New Civil Liberties Alliance Sues SEC Over Alleged Illegal Collection of Investor Data

The NCLA sues the SEC over its 'Consolidated Audit Trail' program, alleging it illegally collects personal financial data on U.S. stock market investors without congressional approval, violating privacy rights.

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Shivani Chauhan
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New Civil Liberties Alliance Sues SEC Over Alleged Illegal Collection of Investor Data

New Civil Liberties Alliance Sues SEC Over Alleged Illegal Collection of Investor Data

The New Civil Liberties Alliance (NCLA) has filed a lawsuit against the Securities and Exchange Commission (SEC), alleging that the agency's 'Consolidated Audit Trail' (CAT) program illegally collects detailed personal financial data on every U.S. stock market investor without congressional authorization, violating the Fourth Amendment. The lawsuit, filed in April 2024 in the Western District of Texas, labels the CAT initiative as the most extensive government-mandated collection of personal financial data in U.S. history.

The CAT plan, originally proposed in 2012 but dormant under the Trump administration, is being resurrected under the Biden administration. The NCLA argues that the plan exceeds the SEC's authority and infringes on Americans' privacy rights. "The CAT program is an overreach of the SEC's authority and a significant privacy concern, as it allows the government to conduct warrantless searches of Americans' private financial activities," the lawsuit states.

According to the NCLA, the SEC is forcing brokers, exchanges, clearing agencies, and alternative trading systems to send comprehensive information on every investor's trades to a centralized database, which the agency can then use to track and monitor investors' financial activities. The lawsuit argues that this mass collection of personal financial data exposes Americans' savings and investments to "grave and perpetual risk."

The SEC maintains that the CAT system is necessary to protect investors, prevent financial crimes, and investigate market events like the 2010 'Flash Crash.' The agency claims it has the necessary authority to implement the program, which would allow more than 3,000 government employees in over two dozen agencies to track the personal investment activities of tens of millions of Americans in real-time.

Why this matters: The lawsuit raises important questions about the balance between regulatory oversight and the protection of privacy rights. The outcome of this case could have significant implications for the extent to which government agencies can collect and monitor citizens' personal financial data without explicit congressional approval.

Critics argue that the extensive costs of the CAT program, which will be passed on to ordinary American investors, amount to an unlawful tax that was never approved through a democratic process. Former Attorney General William Barr has also criticized the SEC's argument, stating that the Fourth Amendment requires the government to "jump through hoops" when seeking to access private information, rather than allowing agencies to avoid these requirements to make investigations easier.

Key Takeaways

  • NCLA sues SEC over 'Consolidated Audit Trail' program, alleging illegal data collection
  • CAT program allows gov't to track personal investment activities of millions of Americans
  • NCLA argues CAT exceeds SEC's authority, violates 4th Amendment privacy rights
  • SEC claims CAT necessary to protect investors, prevent crimes, investigate market events
  • Lawsuit raises questions about balance between oversight and privacy, with significant implications