judgement was referred in several cases later. Irrespective of the criticisms present regarding the case, the role of the case in paving the law of insider trading in Australia is indispensable.
8CORPORATIONS LAW Impact of the Decision The Rivkin’s case is one of the very few cases in the area of insider trading (Chang and Wee 2016). There were handful of cases in Australian legal system that ended up in the prosecution and conviction for insider trading (Nam and Yun 2015). The law relating to prosecution and conviction in relation to insider trading was not very clear and appropriate prior to Rivkin’s case. This case provided a landmark judgement in the field of insider trading. Whenever a legislation is not very clear about a situation, the court refers to the judgement laws to address a particular situation (Alexander 2016). The Australian Case Laws were not very clear and ample in the area of insider trading. Rivkin’s case has made the prosecution and conviction under the insider trading more clear. The uncertainty that had prevailed the scope of insider trading has been resolved by this case. It made the requirements of insider trading understandable. It provides an elaborated discussion of the requirements of the insider trading. The decision has the potential to assist other cases of insider trading and helps in the easy understanding of the much debated concept of insider trading. The decision paved the way of the prosecution and conviction regarding insider trading. It has removed the ambiguities prevailing in the insider trading laws of Australia and made a reform in the insider trading law.
9CORPORATIONS LAW Reference Agrawal, A. and Cooper, T., 2015. Insider trading before accounting scandals.Journal of Corporate Finance,34, pp.169-190. Alexander, R.C.H., 2016.Insider dealing and money laundering in the EU: law and regulation. Routledge. Australian Securities and Investments Commission v Petsas (2005) 23 ACLC 269 Bromberg, L., Gilligan, G., Hedges, J. and Ramsay, I., 2016. Sanctions Imposed for Insider Trading in Australia, Canada (Ontario), Hong Kong, Singapore, New Zealand, the United Kingdom and the United States: An Empirical Study. Chang, M. and Wee, M., 2016. The effect of voluntary versus mandatory adoption of trading policies on the returns to insider trades.Pacific-Basin Finance Journal,38, pp.76-87. Cui, J., Jo, H. and Li, Y., 2015. Corporate social responsibility and insider trading.Journal of business ethics,130(4), pp.869-887. Hodgson, A., Seamer, M. and Uylangco, K., 2018. Does stronger corporate governance constrain insider trading? Asymmetric evidence from Australia.Accounting & Finance. Huang, R. and Xuan, Y., 2017. 'Trading'Political Favors: Evidence from the Impact of the STOCK Act. Katselas, D., 2018. Insider trading in Australia: Contrarianism and future performance. Pacific-Basin Finance Journal,48, pp.112-128. Nam, Y.S. and Yun, J., 2015. A study on Comparative Analysis related to Australian Insider Trading Regime.비비비비,22(1), pp.475-502.
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10CORPORATIONS LAW Overland, J.R., 2015. The Criminal Liability of Corporations for Insider Trading in Australia: Proposals for Reform. R v Rivkin [2002] NSWSC 1182; 198 ALR 400; 45 ACSR 366 The Corporations Act 2001 Tricker, R.B. and Tricker, R.I., 2015.Corporate governance: Principles, policies, and practices. Oxford University Press, USA. Wang, J.Q., 2017. A Contemporary Analysis of the Application of Sentencing Factors in Insider Trading Cases.Deakin L. Rev.,22, p.107. Wang, Q., 2017.The enforcement of insider trading laws in Australia: reform proposals(No. PhD). Deakin University.