Case Study of R v Rivkin [2002] on Insider Trading & Corporations Law

This case study delves into the R v Rivkin case, a landmark judgment in Australian Corporations Law concerning insider trading. It examines the circumstances surrounding Mr. Rivkin's purchase of Qantas shares based on confidential information about a merger, analyzing the breaches of ...Read More

Running head: CORPORATIONS LAW
Corporations Law
Name of the Student
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Author Note

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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

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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, Hedges and Ramsay 2016). Judicial pronouncements involving
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

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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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case contains the essential elements of insider trading. To attract the provisions of
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

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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

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though Mr. McGowan, but for the purpose of insider trading the possession of the
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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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.

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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.

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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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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.