Banker Walks Free From Insider Trading Charge After Deleting WhatsApp

(Bloomberg) -- Konstantin Vishnyak did one thing before he handed the second of his two iPhones to the police officer arresting him: he deleted Whatsapp.

Two years later, a London jury acquitted him of destroying documents that he knew would be crucial to an investigation into his trading activity. The banker admitted removing the application from his phone, but said he did so to keep his friendship with one of the most wanted men in Britain a secret.

Monday's verdict is a blow to the U.K. Financial Conduct Authority, which rarely brings cases to trial and pursued this case after dropping an insider-trading investigation against Vishnyak and two other men. And it raises questions over what financial prosecutors can do when they suspect someone is trying to hinder an investigation.

“It's a difficult offense to prosecute, and more difficult these days because of the way people communicate with each other,” said Tim Thomas, who formerly worked at the FCA on enforcement cases. “If individuals are smart enough to use Whatsapp or Signal and then delete communications, it becomes very difficult to prosecute.”

The FCA needed to persuade the jury that when the 42-year-old banker destroyed the messages, he did so knowing they would be relevant to the investigation.

“I wasn't thinking about that,” Vishnyak said. “I was deleting my private information. This has nothing to do with shares.”

‘More Embarassing'

Vishnyak's lawyer told the jury that the chats contained content that was “far more embarrassing” because Vishnyak was exchanging messages with Andrei Lugovoi, a politician who's wanted by British cops for the poisoning of former Russian security officer Alexander Litvinenko in 2006.

The FCA said the ruling wouldn't change how it approaches prosecutions.

“We will take action whenever evidence we need is tampered with or destroyed,” the FCA said in a response to the ruling.

The case has echoes of another high-profile criminal trial where a jury cleared Rebekah Brooks, and her husband Charlie, of a charge of perverting the cause of justice by hiding laptops and DVDs from the police after phone hacking at the News of the World tabloid triggered a national scandal.

Read More: Brooks's Husband Hid Porn From Police to Avoid Embarrassment

Charlie Brooks said the computers contained pornography, rather than any information that would have influenced the investigation.

And even when prosecutors did get a conviction earlier this year, it wasn't a huge win. A London judge fined the daughter of a billionaire mining mogul 800 pounds ($1,027) for failing to comply with a demand to hand over documents as part of an investigation into her father.

Careful Targets

In choosing its targets, the FCA has to be very careful, said Neil Swift, a white collar-crime lawyer at Peters and Peters. The agency needs more than the simple fact of deletion to bring a case, he said.

“There will be other cases where it's not so clear cut, but having chosen this particular case to pursue, it does leave them with a little bit of egg on their face,” Swift said.

The Vishnyak trial was a bold step for the “risk-averse” FCA, which has historically shied away from bringing large numbers of cases to trial, said Thomas, the former prosecutor who now works for law firm Richardson Lissack. “When they do bring cases, they don't tend to lose.”

The FCA closed more cases than it opened into suspected insider dealing in the year to March, according to its most recent enforcement data. It had a total of 88 cases outstanding.

“The FCA would have known it would turn on whatever Vishnyak's case was,” Thomas said. “But still the FCA is saying: ‘OK, we accept that the technology is not necessarily in our favor but if we are investigating insider trading and you destroy the evidence, we won't just drop it.'”

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