A lawsuit has been initiated against the US Securities and Exchange Commission (SEC) by a conservative think tank along with two individual investors, arguing that the SEC's latest market surveillance initiative, the Consolidated Audit Trail (CAT), infringes upon constitutional privacy rights.
The legal action, filed in a federal court in Waco, Texas, spearheaded by the National Center for Public Policy Research, contends that the SEC overstepped its bounds by developing the CAT, a comprehensive database designed to collect a vast array of trading data across the United States.
This lawsuit claims the CAT subjects American investors to invasive surveillance, baseless seizures, and searches, potentially scrutinizing millions. It seeks to have the CAT deemed invalid and its collected data wiped clean. This follows a similar legal challenge by Citadel Securities and the American Securities Association, focusing on the SEC’s funding strategy for the CAT and raising privacy concerns, a point of contention for many conservatives.
Despite reaching out, the SEC has yet to comment on the recent lawsuit. However, in response to the lawsuit from Citadel Securities, the SEC dismissed the claims as baseless, defending the CAT as a crucial evolution of its regulatory capabilities while ensuring personal data protection limits are in place. The SEC criticized the portrayal of the CAT as a tool for monitoring Americans' financial activities.
The lawsuit from Texas highlights fears that the CAT allows the SEC to inspect private investment decisions and view entire investment portfolios, potentially assessing the personal values and ethics guiding Americans' investment strategies. It argues that the CAT contravenes constitutional rights to free speech and protection against unwarranted searches and seizures.
Introduced in 2010 following the brief disappearance of nearly $1 trillion from US stock values during the "flash crash," the CAT aims to provide the SEC with a real-time overview of market activities to detect irregularities and misconduct more efficiently.
The SEC contends that the CAT modernizes the previously challenging task of tracing orders from their origin to execution, a process made obsolete by the speed and automation of current market operations.
The case, known as Davidson v. Gensler, is currently pending in the US District Court for the Western District of Texas, located in Waco.
