The Securities and Exchange Commission (SEC) is facing a new lawsuit alleging that the agency is illegally collecting data on every citizen who invests in the stock market. The New Civil Liberties Alliance (NCLA) filed the suit Tuesday, claiming that the SEC’s “Consolidated Audit Trail” (CAT) program is collecting vast amounts of personally identifiable data without authorization from Congress and in violation of the Fourth Amendment.
According to the lawsuit, the SEC is forcing brokers, exchanges, clearing agencies, and alternative trading systems to capture and send detailed information on every investor’s trades in U.S. markets to a centralized database. The NCLA calls the CAT program “completely unlawful” and warns that it puts Americans’ financial data at “grave risk.”
Peggy Little, NCLA senior litigation counsel, stated, “By seizing all financial data from all Americans who trade in the American exchanges, SEC arrogates surveillance powers and appropriates billions of dollars without a shred of Congressional authority — all while putting Americans’ savings and investments at grave and perpetual risk.”
The lawsuit, filed in the district court for the Western District of Texas, describes the CAT program as “the greatest government mandated mass collection of personal financial data in United States history.” It challenges the SEC’s “shocking arrogation of power to impose dystopian surveillance, suspicionless seizures, and real or potential searches on millions of American investors.”
Little emphasized that the SEC collects and stores in its database every trade information on every investor’s trades from inception to completion, including funds like 401(k) or 529 Education Fund. She argued that there is no law that permits the SEC to do this and that the Fourth Amendment forbids it.
The lawsuit also highlights the financial burden on American investors, as the multibillion-dollar CAT program is paid for by fees extracted from brokerage houses, which are then passed on to their customers.
In response to the lawsuit, a spokesperson for the SEC stated that “the Commission undertakes its regulatory responsibilities consistent with its authorities.”
Former Attorney General William Barr, in an op-ed published Monday in The Wall Street Journal, argued that the SEC’s justification for the CAT program – that it could investigate things more easily if it weren’t limited to gathering investor information on a case-by-case basis after suspected wrongdoing took place – goes against the very purpose of the Fourth Amendment, which is designed to make the government less efficient by requiring it to jump through hoops when seeking to delve into private affairs.
As the legal battle unfolds, the SEC’s data collection practices and the constitutionality of the CAT program will be scrutinized, with potentially far-reaching implications for the protection of Americans’ financial data and privacy rights.
