Two days before Christmas in 1994, Rene Rivkin launched his cunning plan. He had been turning different stratagems over in his mind for a year before he settled on this one and he was comfortable he had hit on quite the little subterfuge. While it had taken a bit of organising, his plan was now running like clockwork so Rivkin decided to celebrate with a little breather in California for two weeks with Gordon Wood and a few friends.
Rivkin had worked out how to raid the cookie jar. He had not had too many choices. The only solution for his money problems was to sell his Offset Alpine shares; however, finding a buyer would be difficult. He decided his best option was to sell his shares back to the company. This would not be a simple affair. The principle of share buybacks is that they must benefit all shareholders equally, which didn’t suit Rivkin at all. In addition, at that time, it was illegal for directors of a company to sell their shares into a buyback. Rivkin planned to get around this in a couple of steps. First he would sell parcels of the Offset shares he owned in Australia to his Zurich accounts at Bank Leumi and EBC Zurich. Then, from the anonymity of Switzerland, Rivkin would sell the shares back into Offset Alpine’s buyback scheme. It was a long circle from Sydney to Zurich, then back again, to transfer the money from Rene’s public company to Rene’s Swiss bank account, then to Rene’s private pocket. No one would suspect a thing. It was terribly cunning. Unhappily, it was also a little predictable.
Rivkin’s plan was similar to all the other cunning plans, with minor variations, that he had been using for years. ‘That’s the thing about Rene, he always used the same modus operandi, time and time again,’ a regulator later commented. Rivkin didn’t care. He had been doing this sort of thing for twenty-five years and had grown blasé about the risks of discovery. His position was actually quite precarious; it wouldn’t be difficult to uncover, if regulators ever looked seriously at the Bank Leumi shareholding. Remarkably, so far no one had.
ASX Surveillance had reported its suspicions about Rivkin’s link to Leumi in 1990 but nothing followed. That was the dreadful secret of share trading in the 1990s—few people ever looked at the offshore cash trail. For much of the decade, regulators put market manipulation cases in the too-hard basket and offshore accounts were a no-go zone. Meanwhile, a whole community of Australian expats had set up shop in Monaco, ready to help Australian investors. Journalist Ali Cromie once asked Richard Weisener why people lived in Monaco. He said, ‘It begins with T and ends with X, and it isn’t short for tuxedo.’
The first time that regulators had tried to tackle market manipulation involving offshore holdings had been a costly fiasco. In 1987, the National Companies and Securities Commission made an unacceptable conduct finding in regard to trading in Elders IXL during one of John Elliott’s trickier manoeuvres. Elders had challenged the finding in the courts and the NCSC had been mauled. The National Crime Authority reopened the case in 1989 and spent the next decade chasing Elliott over a series of Swiss bond deals. The NCA applied for bank documents from the Swiss in 1991, only to find when it got them that it needed to ask for more records. By the time it got this second round of documents from the Swiss in 2000, the case was closed. The NCA had brought charges against Elliott, Weisener, Bob Cowper, Ken Jarrett and the rest of the Elders boys in 1995. Jarrett went to prison after he pleaded guilty and testified against his former colleagues. The cases against the rest of them were dismissed.
When the Australian Securities Commission (today known as the Australian Securities and Investments Commission) came into operation in January 1991, it faced an avalanche of cases pending from the wild days of the 1980s. The ASC’s first chairman, Tony Hartnell, issued a list of sixteen priority cases the ASC would focus on. His decision was understandable: the ASC had limited resources and desperately needed some convictions to prove its credentials. The ASC was also restricted by the need to refer all criminal matters to the federal Director of Public Prosecutions office, which took a far more conservative view of ASC cases. The ASC concentrated on black-letter law issues like fraud, breaches of a prospectus or acting dishonestly. Market manipulation cases were far more slippery. In the meantime, senior ASC figures went public with their belief that the Australian share market was almost entirely free from the insider trading and market abuses found on overseas exchanges. One ASC chairman confessed he had never heard of Richard Weisener. The only public figure who talked about widespread insider trading was Rene Rivkin.
