Several trade groups, think tanks and Republican attorneys general have filed amicus briefs in support of a lawsuit filed by conservative groups in federal court challenging the Securities and Exchange Commission's consolidated audit trail.
The consolidated audit trail, or CAT, is a single database for all equity and options trades on U.S. exchanges. Broker-dealers were required to begin submitting data to the CAT on trades they execute on behalf of clients — including institutional investors — in 2020.
The New Civil Liberties Alliance, representing the National Center for Public Policy Research and individuals Erik Davidson and John Restivo, on April 16 filed a complaint in U.S. District Court in Waco, Texas, arguing that the SEC’s data collection under the CAT violates the First, Fourth and Fifth amendments, as well as the Administrative Procedure Act.
Many of the briefs filed in support of the plaintiffs’ case asserted that the SEC lacked the authority to establish the CAT and voiced concerns over the database’s security.
“Congress never gave the commission the authority to construct this unprecedented surveillance,” a brief filed by Arkansas Attorney General Tim Griffin said. Eighteen additional Republican attorneys general signed on to the brief.
“The economic value of such centralized detailed information, both commercially and to foreign interests and hackers, cannot be overstated,” the attorneys general added.
A brief filed by the American Securities Association and former U.S. Attorney General William P. Barr made a similar point.
“A data breach could also allow cybercriminals to break into the brokerage accounts of everyday Americans and steal their investments,” they said. “The CAT program clearly violates [the Fourth Amendment’s] limits by collecting private information on tens of millions of investors without any connection to suspected wrongdoing.”
The American Securities Association and Citadel Securities in February filed a separate lawsuit in the 11th Circuit Court of Appeals in Atlanta challenging the CAT's new fee structure.
The SEC in a July filing called on the court to dismiss the National Center for Public Policy Research case and defended the CAT’s constitutionality and necessity.
“The consolidated audit trail is exactly what it sounds like: a consolidated way for the Securities and Exchange Commission and its supervised entities to monitor securities transactions, consistent with their responsibilities under the federal securities laws,” the SEC said.
The agency noted that the CAT does not collect sensitive information like Social Security numbers, dates of birth and account numbers, only minimal personal information, like names, addresses, and birth years, which are “stored separately from transactional data with only limited access for a small set of individuals on a need-to-know basis.”
