Imagine Congress enacting a law providing that every trade you or your broker makes in the stock market must be reported to the Securities and Exchange Commission for storage in a government database. This forced surrender is analytically no different from reporting your shopping to the government, or a requirement that your doctor send your DNA to the FBI, except that the financial stakes are much, much higher.   

These records can be accessed with no warrant by as many as 3,000 people at the SEC and self-regulatory organizations (SRO)—as estimated at a recent Senate Banking Committee Hearing. Worse, your sensitive personal information will sit in a single database ripe for hacking by sophisticated cybercriminals known to operate from China and Russia. Your presumption of innocence and loss of financial privacy are additional casualties.

Would you, Main Street Investor, vote into office any politician who wanted to strip you of your financial privacy and civil liberties, while exposing your retirement and education savings to theft?   

Take a little gasp of relief.  Neither you, nor anyone else in this country voted for anyone in Congress who enacted such sweeping legislation. The SEC has conjured up this lawless Consolidated Audit Trail (CAT) all on its own, without any authority from Congress to do so. And because Congress has neither authorized nor funded such a program, SEC is forcing the SROs to lay out $2 billion to start-up and another $1 billion/year to maintain the CAT, a hidden and unlegislated tax beyond that agency’s power to levy. 

The only rationale offered by the SEC for this multibillion-dollar program is that it will make the SEC’s job as prosecutor easier by giving it a database to scour for possible insider trading. But the SEC has been given no lawful authority to gather this information without a warrant in the first place—nor to extract appropriations to fund its operations from the SROs.   

The rule was enacted by the Obama administration’s SEC in 2010. The plan now in place puts the personal financial trading data of all investing Americans at risk. With no recourse for their losses against an immune sovereign.

2017’s Equifax data breach put the financial data of nearly half of the U.S. population into foreign hands. After the SEC’s belated discovery of its own 2016 data breach, current SEC Chairman Jay Clayton warned in September 2017 “we will face the risk of unauthorized access to the CAT’s central repository … [t]hrough such access, intruders could potentially obtain, expose and profit from the trading activity and personally identifiable information of [American] investors.”    

FBI and intelligence warnings note that Chinese cyberattacks are imperiling the security of financial information throughout the American economy. Yet in the midst of this known and growing threat, SEC persists in its mad plan to assemble all Americans’ trading information in one giant warehouse.  Only one SEC Commissioner, Hester Peirce, has had the courage to say, “This CAT is a dangerous dog.” 

The most pernicious erosions of our civil liberties are those which insinuate themselves through regulations that already constrain our liberties so comprehensively that we no longer recognize them as outlandish and unlawful. 

It is not too late to stop this program.  All it will take is an investor with the fortitude to remind the SEC that it lacks power to enact and fund such a lawless program that imperils the financial futures and security of all Americans.


Originally published in RealClearMarkets on October 21, 2020. 

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