At the start of 1995, Sydney society was at a tipping point. The most momentous change began on Macquarie Street. In the weeks before the state election in April, Labor leader Bob Carr did a deal with John Hatton and the independents, who held the balance of power in the Legislative Assembly, to set up a royal commission into the police force, chaired by James Wood. Stories about police corruption have always been endemic to Sydney. It is a truth that politicians rarely say, and never wish to hear. The Wood Royal Commission would change all that, at least for a time, with its regular video footage of policemen caught taking bribes. There was no real comparison with the share traders at the other end of town—there was no suggestion of corruption among corporate regulators and, while a lot of market behaviour might raise eyebrows, it was not necessarily illegal. But the two ends of town did have one thing in common: abuses had flourished in a culture of suspended disbelief. When it came to talking about offshore market scams, as with the more sensational corruption profiled by Wood, few people were listening. Yet this too would change.
Rivkin remained oblivious. In December 1994, he opened a discount broking operation, Rivkin Croll Smith, which would stand in the market to buy Offset Alpine stock as part of the buyback. Rivkin had transferred $500 000 from his EBC Zurich account to fund the new business (when ASC asked him about this later, he said that it was a loan from a Swiss businessman he knew called Marco Baruch, a name which does not appear on any Swiss phone records). The first share trades in the buyback went through on Friday 23 December. Rivkin Croll Smith paid $148 000 to Rivkin’s EBC Zurich account for 92 900 shares, with another 30 000 shares from Bank Leumi for $50 000.
It was as easy as that—Rivkin could sell his shares to his company any time he wanted. It was like a private money tap. He didn’t even have to be in Sydney for it to work. After Christmas he and Wood flew to Los Angeles to spend a fortnight at the Bel-Air in Beverley Hills with half a dozen of the young men from Joe’s Cafe. From there Rivkin instructed other brokers to put a sell order on Offset shares owned by Bank Leumi. He then called Rivkin Croll Smith with instructions to buy the shares that had just come on offer into the buyback. In this way, on 6 January, he sold 400 000 shares from his Stilton account into the buyback for $700 000. Unfortunately, when you’re managing things from that far away it’s easy to overlook something. One of the rules for a buyback is that a company can’t buy shares at a price that is more than 5 per cent above the previous day’s closing price. When Rivkin Croll Smith bought the Leumi shares for $1.75, it breached the 5 per cent limit by one cent. It was a tiny mistake but the ASX runs an automated monitoring system that is programmed to catch such errors. The computer picked up the breach of the buyback rules and issued an alert. Rivkin knew nothing of this as he continued to cream money from Offset Alpine. The buybacks continued through January, then on 9 February they stopped. Perhaps Rivkin wanted to take a break. Perhaps he felt the first signs that someone was watching him.
It had all turned out swimmingly for Gordon Wood. The nasty moment back in November, when both Tony Byrne and Rivkin had backed out of the deal to buy the apartment in Macleay Street, had now been turned around through the intervention of that prince of fellows, Graham Richardson. Previously Rivkin had already paid the deposit and, in late November, Wood told Tony Byrne, ‘I had lunch with Graham Richardson and Rene today. Graham and I talked Rene into buying it. We said, “Why lose $27 000 plus stamp duty?”’
Rivkin bought the apartment in Wood’s name secured by a mortgage, and Gordon was back in favour. When Wood returned from Los Angeles with Rivkin on 14 January, he and Caroline moved into the new apartment and held a house-warming party. Tony Byrne wasn’t invited but otherwise all was as before, for January through most of February.
Caroline told her father, ‘You know Daddy, Gordon expects that Rene will look after him the way he looks after George with gifts and bonuses.’ Tony Byrne had been told repeatedly by Gordon about the huge bonuses and gifts that he would receive from Rivkin. This seems to have been Wood’s code for the secret $500 000 bequests Rivkin had made for George Freris at Bank Leumi and for Wood at EBC Zurich.
Wood was playing in a dangerous crowd. A young photographer on the fringe of the group at Joe’s Cafe, Brett Cochrane (now known as Basquali), would say later, ‘[Rivkin] was very, very generous. But I think it was all about control over people. He had half a dozen guys, all at his beck and call. I know a good analogy: it was like a bunch of seagulls, waiting for a chip.’
