Worse Than Sexting: Snapchat Could Be Used For Insider Trading

We all know about the seedy underbelly of Snapchat that is sexting, but do we have more to worry about with Snapchat than some naked pictures?  I think so.  What if Snapchat is [being] used for illegal purposes?  The one possibility that has crossed my mind is insider trading.  Based on the information available about the way Snapchat works, it seems like it would be so easy to avoid detection from the SEC and other government agencies.

Snapchat co-founder Evan Spiegel told TechCrunch back in May:

There are many ways to save snaps that you receive. The easiest way is to take a screenshot or take a photo with another camera. Snaps are deleted from our servers after they have been viewed by the recipient.

If snaps are deleted from the company’s servers after they have been viewed by the recipient, what trail of evidence is left? Once the image expires — it seems likely that it’s gone for good. There’s no phone call or text message to tap, trace, or get warrants for.

I imagine it going something like this: an insider Snapchat’s a trader a picture of something, types a message along the lines of: “Short MSFT,” sets the timer for 5 seconds, sends it, it gets seen, and boom — it’s gone, forever.  Meanwhile the trader then places his short on MSFT, the following day, Microsoft announces it’s writing off $900 million in Surface tablets, the stock drops and the trader makes some big bucks.

Any number of scenarios could play out like that.  Let me be clear though, by no means am I saying that this is a foolproof method for insider trading or that the government or SEC would never catch on, but it’s certainly a potential new way to exploit the market and should be watched carefully.

Now, my understanding is that if the government somehow had a feeling you were involved in insider trading and had enough probable cause to get a judge to issue a search warrant for your phone, it is entirely possible that they could recover old Snapchat photos.  The key to that last sentence being “enough probable cause,” as most judges will not issue search warrants for the authorities to go on fishing expeditions against people.  Prosecutors would likely need some kind of financial evidence, an informant, or ways to link the trader to the insider in order to get a judge to sign-off on the warrant.

One thing worth noting is that the same way putting a file into the Trash or Recycle Bin on your computer and emptying it doesn’t mean the file is 100% deleted, the Snapchat data on your phone may still be there until it is overwritten with other data.  If in fact the data is overwritten by the time the government got a hold of your phone, it would be extremely difficult to recover at that point.  Of course, the government could also try to strong-arm Snapchat to letting them monitor their servers for a particular user and see if they could intercept any illegal activity, but depending on how Snapchat feels about that it could be tough to get them to agree without a warrant.

What do you think?  Is this something we should be concerned with?  Let us know in the comments!