Lawsuit Claims SEC Illegally Surveils U.S. Stock Investors

The New Civil Liberties Alliance (NCLA) has filed a lawsuit against the U.S. Securities and Exchange Commission (SEC), challenging the legality of the SEC’s Consolidated Audit Trail (CAT) program. The NCLA contends that the program, which mandates the collection of detailed trade information from brokers, exchanges, clearing agencies, and alternative trading systems to a centralized database, infringes on the Fourth Amendment rights of Americans. The Fourth Amendment protects against unreasonable search and seizure, and the NCLA argues that the SEC's extensive tracking of personal financial data lacks explicit congressional authorization and constitutes an overreach of its regulatory powers.

The CAT program, initiated during the Obama administration and supported by bipartisan members within the SEC, is designed to enhance the commission's ability to monitor and analyze trading activities to prevent financial crimes and investigate market anomalies, such as the 2010 "Flash Crash." The SEC asserts that the program is necessary for protecting investors and maintaining fair and efficient markets.

Critics, however, raise concerns about privacy and the security of the collected data, suggesting that the information could be vulnerable to hackers. They also argue that the costs associated with the CAT program, funded by fees imposed on brokerage firms, will likely be passed on to investors. The NCLA lawsuit echoes these concerns and additionally questions the SEC's legal authority to self-appropriate funds for the multibillion-dollar program without congressional approval. The case is currently pending in the district court for the Western District of Texas.