One day in late February, Caroline told her father of a sudden change: ‘Gordon has come home from work very angry. Rene is very depressed and doesn’t want Gordon to see him.’ The position worsened in the days that followed. ‘Rene is still depressed because of me and he is trying to drive a wedge between us,’ Caroline told her father. ‘Rene believes I know too much about his business and private life and especially his relationship with George. Gordon is really worried. Even if we got married, Rene would not come to the wedding.’
By late March, the position had become critical. Wood came home and spent three days in bed with his head under the sheet. ‘Gordon has come home from work—he’s absolutely destroyed,’ Caroline said. ‘Rene has told him he won’t be able to give him the home unit, any bonuses or anything else.’ Caroline may not have known it, but Wood had much more to lose in Switzerland if Rivkin cancelled his bequest.
Tony Byrne told Caroline he was concerned for her. According to his diary notes, she replied, ‘You don’t have to worry, Daddy, Gordon loves me, he would not hurt a hair on my head.’
Tony Byrne visited the couple, and asked what had happened to Rivkin. ‘What’s wrong with the man?’ Tony asked of Wood. Gordon Wood said the problem with his boss was all Tony’s fault, for the way he had haggled over buying the apartment back in November. ‘It’s not the money he’s depressed about,’ Wood said of Rene. ‘It’s the ego. You’ve destroyed his ego.’
Later again, Caroline told Tony, ‘Daddy, Gordon may not have a loan much longer.’ Wood echoed this concern with Caroline’s father: ‘I’m concerned about my only asset, my motor vehicle. I am considering transferring it into my mother’s name.’
It could well be that Rivkin was suddenly overwhelmed by anger and depression about buying an apartment three months before, despite seeming entirely comfortable with it during the intervening time. But, in late February, Rivkin had other worries that Wood didn’t mention.
Jim Berry had run the shadow world of ASX Surveillance for eight years. A major part of his job was to educate regulators, ASX officials and journalists about how market scams worked and why surveillance was even necessary. With time had come a grudging realisation by brokers and fund managers that, when Surveillance came knocking on the door, it was best to be helpful. The ASC was also paying more attention. It had begun to second ASC investigators to work with Berry’s people for training. One of the first of them was Peter Dumas.
When the ASX computer program picked up the mistake in the Offset Alpine share buyback on 6 January, nothing happened immediately. It was, after all, a minor technical breach. However, it had piqued Berry’s interest and he now began looking at the Offset Alpine trading. Through February, Berry traced the outlines of what looked like a circular trading pattern in Offset Alpine (OAP) shares between Rivkin, FAI, Bank Leumi and the buyback scheme that Rivkin Croll Smith was operating. Berry had an analyst sort through the trades while he wrote to Philip Croll, the managing director of Rivkin Croll Smith, for some routine details about the trades. Croll replied on Monday 27 February. Three days later, Berry wrote to Croll again, thanking him for his response and asking for copies of all buy and sell orders for OAP stock since 12 December. He also asked for details of ‘all clients who have traded in OAP during this period for whom you operate a discretionary account or have acted with any discretion whatsoever, irrespective of how limited, in relation to OAP’. The hook here was that Berry was asking a very specific question in the guise of a broader query. It was a simple request for the paper trail that all broking houses must maintain when it comes to discretionary trading.
The following Monday, Croll wrote back:
Dear Jim,
Please find enclosed the information that you have asked for.
Rene Rivkin has authority to operate on the accounts of:
1. EBC Zurich AG A/C 081500 Attention Axel Fundulus, CH 8027 Zurich Switzerland.
2. Bank Leumi A/C 020600 34 Clarendon Strasse [sic] Zurich Switzerland. Attention: Ernst Imfeld.
Croll went on to mention that one of his young children had a small parcel of OAP shares, but the decision to buy was all their own. A little light humour with the regulator. And that was that. Philip Croll is a straight shooter, who had no idea what he had done—he had tied Rivkin to the Swiss shares. Rivkin had authority to operate the accounts, which meant he was an associated party linked to more than 20 per cent of Offset Alpine’s share register. It was what Berry had always suspected. Now he had a case to take to the ASC.
