Legal Battle Erupts Over SEC’s Proposal for Tracking Americans’ Stock Investments
A legal battle is brewing over the Securities and Exchange Commission’s (SEC) proposal to implement a system that would surveil all stock trades conducted on U.S. exchanges. The SEC’s plan, known as the “Consolidated Audit Trail” (CAT) mandate, aims to provide regulators with a consolidated view of all activity in the U.S. markets. However, critics argue that this plan is a violation of Americans’ civil rights and an unauthorized expansion of government surveillance.
The CAT plan was originally proposed under the Obama administration in 2012 but remained dormant under the Trump administration. It is now being resurrected under the Biden administration, leading to strong opposition from a group of lawyers and retired judges. The New Civil Liberties Alliance (NCLA) filed a complaint on April 16, calling the CAT mandate an unprecedented scheme that infringes on Americans’ Fourth Amendment protections against warrantless government searches.
Peggy Little, senior litigation counsel with the NCLA, argues that the SEC has no statutory authority to implement such a surveillance system. She refers to it as a “vast cache of financial information” that could potentially be abused by the SEC. Scott Shepard, director of the Free Enterprise Project, also expressed concerns about the SEC’s ability to handle this vast amount of financial data responsibly.
On the other hand, the SEC claims that it has the necessary authority to enact the CAT system and argues that it is crucial for protecting investors and preventing financial crimes. The SEC spokesperson states that the commission undertakes its regulatory responsibilities within its authorities.
Former Attorney General William Barr and Senator John Kennedy are among the critics who believe that the CAT plan infringes on Americans’ right to privacy. They argue that while the goals of protecting investors and preventing financial crimes are important, they must be balanced against the extensive infringement on privacy. Barr refers to it as “the single largest government database targeting the private activities of American citizens.”
The CAT plan would reportedly allow more than 3,000 government employees across more than 20 agencies to monitor the personal investment activities of tens of millions of Americans in real time. Barr questions the rationale behind the CAT plan, suggesting that if society accepts it, there would be no reason to confine the government to databases solely on investment activities. He raises concerns about the potential for law enforcement agencies to access various other personal data, such as phone records and automobile data.
Critics are also concerned about the costs associated with setting up and running the CAT program. Brokerage firms will bear the financial burden, but critics argue that these costs will ultimately be passed on to everyday Americans. Additionally, there are worries that collecting private financial information in government databases could make it vulnerable to hackers, especially considering that the SEC itself has been hacked multiple times in the past.
Despite these concerns, some lawmakers believe that the CAT system is necessary to uncover fraudulent activities in the markets. Senator Sherrod Brown argues that while there may be concerns about the SEC having access to such vast amounts of data, it is essential for going after criminals who take advantage of the markets.
As the legal battle over the CAT mandate unfolds, questions remain about the balance between privacy rights and the need for regulatory oversight. The outcome of this legal dispute will have far-reaching implications for Americans’ civil liberties and the future of government surveillance in the financial sector.
