The SEC’s proposal to create a detailed database of Americans’ stock investments, known as the Consolidated Audit Trail, has sparked a significant legal battle over privacy violations.
By yourNEWS Media Newsroom
The Securities and Exchange Commission’s (SEC) initiative, the “Consolidated Audit Trail” (CAT), designed to comprehensively monitor U.S. market activities, has encountered strong opposition due to concerns over privacy violations. Announced in September 2023 by SEC Chairman Gary Gensler, the CAT aims to provide regulators with a detailed view of all orders in exchange-traded securities, addressing gaps in current regulatory capabilities.
Initially proposed during the Obama administration in 2012 and dormant under the Trump administration, the CAT has been reactivated under President Biden’s leadership. The plan, however, is now facing a lawsuit initiated on April 16 by the New Civil Liberties Alliance (NCLA), which has described the mandate as “an unprecedented scheme” by the SEC to amass a massive amount of personal financial data on U.S. citizens.
According to the NCLA, the CAT extends the government’s surveillance reach, exceeds the SEC’s regulatory authority, and violates the Fourth Amendment, which protects against warrantless searches. Senior Litigation Counsel Peggy Little from the NCLA criticized the plan as a surveillance system without legitimate justification. Scott Shepard, director of the Free Enterprise Project, echoed these concerns, highlighting the potential for abuse of the vast financial data the SEC would collect.
Despite these objections, the SEC maintains it possesses the requisite authority to implement the CAT system, asserting its necessity to prevent financial crimes and enhance market oversight. The agency referenced the 2010 “Flash Crash,” a rapid market plunge that erased $1 trillion in market value, as a key example of why such a system is crucial.
Critics, including former Attorney General William Barr, have articulated their concerns in various platforms, such as a recent Wall Street Journal op-ed, arguing that the CAT represents an overreach into the private financial dealings of American citizens. Barr contends that the rationale behind the CAT could lead to further invasive government surveillance practices across different personal data realms.
The plan has also faced criticism in Congress. Senator John Kennedy (R-La.) characterized the SEC’s approach as invasive in a Washington Examiner op-ed, suggesting that the agency’s role should be to protect investors rather than monitor their every transaction. Meanwhile, potential contractors like Google and Amazon are reportedly vying to create what could become the largest database in U.S. history to comply with the SEC’s directive.
The costs of implementing and maintaining the CAT are expected to be substantial, with brokerage firms bearing the initial expenses—costs likely to be passed on to consumers, adding a significant financial burden on American investors. Additionally, concerns about data security persist, given the SEC’s history of being susceptible to hacking.
In defense of the system, Senator Sherrod Brown (D-Ohio) argued in a 2019 Senate Banking Committee statement that the potential benefits in uncovering and preventing financial crimes outweigh the risks associated with data security challenges.