Croll would come to regret his lighthearted note to Berry. Three months later, when it all became public, he told me he had got it all mixed up. He concluded: ‘I think you’ll find that a little bit of knowledge can be a dangerous thing.’ Berry, meanwhile, was feeling his way forward carefully, tracing the route of every Offset Alpine share trade in the previous three months.
Change was in the air that month in Sydney. On 25 March Bob Carr defeated Liberal Premier John Fahey in the state election, while on 30 March the Super League war broke out. In motel rooms across the country, lawyers for Super League and for the Australian Rugby League fought each other, armed with chequebooks and seemingly limitless access to Murdoch and Packer money.
The ASX investigation inched forward. On 5 April Berry signed off on a formal referral to the ASC, which suggested that Rivkin had breached the substantial shareholder provisions of the Corporations Law. By chance, the investigator who picked up the brief was Peter Dumas, who had just returned to the Commission from a stint working at ASX Surveillance. Dumas was one of the few ASC staff who was familiar with Berry’s way of working. He immediately issued notices to a string of Australia nominee companies that held Offset shares, asking them to identify who owned the shares. The answer came back within days: all of the shares in the nominee companies were owned by Leumi and EBC Zurich. Leumi owned 16.9 per cent of Offset Alpine, while EBC Zurich owned 22.2 per cent. Bingo. A staggering 39 per cent of Offset was secretly controlled through Zurich. Dumas now addressed his inquiries to the two Swiss institutions.
Across at Potts Point, life had suddenly taken a dramatic turn for the better for Gordon Wood. Caroline told her father that ‘Gordon has a plan’ to handle Rivkin. ‘He knows how to get around him,’ she said. Indeed, in the first two weeks of April, Wood’s relationship with Rivkin improved dramatically. Rivkin gave Wood $1500 to buy a television. Wood ordered a new built-in wardrobe for the apartment, a new lounge and dining room furniture. And then there was the money. They were driving along in the car—Rivkin, Caroline and Gordon—and Rivkin said, ‘If you’ve got an economics degree I’ll give you $1000.’
So Wood said, ‘I’ve got an economics degree.’
That was the way it went when you were back in Rene’s good books. It was a foreign world to Caroline and Tony Byrne and they had no yardstick to measure it by. Rivkin’s abrupt mood switch in February—his depression, his dismissal of Gordon Wood and the references to what Caroline might know—had coincided with the onset of the ASX investigation. Surveillance was contacting people across the market, poking and prodding to tease out the mystery of the OAP share trading. Much of this got back to Rene. By now it was clear that his assistant was highly indiscreet. He had bandied about comments the previous year about the Offset fire being a set-up and had even tried to set up his own insider trading scam. With the spotlight on Rivkin, Wood had become a liability.
The prospect that Rivkin would dump him appalled Gordon Wood. At one stroke the high life, the expensive cars, the apartment, the relationship—everything that he had longed for, and finally achieved a year before—would be gone. He was reduced to planning ways to cheat Rivkin out of reclaiming the car, hiding it in his mother’s name. Wood found himself needing to assure Rivkin of his loyalty and of Caroline’s, whom he was now calling on her mobile up to ten times a day to reassure himself where she was.
And then the little problem was over and Wood was back in favour. The change of heart coincided with the ASC’s discovery of the Swiss shareholdings. Whatever drove the dynamics of the relationship between Rivkin and Wood, with an ASC investigation now inevitable there were pragmatic reasons for Rivkin to keep Wood on side. On Thursday 27 April, Tony Byrne wrote in his diary something Caroline had told him that day: ‘Rene and Gordon are going to Europe in about a week’s time. It’s something to do with a printing company. Zurich and London. To take two weeks.’
On 21 April, Berry at Surveillance had updated his formal referral to the ASC. His team had it all—the trades between Rivkin and Zurich, Zurich and FAI, and Zurich and the buyback. But it would be eight years before their work was vindicated. The day before, Peter Dumas at the ASC had sent by fax and express letter secondary Section 719 notices to Leumi and EBC Zurich, requesting details of their shareholdings. EBC wrote back that under Swiss law it was not able to identify the clients who owned its Offset shares. Leumi ignored the ASC letter. On 26 April, ASC faxed Leumi and EBC Zurich that it was about to begin court action to force the Swiss to reveal the real Offset shareholders. Caroline Byrne learned of the Swiss trip the following day, while Leumi and EBC stalled for time. EBC told ASC that its client manager, Axel Fundulus, was away, then on 3 June Fundulus wrote to the ASC that, ‘We are contacting clients from all around the world to get instructions and require another 14 days to get back to you.’
It was too late. That morning I received a tip off from a regulator that someone should be in Federal Court that afternoon. That was how my colleague Kate Bice and I were there to report when ASC lawyer Peter Riordan, who had overall carriage of the Offset matter, made an ex parte application before Justice Hill to freeze the mystery shares. Riordan said the ASC had traced over 38 per cent of Offset Alpine’s shares to Bank Leumi and EBC. ‘The concern of the ASC in the context of a buyback is that the market cannot be properly informed when such a large shareholding is a black box,’ Reardon said.
The newspapers had a field day. Here was a company that was already the butt of Kerry Packer’s comment about its ‘very good fire’. Now it turned out that the chief beneficiaries of the insurance payout were anonymous investors hiding behind Swiss banks. Rene Rivkin was denying any suggestion that he had discretionary power over the Swiss accounts. In fact, although he had bought the 38 per cent of the company for the Swiss investors, he said he had no idea that they held quite that much of the company for which he was chairman. He had filled the black box, but he didn’t know what was in it or who owned it.
With the matter adjourned, Rivkin flew to Zurich on Sunday 7 May. Passport control passed the details to the ASC, along with the details of his travelling companion. By Monday, regulators were making calls, looking for details on someone called Gordon Wood. The only hits in the newspaper databases were a reference to him in Jeni Porter’s CBD columns in the Sydney Morning Herald, which referred to Wood as some sort of personal assistant to Rivkin; and a more obscure item in September 1994 about the view from the School of Visual Arts at 105 Crown Street, next to the City Gym. One afternoon the previous October, a group of students had spied Rene Rivkin on an apartment balcony on the building opposite, 118 Crown Street, climbing into a jacuzzi for a relaxing bubble bath. ‘There was even a man servant to hold the robe and cover the spa—presumably Rivkin’s ever present mobile-phone-answering chauffeur Gordon Wood,’ Porter wrote. Now the ASC was focusing on black boxes, Swiss shares and jacuzzis. Was Gordon Wood with Rivkin as a personal assistant, or was he there to hold the towel?
With Rivkin out of the country, Peter Riordan began conducting Section 19 examinations of Offset Alpine’s directors and major shareholders. The first was Andrew Lakos, who had run Rivkin’s back office through the 1970s and ’80s. Lakos said he didn’t know anything about Swiss bank accounts. Rodney Adler was called in. So was Trevor Kennedy, on 18 May. Eddie Obeid wasn’t available, even if Riordan had wanted to speak to him. He had had a cardiac bypass on 12 April.
Rivkin and Wood were in Zurich for only five days before flying out on 12 May. ‘I decided to go to London and spend the next ten days there or something,’ Rivkin later told the ASC. Wood telephoned Caroline Byrne from Rivkin’s palatial apartment, which took up an entire floor in a building at St James. Tony Byrne was with Caroline at the time and remembers her asking Wood why he was whispering. Wood told her he had to be very quiet because it was only a one-bedroom apartment. He had been sleeping on the sofa and Rivkin was asleep in the bedroom. Like much else that Wood said, this too was a fiction.
Rivkin and Wood flew back to Zurich briefly—‘They called me back . . . they invited me to come back for half a day, sorry, for an overnight,’ Rivkin told the ASC—then returned to Sydney on Saturday 27 May. Riordan and his team were waiting.